Wholesale and NDC Freddie Mac Conforming and Super Conforming
Contents Introduction ...... 2 Assets ...... 3 Borrower Eligibility-General Eligibility ...... 14 Borrower Occupancy ...... 22 CEMA ...... 25 Collateral ...... 27 Credit/Ratios/Liabilities ...... 58 Disclosures and State Specific ...... 70 Income ...... 72 Interested Party Contributions ...... 98 Loan Limits and Product Codes ...... 101 LPMI Product Codes and Loan Limits-Lender Paid Single Premium Mortgage Insurance ...... 107 Maximum Number of Financed Properties ...... 111 Mortgage Insurance ...... 113 Relief Refinance Mortgages Open Access – Conforming Loan Amounts ...... 115 Mortgage Eligibility-Refinance Transactions ...... 123 Mortgage Eligibility-Qualified Mortgages /Ability to Repay ...... 127 Secondary Financing ...... 130 Texas (A)(6) ...... 136
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Introduction
The FCBM Underwriting Manual sets forth the detailed guidelines, requirements, terms and conditions governing the day-to-day operation of FCBM’s Wholesale Program, including the guidelines, requirements and criteria applicable to the suite of mortgage products that FCBM offers through Freddie Mac’s Loan Product Advisor’s (LPA) AUS risk assessment tool. Periodic updates the Guidelines may take place occasionally to reflect changes to the Programs offered; Customers are expected to become familiar with, and comply with the information, guidelines, terms and conditions contained in the FCBM Manual.
FOR ANY GUIDELINES NOT SPECIFICALLY ADDRESSED IN THESE GUIDES PLEASE REFER TO FHLMC SELLING GUIDE
Available Mortgage Products utilizing Loan Product Advisor as the AUS • Conventional Conforming and Super Conforming Fixed and ARM-rate Mortgages o Purchase, No Cash-out Refinances and Cash Out Refinances o Texas (A)(6) Mortgages • Relief Refinance Mortgages – Open Access
In order for a Mortgage to qualify as a Loan Product Advisor Mortgage, the Mortgage must meet all of the following criteria: • Be submitted to Loan Product Advisor no more than 120 days before and no later than the Note Date. • Have all credit reports (including the Loan Product Advisor credit reports) dated no more than 120 days before and no later than on the Note Date. • Receive an automated underwriting service (AUS) status of "complete" on the Feedback Certificate based on the last submission to Loan Product Advisor on or before the Note Date. • Comply with all of the requirements posted in these guidelines and Freddie Mac Seller’s Guide Section 2.2.1. • Meet the documentation requirements per the Feedback Certificate ie. Streamline Accept, or Standard Documentation. • Meet the Feedback Certificate’s appraisal report required per the Minimum Assessment Feedback (MAF).
The AUS risk assessment from Loan Product Advisor (LPA) must be Accept/Eligible. Manual Underwriting, Refer, Caution, Invalid, Ineligible or Incomplete Status are ineligible at Florida Capital Bank Mortgage.
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Assets The Underwriting Chapter addresses general underwriting policies and requirements for Florida Capital Bank Mortgage. Florida Capital Bank Mortgage follows LPA Accept / Eligible Feedback Certificate. However, Florida Capital Bank Mortgage reserves the right to require additional documentation based on the loan file content, the underwriter’s discretion and our investors’ credit requirements.
Please refer to LPA documentation matrix for required documentation at http://www.freddiemac.com/learn/pdfs/uw/docmatrix.pdf
For additional resources specific to LPA documentation and underwriting requirements; please go to LPA’s sellers guide at http://www.freddiemac.com/singlefamily/guide/?tog=current
Assets Verification Pooled funds not allowed
Bank Account Statements The deposit for a recently opened account or a large increase must be explained and sourced. Copies of the borrower’s bank statements must reliably document funds were not recently borrowed by the borrowers, particularly if the account was opened within the past 90 days or if the balance significantly increased within the past few months. The statements must show that the funds were accumulated prior to funding. Checking and Savings Accounts • Funds held in checking, savings, certificate of deposit, money market, stock and/or securities accounts are acceptable sources of funds for the down payment, closing costs or reserves. • If the account is shown in the name of the borrower only it is sufficient to indicate the borrower(s) has access to all the funds. • If the account is in the name of the borrower and another person or persons, obtain a letter from the non-borrowing co-depositor(s) stating the relationship with the borrower and that the borrower has full access and use of all the funds for this transaction and for reserves. • In cases where the borrower has a joint account with someone other than the co-borrower(s), if a VOD is utilized it must clearly show the borrower has authorized access to all the funds. • Indications of borrowed funds must be investigated. This includes recently opened accounts, recent large deposits, or account balances per the parameters for a large deposit. A written letter of explanation along with verifying the source of funds is required to ensure no new debt has been obtained. • All large deposits must be sourced. • Bank statements must be within 30 days of application and within 120 days of closing. • FCBM will follow the LPA’s Feedback Certificate for number of months of bank statements required. • Bank statements provided must include all pages of the statements. The statements may be computer-generated forms, or statements downloaded by the borrower from the Internet that clearly identify the name of the borrower, depository or investment institution name and account number and the source of information for example, by including that information in the Internet secure website (https://) at the bottom of the document.
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Large Deposits When bank statements (typically covering the most recent two months) are used, the borrower’s written explanation must be obtained and documentation of the source of funds for large deposits, which are defined as a single deposit that exceeds 50% of the total monthly qualifying income for the loan. Note: If the source of a large deposit is readily identifiable on the account statement, such as a direct deposit from an employer (payroll), the Social Security Administration, or IRS or state income tax refund, and the source of the deposit is printed on the statement, further explanation or documentation does not need to be obtained. However, if the source of the deposit is printed on the statement, but the lender still has questions as to whether the funds may have been borrowed; the lender should obtain additional documentation.
Requirements for evaluating large deposits vary based on the transaction type, as shown in the table below. Purchase Transactions If funds from a large deposit are needed to complete the purchase transaction (that is, are used for the down payment, closing costs, or reserves), the borrower(s) must document that those funds are from an acceptable source. Sometimes, a borrower may not have all of the documentation required to confirm the source of a deposit. In those instances, the underwriter must use reasonable judgment based on the available documentation as well as the borrower’s debt-to-income ratio and overall income and credit profile. Examples of acceptable documentation include the borrower’s written explanation, proof of ownership of an asset that was sold, or a copy of a wedding invitation to support receipt of gift funds. The underwriter must provide a written rationale for using the funds in the loan transmittal.
Also, verified funds must be reduced by the amount (or portion) of the undocumented large deposit (as defined above), and the underwriter must confirm that the remaining funds are sufficient for the down payment, closing costs, and reserves. When the underwriter uses a reduced asset amount, net of the un-sourced amount of a large deposit that reduced amount must be the one used for underwriting purposes. Note: When a deposit has both sourced and un-sourced portions, only the un-sourced portion must be used to calculate whether or not it must be considered a large deposit.
Refinance Transactions: Documentation or explanation for large deposits is not required; however, large deposits may be an indication of recently opened liabilities or funds that are from an unacceptable source. The underwriter must take this into consideration and exercise proper underwriting judgment when reviewing the assets and qualifying the borrower.
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Tax Refunds When the borrower will be utilizing tax refund for funds to close, the following documents need to be included in the loan file: 1. A copy of the signed personal federal tax return to verify the expected tax refund to be received. 2. Evidence of receipt of the refund from the IRS via copy of the electronic deposit made on the borrower’s bank statement, or copy of the tax refund check. Note: If the tax refund deposit on a bank statement does not identify the IRS as the institution that made the direct deposit, the refund did not come directly from the IRS but from a third party institution who is providing an anticipated refund loan to by-pass the waiting time for the IRS to process the borrowers tax refund process); in such cases; the deposit cannot be used for funds to close or reserves UNLESS the following documents are provided:
• The borrower is to provide a copy of their signed personal tax return to verify the anticipated refund. • Provide a copy of the refund anticipation agreement/copy of contract form the tax preparer. • Evidence the refund anticipation loan has been paid by the IRS.
Cash Deposit on Sales Contract (Earnest Money) • Any earnest money deposit being used as funds to close requires the lender to verify the earnest money deposit by obtaining evidence that the EMD cleared the Borrower’s account via a copy of the canceled check, bank statement, or written statement from the EMD holder verifying receipt of the funds. Care should be taken to make sure that the earnest money deposit is not counted twice in the evaluation of the Mortgage in the AUS submission for example: deducted from the funds to close and counted in the assets. • If reflected on the Sales contract, then must be reflected on Settlement Statement/Closing Disclosure.
1031 Exchange Like-Kind exchanges under Internal Revenue Code Section 1031 allow a borrower to defer paying taxes on the gain from the sale of an investment property so long the proceeds funds are reinvested in the purchase of a similar property (considered to be the exchange of investment property). Therefore, this tax deferment exchange allows the borrower to roll over funds from one investment property into another without having access to the funds. Assets for the down payment from a 1031 exchange are eligible if properly documented and in compliance with Internal Revenue Code Section 1031 and the closing must be handled by a qualified intermediary (usually a subsidiary of a title company) who enters into a written agreement with the borrower.
The following documents must be provided: • The 1031 Exchange Agreement, • The purchase agreements for properties being exchanged must contain appropriate language identifying the 1031 exchange. Example:
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(Sale Contract): “Buyer is aware that Seller is to perform a 1031 Tax Deferred Exchange. Seller requests Buyer's cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, liabilities, costs or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract by the Seller.”
(Purchase Contract): “Seller is aware that Buyer is to perform a 1031 Tax Deferred Exchange. Buyer requests Seller's cooperation in such an exchange and agrees to hold Seller harmless from any and all claims, liabilities, costs or delays in time resulting from such an exchange”.
Note: If the borrower is purchasing a Seller's 1031 investment property to occupy as a primary residence, the borrower is accommodating the Seller and the transaction is not considered a 1031 Exchange.
Important: Both properties (the one sold and the one to be purchased) must be for investment/business use in order to qualify for the 1031 exchange.
Relocation Program Plans A borrower may utilize an employer-sponsored corporate relocation program towards closing costs. This benefit is available when the borrower is transferred or a new employee purchasing a primary residence and the borrower is participating in a formal program sponsored by the borrower’s employer (or relocation firm) evidenced by a copy of the relocation agreement and/or other documentation detailing the nature and amount of the employer’s contribution. If the relocation benefit is received by the employee via a lump sum payment from their employer. The lump sum payment may be used as a source of down payment if the two following are satisfied
• The lump sum cash payment must be non-revocable, • The down payment must be made in after-tax dollars.
Relocation Buyout When the relocation firm purchases the employees’ departing residence as part of the corporate relocation program, the proceeds from that sale can be used toward the down payment required for the new purchase. A copy of the executed buyout agreement along with evidence of receipt of funds by the borrower is required.
Business Assets for Down Payment, Closing Costs, Prepaids and Reserves Not allowed for TX(A)(6). Use of business assets for down payment, closing costs, prepaids and reserves is acceptable provided the Underwriter determines that the withdrawal of funds will not have a detrimental effect on the business.
The underwriter must review and analyze the personal and business tax returns, and perform a cash flow analysis which may include the review and analysis of current financial statements (profit and loss and balance sheet) and/or the last three months of the business bank statements to confirm deposits, withdrawals and balances supportive of a sustainable business and such deposits and withdrawals are aligned with the level and type of income and expenses reported on the business tax returns.
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The Underwriter must identify and provide a written analysis notating the factors identified when making the determination that the withdrawal will not negatively impact the business.
These assets must be verified in accordance with the documentation requirements for bank statements found in Section 5501.3 of Freddie Mac’ Seller’s Guide, as well as Sections 5102.3 and 5102.4 and with the LPA Feedback Certificate.
The business assets must be related to the business that the Borrower owns and the business assets must meet the requirements below: • Review a minimum of the most recent two months of the business account statements , and • Determine if the deposits are typical for the business. If the deposits are determined by the Underwriter to be typical for the business, documentation of large deposits is not required.
Source of Funds held in a Trust Provide verification of the trust funds that includes the following: • Copy of the Trust Agreement or • A Signed statement on letterhead from the trustee that: o Identifies the Trustee including name, address, telephone number and an individual contact. The trustee must be an independent party that typically handles trust accounts (trust company, financial institution, CPA, lawyer) o Identifies the borrower as the beneficiary o Shows that the borrower has access to all or a certain specific amount of the funds o Shows that the trust has the assets to disburse funds to the borrower • If the assets are required for closing, evidence of receipt of the disbursed funds from the trust is required on LPA loans
Foreign Depository Funds for transaction If the source of funds needed for closing are deposited or originate from outside the United States and its territories; the funds must be transferred into a U.S. financial institution prior to closing, the borrowers must provide evidence that they owned the funds prior to the transfer. Furthermore, all documents of foreign origin must be in English, or the originator must provide a translation, attached to each document, and warrant that the translation is complete and accurate. All foreign currency amounts must be converted to U.S. dollars.
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Verification of Deposit’s (VOD’s) If a VOD is utilized and it reflects a current balance significantly greater than the average balance, document the source of funds. If a portion of the borrower’s funds were to be saved by the borrower between the date of loan application and the date of loan closing, the mortgage file documents must show that funds were accumulated and on deposit prior to closing. Important: The asset documentation requirements per LPA run loans follow LPA’s feedback certificate for the number of months of bank statements to be provided and the LPA document matrix at http://www.freddiemac.com/learn/pdfs/uw/docmatrix.pdf
Retirement Accounts - LPA AUS Vested funds from an individual retirement account (IRA/Keogh) and/or tax-favored retirement savings account (401k) may be used for the down payment, closing costs, and reserves provided the borrower has access to the fund(s).
When evidence of liquidation is not obtained, the mortgage file must include documentation outlining the terms of the retirement plan showing that the borrower is permitted to make withdrawals regardless of current employment status in order to use the vested amount of an IRS-qualified employer requirement account for closing or reserves.
When assets that are invested in stocks, bonds, mutual funds, U.S. government securities or other securities are needed for closing, evidence of liquidation is required unless the combined value of the assets is at least 20% greater than the amount from these assets needed for closing.
Note: Any outstanding loans must be subtracted prior to determining the vested balance.
Stocks, Bonds, Mutual Funds, U.S. Government, Other Securities and Vested Stock Options The value of the funds or securities owned by the borrower must be verified through financial statements. The value of the stock noted on the current statement(s) from the stockbroker, a photocopy of the stock certificate, accompanied by a dated newspaper, or Internet stock list. Documentation must evidence that the borrower is the owner:
• A stock or brokerage account statement covering a one-month or two-month period as required per the LPA feedback certificate and LPA documentation matrix. • If the borrower does not receive a stock/security account statement, provide a copy of the stock certificate and the current stock prices from a published source.
Proof of Liquidation If the value of the assets is documented properly and is at least 20% more than the amount of funds needed for the down payment and closing costs, no proof of liquidation is required. Otherwise, evidence of the borrower’s actual receipt of funds realized from the sale or liquidation must be documented with: • Borrower’s ownership of the asset, and • Value of the asset at the time of sale or liquidation, and • Borrower’s actual receipt of funds from the sale or liquidation
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Cash Value of Life Insurance Policy Provide verification of the cash value of a life insurance policy which must: • Include a computer-generated or typed statement from the insurance company, • Identify the life insurance company, • Identify the policy owner(s), • Show the period covered and ending cash value, and • Show any outstanding loans When the cash value of the life insurance policy is needed for closing, evidence of liquidation is required.
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Reserves
If subject property is Then…
Primary Residence 1 Unit None
Primary Residence 2-4 Units Six Months for the subject property
TX (A)(6) Owner Occupied 1 Unit None
Second Homes Two Months for the subject property
Investment Property Six Months for the subject property
Additional Reserves Required
Second Homes and Investment Properties required reserves in addition to the required reserves noted above: If the subject property is a Second Home or Investment; then 2 months reserves for each additional Second Home and/or 1-4 Unit Investment Properties owned by the borrower, or for each property that is financed and on which the Borrower is obligated.
Refer to the additional requirements related to “Conversion to an Investment Property” located in the Maximum Number of Financed Properties guideline section.
When documenting funds for reserves the following applies:
Refinance: Provide bank statement per LPA AUS
Purchase: Provide bank statement per LPA AUS
If reserves are required by LPA on owner occupied primary residences; retirement assets such as 401K can be used toward the reserve requirement as long as we verify the vested amount of the retirement asset with a copy of the most recent statement along with the terms of withdrawal. See acceptable source of reserves section for more details.
Note: For second home and investment property transactions underwritten with LPA, the AUS will calculate the reserve requirement for the subject property. When a borrower has multiple financed properties and is financing (or refinancing) a second home or investment property, LPA is not able to determine the exact number of financed properties the borrower owns. As a result, the lender must manually apply the applicable reserve requirements for the other financed investment property and second home transactions as applicable. The amount of required reserves must be subtracted from the borrower's liquid assets prior to submitting the loan casefile to LPA.
Refer to the LPA feedback certificate and document matrix: http://www.loanprospector.com/about/docs.html
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Acceptable Source of Reserves Assets that are liquid can be used for reserves; these include: Checking or Savings accounts; Certificates of Deposit; vested amount in retirement savings account provided the borrower has access to the fund(s); however if the borrower is not of retirement age (at least 59 ½ years old), documentation of early withdrawal amount permitted is required. Important: The minimum required reserves vary depending on the transaction type, occupancy, number of units and the number of financed properties owned by the borrower(s).
Gift Funds Verification of Gift Funds- Per LPA • Gift funds are allowed on 1 Unit Primary Residence for the entire down payment on LTV’s greater than 80%, if gift funds from an acceptable related person, domestic partner or fiancé/fiancée are received for the entire down payment. • Gift funds are allowed on 2-4 Unit Primary Residence and 1 Unit Second Home transactions after a 5% contribution from borrower personal funds, if gift from an acceptable source (related person) is used and the LTV is greater than 80%. • Gift Funds are not allowed on Investment Properties • Gift Funds are not allowed on TX (A)(6)
Donor’s Gift Fund information: Gifts must be evidenced by a letter signed by the donor, called a gift letter. The gift letter must: • Specify the dollar amount of the gift; • Specify the date the funds were transferred; • Include the donor’s statement that no repayment is expected; • List the donor’s source to provide gift funds (bank institution’s name, account number); and • Indicate the donor’s name, address, telephone number, and relationship to the borrower.
When a gift from a relative or domestic partner is being pooled with the borrower’s funds to make up the required minimum cash down payment, the following items must also be included: • A certification from the donor stating that he or she has lived with the borrower for the past 12 months and will continue to do so in the new residence. • Documents that demonstrate a history of borrower and donor shared residency. The donor’s address must be the same as the borrower’s address
Verifying Donor Availability of Funds and Transfer of Gift Funds Verification that sufficient funds to cover the gift are either in the donor’s account or have been transferred to the borrower’s account is required.
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Acceptable Documentation when Gift funds are provided prior to closing • Verification that sufficient funds to cover the gift are either in the donor’s account or have been transferred to the borrower’s account. Acceptable documentation includes the following: o a copy of the donor’s cancelled check and the borrower’s deposit slip, or o a copy of the donor’s withdrawal slip and the borrower’s deposit slip, or o a copy of the donor’s check to the closing agent, or o a settlement statement showing receipt of the donor’s check.
Acceptable Documentation when Gift funds are provided at closing for downpayment or closing costs • When the funds are not transferred prior to settlement, it is required to document that the donor gave the closing agent the gift funds in the form of a certified check, a cashier’s check, or other official check documenting donor name and account information. • The gift funds at closing must match exactly to the gift letter provided.
Gift for Downpayment (Minimum of Borrower’s Funds) Conforming Loan Amounts A borrower of a mortgage loan secured by a principal residence or second home may use gift funds received from an acceptable donor. Gift funds may fund all or part of the down payment, closing costs, or financial reserves: • A minimum borrower contribution from the borrower's own funds is not required for the purchase of a 1 Unit Primary Residence with LTV/CLTV greater than 80%. • A minimum contribution from the borrower's own funds in the amount of at least 5% is required on second home or multi-unit transactions if the LTV/CLTV is greater than 80%. However, if the LTV/CLTV is 80% or less, then the entire down payment may be a gift.
Gift for Downpayment (Minimum of Borrower’s Funds) Super Conforming Loan Amounts • 5% minimum borrower contribution from own funds, on primary residence if LTV is greater than 80% is not required. • A minimum contribution from the borrower's own funds in the amount of at least 5% is required on second home or multi-unit transactions if the LTV/CLTV is greater than 80%. However, if the LTV/CLTV is 80% or less, then the entire down payment may be a gift.
Gift funds for Reserves Gift funds may fund all or part of the financial reserves required subject to the minimum borrower contribution requirements listed above. Reminder: Gifts are not allowed on an investment property.
Gift of Equity A gift of equity permitted for the purchase of a primary residence from a relative by blood, marriage, adoption or legal guardianship. The seller must have sufficient equity in the property to cover the gift amount and to ensure the transaction is not to bailout the family member; the seller will have to provide evidence of acceptable mortgage rating. With a gift of equity, no cash changes hands; instead, the seller agrees to gift a portion of the equity in the subject property to be used for down payment.
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Gift of Equity Documentation Requirements • Fully executed gift letter • Mortgage rating from seller’s lender • Gift of equity to be identified on the sales contract • The gift transfer to be listed on the Settlement Statement/Closing Disclosure as a credit to the buyer as a “Gift of Equity”
Clarification for Electronic, Faxed, or Computer-Generated documentation Verification documentation that is faxed, computer-generated, or downloaded from the Internet, including on-line bank and investment statements is allowed. Documentation must meet all of the following requirements: • The source of the information must be clearly identified (such as information from the Internet or “fax” banner at the top of the document). • The documents must clearly identify the name of the depository, investment institution, or borrower’s employer. • The documents must include essential information the same as hard-copy original documents with the account owner’s name, full account number, borrower’s employment, income, assets, and funds for closing (as applicable). Note: Documents must be legible and free of any alterations, erasures, “whiteouts,” or similar indications that changes have been made.
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Borrower Eligibility-General Eligibility
Eligible Borrowers • U.S. Citizens • Permanent Resident Alien • Non-Permanent Resident Alien
Ineligible Borrowers • Foreign National • No more than 4 Borrowers are permitted on a transaction • Guarantors or Guardianships • Corporations and partnerships, including family partnerships
Non-Arm’s Length (At-Interest) Transactions For newly constructed homes that are purchase transactions of a Second Home or an Investment Property, the Borrower may not be affiliated with, or related to the builder, developer or property seller.
Definition of a non-arm’s length (at interest ) transaction: All non-arm’s length transactions are considered at-interest transactions; however, at-interest transactions are not always non-arm’s length.
A non-arm's length transaction is one where the parties to the transaction are related such as family members, employer/employee, or principal/agent. This relationship may influence the transaction. Common types of non-arm’s length transactions include: • Family Sales • Property in an estate • Employer/employee sales • Flip transactions
An at-interest transaction involves persons who are not closely tied or related but may have a greater vested interest in the transaction, such as a party who plays more than one role in the same transaction (selling/listing agent and mortgage broker, for example). At-interest transactions carry increased risk due to the greater vested interest in the transaction by one of the parties. Examples of at-interest transactions include: • Builder also acting as Realtor/broker • Realtor/broker selling own property • Realtor/broker acting as listing/selling agent as well the mortgage broker
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Non-Occupant Co-borrowers A non-occupant co-borrower is a person who has applied jointly with the applicant for shared or joint credit on a primary residence transaction, who takes title to the security property but does not occupy the property. The lender is not required to calculate or evaluate the occupant borrower’s monthly debt payment-to-income ratio separately. A non-occupant co-borrower must sign the Note and Security Instrument. • Non-occupant co-borrower is not permitted for Open Access transactions. • The non-occupant co-borrower may not be an interested third party in the transaction (e.g., builder, real estate agent, or the Broker). • A non-occupant co-borrower is not permitted on a Texas Section 50(a)(6) loan. • The Non-occupant co-borrower's assets can be used toward the occupying Borrower’s minimum required contribution regardless of the transaction’s LTV. • It is not required to calculate or evaluate the occupant borrower’s monthly housing expense-to- income ratio. • The maximum LTV is 95% LTV with Accept/Eligible AUS risk assessment.
Mortgage Co-Signer A co-signer is a person who has applied jointly with the applicant for shared or joint credit on a primary residence transaction, this individual does not takes title to the security property. • This type of transaction is permitted by Freddie Mac with a maximum LTV of 95% and the co- signer may not be an interested third party in the transaction (e.g., builder, real estate agent, or the Broker). • Co-signers are not permitted on a Texas Section 50(a)(6) as all borrowers must be on title and must occupy the property.
Electronic Signatures Electronic Signatures are acceptable to FCBM when used to originate and underwrite the loan application and may be used on: • Initial Loan Application (1003) and Disclosures. • Sales Contract and any applicable addendums. • Appraisal Reports. • Property inspections. • Third party verification documents such as Verifications of Employment. The Loan Originator must comply with all applicable requirements and standards set forth or referenced in the Federal Electronic Signatures in Global and National Commerce Act (E-SIGN); if applicable, the Uniform Electronic Transactions Act (UETA) adopted by the state in which the subject property secured by the mortgage loan associated with an electronic record is located and with FCBM Electronic Signature Policy.
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Code of Ethics and Conflict of Interest As part of its effort to fight predatory lending and to promote honest and ethical conduct, FCBM has established a Code of Ethics and Conflict of Interest and Conduct Policy as applicable to the company’s officers, employees, and customers to: • Engage in and promote ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships, and to disclose to FCBM any material transaction or relationship that reasonably could be expected to give rise to such a conflict. Note: FCBM does not allow a loan originator to take a family member’s loan application; it is permissible however for another loan originator in the same office to take the loan application on his/her behalf. FCBM defines a family member as one’s spouse, child, spouse's child, daughter-in-law, son-in-law, brother, sister, mother, father, grandparents, grandchild, step- brother, step-sister, step-parents, parents-in-law, brother-in-law, sister-in-law, aunt, uncle, niece, nephew, guardian, and ward. • Carry out your responsibilities honestly, in good faith and with integrity, due care and diligence, exercising at all times the best independent judgment. • Comply with applicable government laws, rules and regulations of federal, state and local governments and other appropriate regulatory agencies. • Never to take, directly or indirectly, any action to coerce, manipulate, mislead, or fraudulently influence company officers, employees and borrowers. • Provide written disclosure of all financial terms of the transaction. • Never condone, engage in or be a party to questionable appraisal values, falsified selling prices, concealment of pertinent information and/or misrepresentation of facts, including the cash equity of the mortgagor in the subject property. • Not knowingly put Borrowers in jeopardy of losing their property through fraudulent, unsafe or unsound lending practices. • Affirm commitment to the Fair Housing Act and the Equal Credit Opportunity Act, and always treating customers consistently and equitably. • Avoid providing legal advice.
Power of Attorney POA’s are acceptable subject to approval from the underwriter and closing management with advance review. The POA must be executed prior to or on the date the Note and be notarized (if executed outside the U.S., it must be notarized at a U.S. Embassy or a military installation.) • The Power of Attorney is limited to be used in order to execute loan documents at closing on behalf of the borrower (no initial loan documents or disclosures can be signed using a POA) except when the borrower is on active military service with the United States Armed Forces serving outside of the United States or Deployed aboard a United States vessel; or in a hardship or emergency situations. • A written statement that explains the hardship circumstances in the use of the POA must be provided. • The POA is to be specific to the transaction, referencing the address of the subject property. • Power of Attorneys are not allowed on TEXAS 50(a)(6) loans. • Power of Attorneys are not allowed on Cash Out Refinance Transactions.
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• A POA cannot be used when a loan is closing in a Revocable Living Trust (Super Conforming Loan Amounts.) • Title policy must not contain any exceptions based on use of the POA. • If no other borrower executes the loan documents in person in the presence of a notary public, the named POA must be a relative (if conventional financing), family member (if government financing), or fiduciary of the borrower. • If a fiduciary, a statement on the fiduciary’s letterhead stating the relationship between them and the borrower(s) will be required. • Conventional: If the POA is a relative, a notarized statement from the borrower(s) clarifying the relationship will be required. Note: for POA purposes, a relative is defined as Domestic Partner, Fiancée and fiancé.
Government: If the POA is a family member, a notarized statement from the borrower(s) clarifying the relationship will be required. Note: Family member as defined by FHA/VA/USDA.
The Power of Attorney is limited to be used in order to execute loan documents at closing on behalf of the borrower (no initial loan documents or disclosures can be signed using a POA) except when the borrower is on active military service with the United States Armed Forces serving outside of the United States or Deployed aboard a United States vessel. In this case, the use of a power of attorney may be used to execute both the original and the final loan application (1003 form) provided the power of attorney:
• Complies with the requirements set forth by the Veterans’ Affairs of the lenders handbook related to POA, these requirements can be found in our VA guidelines.
Additional Requirements: • The Borrower's name must be printed below the signature line. The signature must read, "Principal’s Name by Agent’s Signature as Agent." • The Power of Attorney must be recorded with the security instrument • None of the following individuals can sign/serve as the borrower(s)’ Power of Attorney: • The Broker, the lender, an affiliated or employee of the lender or the broker; • The title insurance company/title agent, any affiliate, or any employee; • The real estate agent of the transaction or any person affiliated to the real estate agent.
Life Estate Properties with Life Estate rights are not eligible for financing at FCBM. Any properties title with these provisions must have the rights removed prior to closing to be considered.
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Living/Inter Vivos Revocable Trust Only Inter Vivos Revocable trusts are allowed and must comply with local state regulations to be eligible for financing.
An inter vivos revocable ("living") Trust is a trust that: An individual creates during their lifetime; Becomes effective during their lifetime; and Is revocable, can be changed or canceled by its creators at any time, for any reason, during the individual's lifetime.
Trust Standards There is no uniform or standard form for a living trust. The length and complexity of the living trust document depends on the laws of the state in which it was created, the attorney who prepares the document, and the specific assets and matters handled by the living trust agreement.
Trust Definitions
Beneficiary: The party that benefits from the property held by the living trust. The primary beneficiary must be a grantor/trustor/settlor. Grantor/Trustor/Settlor: The person(s) who established or created the living trust and contributed the property directly to the trust. The use of the term grantor, trustor, or settlor depends on the state where the living trust was created or originated. For these guidelines, the term grantor will be used. Trustee: A person who manages the assets in the trust for the benefit of the beneficiary. Under a living trust, the trustee is the person who, according to the living trusts agreement has been granted the power to mortgage the subject property and administer the living trust. The trustee(s) must be or must include a grantor, or an institutional trustee (i.e., bank, trust company, attorney) that customarily performs trust functions under the laws of the state.
Eligible Borrowers The borrower must be the grantor, the beneficiary and the trustee and must qualify as an individual for the loan. Eligible borrowers include One or more borrowers with one living trust, or Two or more borrowers with separate living trust, or Multiple borrowers with one or more holding title as an individual and one or more holding title as a living trust
Eligible Properties • 1-4 unit owner occupied principal residence (must be occupied by at least one of the individuals establishing the trust and whose income or assets are used to qualify for the loan.) • 1 unit second home • 1-4 unit investment property (agency salable)
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Specifies State Requirements California Properties: California Probate Code prohibits lenders from requiring disclosure of the beneficiary information (dispositive provisions) of the trust agreement. Therefore, the underwriter is not required to verify that the beneficiary is an applicant. Texas Properties: Inter vivos revocable trusts are not permitted for Texas Section 50(a)(6) loans.
Title Requirements The title insurance policy must assure full title protection, and must indicate that title to the property is vested in the names of the trustee(s) of the living trust. The policy may not list any exceptions with respect to the trustee(s) or the living trust. The title may be vested jointly in the trustee(s) of the inter vivos trust and in the name(s) of an individual borrower(s) or in the trustee(s) of more than one inter vivos trust. Note: There must be no exceptions to title in the event that a POA is used to execute closing documents.
Living Trust Required Documents The following documents are required: • Complete copy of the trust documents certified by the borrower to be accurate, or a copy of the abstract or summary for the jurisdictions that require a lender to review and rely on an abstract or summary of trust documents instead of the trust agreements; • And • Attorney’s Opinion Letter from the borrower’s attorney verifying all of the following • The trust was created and valid under applicable law, • The trust is revocable, • The borrower is the grantor of the trust and the beneficiary of the trust, • The trust assets may be used as collateral for the loan (if applicable) • The trustee is: • Duly qualified under applicable law to serve as trustee, • Is the borrower, • Is the grantor, • Is fully authorized under the trust documents and applicable law to pledge or otherwise encumber the trust assets Or
• A Trust Certification prepared by the Title/Escrow Company and executed by the Trustee(s). A title/escrow company’s Trust Certification is acceptable in: AL, AZ, AR, CA, DE, DC, ID, IA, KS, ME, MI, MN, MO, NE, NV, NH, NM, NC, OH, OR, PA, SC, SD, TN, TX, UT, VT, VA, WY and must contain the following information: • The complete legal name of the Trust • The date the trust was created • The grantor(s) • The trustee(s) • The powers of the trustee(s) • The revocability • The vesting requirements
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Non-Permanent Resident Alien Eligibility A Non-Permanent Resident Alien (NPRA) is an individual who is granted the right to live and work in the U.S. for a fixed period of time, and for a specific purpose and may be eligible for financing provided they meet all of the following guidelines: • Non-Permanent resident aliens must have a minimum of 24 months history of employment, • Residency and credit in the U.S., • Must have a valid SSN.
Must have a valid Passport and appropriate VISA (see below a list of acceptable visa type) or have a valid passport and with an Employment Authorization Document (EAD) issued by the Department of Homeland Security Evidence of eligible visas: • H-1.* This is the most common VISA given to a foreign citizen who is temporarily working in United States. • L-1.* Intra-Company Transferee. An L-1 VISA is given to professional employees, whose company’s main office is in a foreign country. • E-1.* Treaty Trader. This VISA is essentially the same as an H-1 or L-1; the title refers to the foreign country’s status in the United States. • E-2.* Treaty Investor. This visa is held by an Individual who develops or directs the operation of an enterprise in which he/she has a substantial investment. Must be based on a treaty between visa holder’s country and the U.S. *A copy of an USCIS I-94 document with an H1, E1, E2, or L1 visa classification is acceptable provided that the borrower meets the 2-2-2 rule along with the following:
. Copy of Original Visa (can be expired or unexpired) . Borrower must be currently employed with the company that initially sponsored the H1B VISA in the United States . Full Written Verification of Employment document showing the likelihood of continuance from the current employer Borrower must currently reside in the United States legally. . The source of the borrower’s income must be verified and must be expected to continue for at least 3 years. Note: Less than 2 years employment can be considered if borrower was a student via a Student Visa prior to being employed in the United States. Documentation of Student status and prior Visa will be required. All standards for determining stable monthly income, adequate credit history and sufficient liquid assets must be applied in the same manner to each borrower including borrowers who are non-permanent resident aliens. • TN, NAFTA VISA. Used by Canadians or Mexican citizens for professional or business purposes. • NACARA. Cuba, El Salvador, Guatemala, and Nicaragua Beneficiaries. Employment Authorization Document (EAD Card) or work permit issued by The Department of Homeland Security is acceptable under Category (C9, C9P, C10, C11, C16, C19, A4, A5, A12). If less than 12 months is remaining on the VISA or on the EAD card from loan closing, the borrowers must provide a letter explaining their intention to remain in the country and a copy of their application for the visa extension or evidence of prior renewal of is required.
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Funds for transaction on Non-Permanent Resident Aliens: If a non-permanent resident alien maintained funds in a foreign depository and transferred them to a U.S. bank prior to closing, the borrowers must provide evidence that they owned the funds prior to the transfer. Important: Permanent and Non-Permanent residents must have a valid Social Security number and must have a minimum of 24 months history of employment, residency and credit in the U.S. as well as adhering to the additional documentation within FCBM guidelines.
Permanent Resident Alien Eligibility A Permanent Resident Alien is a non-U.S. Citizen granted lawful permanent residence privileges in the United States and has been issued a registration card (known as “Green Card”) by the U.S. Citizenship and Immigration Services (USCIS). Requirements: • A copy of the “Green Card” is required for all Permanent Resident Aliens (front and back of the card) • The Permanent Resident Alien must have a valid Social Security number and must have a minimum of 24 months of history of employment, residency and credit in the U.S. as well as adhering to additional documentation required by the program applied for within FCBM guidelines. Note: If less than 3 months is remaining on the Permanente Resident Alien’s “Green Card” from loan closing, the borrowers.
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Borrower Occupancy
• Primary Residence: Refers to when the individual borrower or borrowers will occupy the property; or at least one borrower will occupy the property. • Second/Vacation Home: Refers to a 1 Unit property to be occupied by the borrower for a portion of the year that is suitable for year-round occupancy and located in a location that is reasonable to function as a second home. Note: FHLMC considers 2 unit second homes to be investment property. • Investment Property: Refers to a real estate property utilized with the intent of earning a return through rental income.
Transaction type Occupancy Verification Requirements
Purchase of A primary residence is the borrower's main residence, where they live the majority of Owner-Occupied the year. It may be a 1-unit, condominium, PUD, or 2-4 unit property. Characteristics 1 – 4 Unit that may indicate the property is the borrower's primary residence include: Properties • It is occupied by the primary wage-earner for the major portion of the year; • It is in a location relatively convenient to the owner's principal place of employment; • It is the address of record for such activities as federal income tax reporting, voter registration, occupational licensing, and similar functions The borrower must occupy the property within 60 days of closing. At least one of the borrowers must occupy and take title to the property, and execute the note and mortgage.
3-4 Units: Borrowers may not own any other residential property of equal or greater value in the same area in which the units are located. Information indicating the unit to be owner-occupied must be consistent with other documentation in the file. If the borrower currently owns other properties (not being sold as part of the subject transaction), The loan file must contain supporting documentation to determine that the borrower’s intent to occupy is reasonable.
If this verification cannot be made, the property must be treated as an investment property.
The purchase agreement must show the borrower’s intent to occupy.
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Refinance of Verification that the borrower is occupying or intends to occupy the subject property is Owner-Occupied required as follows:
1 – 4 Unit • The loan documentation (credit report, income, asset verification) must show Properties the subject property as the borrower’s address. • The Homeowner’s insurance policy must show that the mailing address and subject property address are the same. Note: If the borrower uses a P. O. Box, and occupancy cannot be verified, the loan will be ineligible. • The appraisal must indicate that the borrower occupies the property. • The title policy should show a homeowner’s exemption.
Clarification for Second Homes
Transaction Type Occupancy Verification Requirements Second Homes A second home is defined as 1-unit property (including condominiums and PUDs), unless otherwise indicated in a process or program fact sheet, that the borrower occupies for some portion of the year in addition to their principal residence. A borrower may have more than one second home.
Often located in a vacation/resort area, although not always, the property must be suitable for year round occupancy. A second home should not be in the same market as the borrower's primary residence. However, there are exceptions, such as: Property located in a recreational area which is part of a metropolitan area (e.g., beach house). Good judgment must prevail when reviewing the distance of the Second Home in relation to the Primary Residence. In general a 50 mile distance is used as a rule of thumb.
There may not be an occupant besides the borrower that resides in the subject property, and the borrower must retain exclusive control over the property. The sales contract or appraisal must not reflect that there are timeshare arrangements or any other rental agreements that requires the property to be rented. The borrower may not give a management firm control over the occupancy of the property. Transactions where the property is being purchased for the occupancy by someone other than the borrower must be registered and underwritten as an investment property.
Special requirements for second home mortgages: Each Borrower individually and all Borrowers collectively must not own and/or be obligated on (e.g., Notes, land contracts and/or any other debt or obligation) more than six 1- 4 U nit financed properties, including the subject property and the Borrower’s Primary Residence.
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Clarification for Investment Properties
Transaction Type Occupancy Verification Requirements
Investment An investment (subject) property is a 1-to-4 family property that the borrower does not Properties occupy. This definition is used whether or not the property produces income.
Occupying Tenant: If the subject property is currently being rented, the rental agreement/lease must be reviewed to ensure that it does not contain any provisions that could affect our position as mortgagee. In some jurisdictions, a lease that predates the mortgage has a superior claim to the mortgage, even if it has not been recorded. However, the tenant's rights will usually remain intact under the pre-existing lease. If the lease is not subordinated to the mortgage, each lease must be reviewed to ensure that any "rights to purchase"—and any other rights that could adversely affect the mortgagee's interest—have been formally waived by the tenant.
Special requirements for investment property mortgages: Each Borrower individually and all Borrowers collectively must not own and/or be obligated on (e.g., Notes, land contracts and/or any other debt or obligation) more than six 1- 4 U nit financed properties, including the subject property and the Borrower’s Primary Residence
"Kiddie Condos" − Properties where the borrowers are purchasing a property for the occupancy of others, must be registered and underwritten as investment properties. This includes loans where the occupant is a loan applicant, but does not meet the down payment and total qualifying debt ratio guidelines applicable with a non-occupant co- borrower. Does not apply to loans that meet the policy for purchase of a primary residence for a special needs individual.
Acquisition of Short Sale Property Borrowers acquiring a property that is a pre-foreclosure or short sale may be asked to pay fees that are typically the responsibility of the seller or another party. These fees paid to any party to evaluate, negotiate or process a short sale with the Servicer, which are commonly referred to as "short sale negotiation fees," "short sale processing fees," "marketing fees," or "administrative fees," must not be deducted from the proceeds of sale or charged to the borrower. Additionally, neither the Servicer nor its agents may charge Freddie Mac or the borrower, either directly or indirectly, any fee whatsoever in connection with processing a short sale on any mortgage. Standard and customary real estate commissions and settlement service fees agreed to by the borrower and paid to the real estate brokerage and settlement agent are not prohibited.
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CEMA
CEMA Mortgages CEMA stands for Consolidation, Extension, Modification Agreement. This provision allows homeowners to consolidate into one lien the terms of prior notes and mortgages related to the secured property and, if new funds are advanced, the terms of a new note and mortgage.
Purpose of CEMA The objective of a CEMA is to help borrowers save a significant sum of money in NY State mortgage tax costs.
Broker Requirements Brokers must be domiciled in New York to participate in this program
Allowable and Non-allowable Options • The CEMA option is only available on Conventional Fixed, Conventional ARM, Select Jumbo and FHA Fixed refinance 1-4 family unit transactions. Refer to the specific underwriting guidelines for specific product details/requirements • Preferred Jumbo ARM, FHA ARMS, USDA and VA loans are not allowable • CEMA transactions are only permitted on allowable refinance transactions in which new money is being advanced • FCBM does not participate in purchase money CEMAs at this time • Revocable Trusts are not permitted on CEMA transactions • Lost Note Affidavits and e-notes are NOT acceptable
Allowable Doc Draw Process Only FCBM closers can draw the new lien CEMA documentation. This program is not permitted in conjunction with the FCBM Delegated Doc Program (DDP).
Calculation Background Mortgage Tax is calculated on the loan amount of “new” mortgage being obtained. A standard refinance would cause a borrower(s) to pay mortgage tax on the full amount of the new loan. With a CEMA, mortgage tax is only charged on any increase to the amount of credit provided to the borrower(s). To determine the benefit of a CEMA over a standard refinance, you must first determine if there is a difference between the unpaid principal balance on the current lien(s) and the total loan amount of the refinance transaction. If the refinance transaction loan amount is higher than the unpaid principal balance, the difference will be the amount subject to mortgage tax.
Below is an example of the calculation to be performed by the broker at the time of application to assist the borrower(s) in determining if the CEMA option is beneficial.
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Example of New York County: Gap/New Money upon which mortgage tax is due for a property located in New York County. • Proposed Total Loan Amount Requested………………………..$500,000 . Existing Mortgage Principal Balance………………………...……..$385,000 . The difference is Considered “Gap/New Money”…………………..$115,000
New York County Mortgage Tax Rate is 2.05% minus $30. The lender is responsible for paying .25% of the 2.05% charged by the county. The borrower’s portion is 1.80% minus $30.00.
Mortgage Tax Savings Example New Loan Amount of $500,000
If straight refinance (no CEMA): Total Loan Amount multiplied by County Tax Rate = Mortgage Tax due from borrower $500,000 x 1.80% - $30 = $8,970.00
If CEMA: Gap/New Money multiplied by County Tax Rate = CEMA Mortgage Tax due from borrower $115,000 x 1.80% - 30 = $2,040.00
Gross Mortgage Tax Savings to Borrower is $6,930.00 {$8,970.00 - $2,040.00}
Net Mortgage Tax Savings to borrower: Gross Mortgage Tax Savings - estimated CEMA Fees* $6,930.00 - $1,875 = $5,055.00
*CEMA fees are about $1,875
Note: It is very important to know that a CEMA may not always be the most beneficial option for the borrower(s). Mortgage Tax rates and attorney fees vary throughout the different NY counties, and the extended time period involved to obtain the required CEMA documentation may offset the monetary savings thus preventing the CEMA from being the best option for the borrower.
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Collateral For additional resources specific to LPA documentation and underwriting requirements; please go to LPA’s sellers guide at http://www.freddiemac.com/singlefamily/guide/?tog=current
Eligible Property Types 1. 1 Unit Single family detached or attached 2. 2-4 Units 3. PUDs detached and attached 4. Condos low rise or high rise 5. Agricultural Property (must be residential in nature and not income producing)
Ineligible Property Types
S Corporation; business Time-share projects Houseboats owned property Condo-hotels Metal Buildings “Live-Work” loft-style condominiums
Manufactured Homes Income Producing Farms Residences lacking kitchen and full bathroom facilities Non-Warrantable Condos Condominium projects with pending Condominium Project that represents a litigation legal, but non-conforming uses of land, Multi-dwelling Condominium projects with Assisted if zoning regulations prohibit rebuilding condominiums or PUDs living or senior care facility and the improvements to current density in continuing care retirement the event of full or partial destruction community (CCRC) Condominium projects with Properties with unacceptable UAD Resale deed restrictions, except for age mandatory club condition or Quality Ratings deed restrictions (55 and older memberships or leased identified in the UAD Ratings section communities) amenities Properties with less than Cooperatives Flip Transactions 400 sq. ft Properties with health, Unique Property in which the 3-4 Unit property that has an illegal safety and/or livability marketability cannot be established (non-permitted) additional unit or issues or environmental accessory apartment risks Properties with Unapproved non-conforming use Unimproved land (Lot Loan) “illegal use” property that does not include grand fathered use
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Right of Redemption The “right of redemption” is the right of a foreclosed homeowner to buy the home back from the person who bought it at foreclosure. Florida Capital Bank Mortgage does not lend on properties that have any Redemption period after a foreclosure (known as “right of redemption”) except in the Alabama and Minnesota.
In Alabama, the right of redemption period is 1 year and in some cases a redemption bond is required to be purchased protecting the lender in the event the foreclosed homeowner exercises his/her right to redeem the property. There are two different scenarios that can take place in Alabama when the property is in the right of redemption period and the need for redemption bond will be dependent on the scenario: o The foreclosure sales price is greater than the loan amount of the new lien: The title company will issue “Affirmative Coverage”. Since the lien holder is paid first when a former owner exercises his/her right to redeem the property, the lien holder would be made whole because the redemption cost exceeds the total of the existing lien. In this case, no redemption bond is required and no exceptions are noted on the final title policy. o The foreclosure sales price is less than the loan amount of the new lien: The title company will require a redemption bond. The lien holder would still be paid first should the former owner exercise his/her right to redeem but in this case, the redemption cost does not cover the lien amount; therefore, the buyer is required to purchase a redemption bond. The bond issuer will cover the difference between the lien amount and the redemption price making the lien holder whole. Evidence of the redemption bond is required prior to the loan closing. There will be no exceptions noted on the final title policy. The cost of the bond is considered a closing cost and therefore can be credited to the borrower through interested party contributions (subject to seller contributions maximum allowances). Note: In both scenarios, a copy of the Foreclosure Deed is required in order to determine the sales price and therefore the minimum redemption cost.
In Minnesota, the right of redemption allows a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs associated with the foreclosure or redemption within six (6) months after the sale. During this time, the homeowner can sell the home and retain any equity that may exist and pay off the amount paid by the sheriff during the foreclosure sale redeeming the property this way. The Underwriter will have to verify there will be no exceptions to title by documenting and verifying the following: o Verify amount of foreclosure sale was lower than current sales price; o Obtain copy of unexecuted certificate of redemption and condition for the fully executed copy of the provided at closing and the same to be recorded prior to our mortgage transaction; o There may be no Title exceptions pertaining to the Foreclosure that took place and the subsequent Redemption (even though the title will reflect this information, there should be no exceptions to the title for this as the property is within the redemption period). o Obtain a copy of the seller’s Payoff from bank/lender unless the certificate of redemption provides that information.
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Appraisal Expiration Appraisals products have an effective period of 120 days from loan closing (this applies on existing and new construction properties); however, if the appraisal is dated over 120 days but no more than 12 months from loan closing, an exterior appraisal inspection via the Appraisal Update and/or Completion Certificate Form 442 must be completed by the original appraiser who provided the opinion of market value; however, if necessary due to constraints, another approved appraiser may be used. - If the appraiser indicates on the Form 442 that the property value has declined, then the lender must obtain a new appraisal for the property. - If the appraiser indicates on the Form 442 that the property value has not declined, then the lender may proceed with the loan in process without requiring any additional fieldwork.
Loan Product Advisor Automated Collateral Evaluation Freddie Mac’s automated collateral evaluation will assess whether the estimate of value provided by the Lender to Loan Product Advisor which may be used to underwrite the Mortgage in lieu of the appraised value. The Lender will receive a message indicating that a Mortgage is eligible for an appraisal waiver on the Loan Product Advisor (LPA) Feedback Certificate. If the Lender accepts the automated collateral evaluation offer to waive the appraisal, the Lender will be relieved of its representations and warranties related to value, condition and marketability of the property. Note: If the Lender changes loan data such as; address of the property, loan amount, estimate of value, loan type, property type, occupancy of the property in a subsequent Loan Product Advisor submission, the original appraisal waiver offer may be invalidated and a different automated collateral evaluation eligibility determination may be provided.
Age of Automated Collateral Evaluation Offer The appraisal waiver offer is valid for 120 days.
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Appraisal Report Forms by Property and Inspection Type
Appraisal Type Property Type LTV restrictions
Freddie Mac (HVE) Open Access 105%
If LTV > 80% where MI is required – subject to MI appraisal requirements
Form 2055 Exterior Only 1-Unit SFR including a unit in a Planned None- Follow LPA Unit Development (PUD) or a unit in a Detached Condominium Project If LTV > 80% where MI is required – subject to MI appraisal requirements
Form 466 Exterior Only Condominium Unit None- Follow LPA Condominium If LTV > 80% where MI is required – subject to MI appraisal requirements
Form 72 – Small 2- to 4-unit property Per AUS Feedback Residential Income Property Appraisal Report
Form 70 - Uniform Per AUS or otherwise specified below Per AUS Feedback Residential Appraisal Report
465 - Individual Per AUS or otherwise specified below Per AUS Feedback Condominium Unit Appraisal Report
All Appraisals must comply with the FCBM New Home Appraisal Process and AIR (Appraiser Independence Requirements) Process prior to uploading/submitting to the FCBM website.
The appraisal report must present a concise picture of the neighborhood, site and improvements to support the stated value. Further, the appraiser must conduct a complete visual inspection of the accessible areas of the interior and exterior of the property and is responsible for noting in his/her report any adverse conditions (such as, but not limited to, needed repairs; deterioration; or the presence of hazardous wastes, toxic substances, or adverse environmental conditions) that were apparent during the inspection of the property or that he/she became aware of during the research involved in performing the appraisal.
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The appraiser is expected to consider and describe the overall condition and quality of the property and identify items that require immediate repair as well as items where maintenance may have been deferred and which may not require immediate repair. On the other hand, an appraiser is not responsible for hidden or unapparent conditions.
Additionally, FCBM does not consider the appraiser to be an expert in all fields, such as environmental hazards. In situations where an adverse property condition may be observed by the appraiser but the appraiser is not qualified to decide whether that condition requires immediate repair (such as the presence of mold, an active roof) leak, settlement in the foundation, etc.), the property must be appraised subject to an inspection by a qualified professional. In such cases, the lender may need to ask the appraiser to update his or her appraisal based on the results of the inspection, in which case the appraiser would incorporate the results of the inspection and measure the impact, if any, on his or her final opinion of market value.
Important: The underwriter cannot change the appraiser’s opinion of market value; any changes to the opinion of market value may only be made by the appraiser.
Photograph Requirements The photographs must be original or electronic images that are in color and clearly show the improvements including any physical deterioration of the property. The appraisal report must include at least the following on the subject property: • A front view of the subject property • A rear view of the subject property • A street scene identifying the location of the subject property and showing neighboring improvements • The kitchen of the subject property • All bathrooms of the subject property • The main living area of the subject property • Any additional photographs needed to show any physical deterioration, improvements, amenities, conditions and external influences that materially impact market value or marketability.
For the comparable sales, original photographs are required but if it cannot be obtained, a clear copy of the comparable sale from a Multiple Listing Service (MLS) will be acceptable so long the appraiser provides a reasonable justification for using the MLS photograph. Furthermore, the appraisal report must include the following photographs of comparable sales: • At least one clear photograph that shows the front of each comparable sale. • Include additional photographs as needed to show the improvements, amenities or external influences that materially impact market value or marketability.
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Site • The site must represent the highest and best use of the property as improved (or as proposed per plans and specifications) • If the subject property is an attached condominium unit and zoning compliance is legal nonconforming, the appraiser must indicate that the subject property can be rebuilt to current density if severely damaged or destroyed. • If there are land-use restrictions, the appraisal must indicate that the subject property can be rebuilt if severely damaged or destroyed. • If mixed-use property, the property must contain the following characteristics: o Is located in a residential neighborhood; o Is primarily residential in nature, and is typical for the properties in the market; o Represents a legal, permissible use of the property under the local zoning requirements; o Is a 1-unit Primary Residence and the borrower is the owner and operator of the business; o The dwelling wasn’t modified in a manner that has an adverse impact on marketability; and o The commercial use does not have an adverse effect on the safety of the property or site.
Over-Improvements An over-improvement is an improvement that costs more than its contributory value within the marketplace. The appraiser must comment on over-improvements and indicated their contributory value in the "sales comparison analysis" adjustment grid. Improvements can represent an over- improvement for the neighborhood, but still be within the neighborhood price range (such as a property with an in-ground swimming pool or large addition in a market that does not demand these kinds of improvements). The underwriter is to review the appraisal on properties with over-improvements that may not be acceptable to the typical purchaser to ensure that only the contributory value of the over- improvement is reflected in the appraisal analysis.
Land Values The subject property site should generally conform to and be acceptable in the market area in terms of size, shape and topography. The appraiser must include the actual size of the site. The property's land- to-value ratio should be consistent with other properties in the area.
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Comparable Sale Selection Comparable sales should have similar physical and legal characteristics when compared to the subject property. These characteristics include, but are not limited to, site, room count, gross living area, style, and condition. Comparable sales from within the same neighborhood as the subject property should be used when possible for SFR. On the other hand, for established subdivisions, PUDs or condominium projects, the appraiser must use comparable sales from within the subject subdivision or project (except on Detached Condominiums that meet Freddie Mac’ definition of Detached Condominium). Whereas, for new subdivisions, PUDs condominium projects or recently converted condominium projects, the appraiser must use one comparable sales from inside the subdivision or project, one from outside the subdivision or project, and one from either inside or outside the subdivision or project. Comparable sales or 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 subject property is not involved in the sale transaction. At a minimum, at least two comparable sales must have been outside the influence of the builder or developer of the subject property.
Sale activity from within the neighborhood is the best indicator of value for properties in that neighborhood as sales prices of comparable properties from the same location should reflect the same positive and negative location characteristics.
Additional Requirements: Any adjustments are supported by market data and additional comparable sales; large adjustments indicate comparable sales may be inappropriate. All comparable sales verified as recorded (data source MLS, sales office, SREA, CMDC, real estate agent, etc.).
Supervisory Appraisers Appraisal must be completed by a licensed appraiser, use of supervisory appraisers is not allowed.
Transferred Appraisals Transferred appraisals are not eligible.
Additional Appraisal on the Subject Property If the appraisal report denotes deficiencies and the appraiser is unable or unwilling to adequately address any underwriter’s concerns presented in order for FCBM to conclude that the appraisal report meets agency requirements, then the appraisal report will be rejected and a new appraisal or a field review report must be obtained provided that: • There is a reasonable basis to believe that the initial appraisal was flawed or tainted and such basis is clearly and appropriately noted in the loan file, and • The Underwriter adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value. Reminder: The appraisals must be submitted to FCBM for review with its accompanying SSR
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Reconciling Multiple Opinions of Market Value If the initial appraisal report was not rejected and a second or subsequent appraisal report or an appraisal field review report is obtained in compliance with FCBM reconsideration of value policies and the Appraiser Independence Requirements, the Underwriter must determine which of the opinions of market value is the most accurate, rather than the appraisal that states the highest value. If the Underwriter determines that the opinions of market value are equally accurate and well supported on both reports, then the lower of the opinions of market value must be used to underwrite the Mortgage and a copy of all valuation used in the analysis as well as written documentation justifying the decision as to which appraisal (or appraisal field review) report was used to underwrite the mortgage must be in the mortgage file. Reminder: The appraisals must be submitted to FCBM for review with its accompanying SSR
Reconsideration of Value Sometimes the buyer or seller may disagree with the fair market value established by the appraiser and as a result, the parties may request for a reconsideration of value/dispute. In this case, a reconsideration of value/dispute that follows the protocol established under the Appraiser Independence Requirements (AIR) is allowed. The borrower/seller/realtor is to provide additional information and documentation to the Loan Officer who will submit/upload the documentation along with the completed reconsideration of value/dispute form to the FCBM Website/ImageFlow “conditions” doc type folder for the underwriter to review and determine if the documentation provided supports a reconsideration of value to be warranted by the appraiser or not.
Reconsideration/ Dispute Forms: The applicable reconsideration/dispute forms are located on the FCBM resource center for each AMC/Appraisal Website as each AMC has a separate form.
Once Deemed Warranted by Underwriter: If a reconsideration of value/dispute is deemed to be warranted by the underwriter, he/she will send the request to the AMC/appraiser via the applicable appraisal website who will make the ultimate determination based on the data received. If applicable, the appraiser will update the value on the report adding a comment regarding what was evaluated warranting an increase in value and the Submission Summary Report (SSR) will be updated to reflect the updated value. The appraiser will update the signature date of the original appraisal; the original effective date will not change.
Upload to FCBM Website: The Loan Officer will need to upload the updated appraisal and updated SSRs to the FCBM Website ImageFlow “Conditions” doc type folder once completed. Reminder: It is important to document the loan file with the initial/original appraisal report with its SSR plus the updated appraisal report with its updated SSR
Important: FCBM reserves the right not to accept the reconsideration of value at any time. At no time may a reconsideration of value be ordered by a customer directly with the AMC. Such request must be submitted by the underwriter to the appropriate AMC.
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Appraisal Corrections (Brokered Originated Mortgage) If appraisal corrections are warranted, the underwriter will request the correction through the appropriate AMC (if the original SSR was not sent by the broker with the original report, the underwriter must access the appropriate AMC and save the SSR in ImageFlow before ordering the appraisal correction; otherwise, the original SSR will no longer be available)
Appraisal Corrections (NDC Originated Mortgage) If appraisal corrections are warranted, the underwriter will condition for the appraisal correction to be provided by the NDC Customer. The corrected report must be uploaded with its accompanying SSR.
Flood Determination Life of Loan Flood determinations is required on all transactions If property is determined to be in a Flood zone: 1. Certification must indicate that the community participates in the National Flood Insurance Program (NFIP). 2. A Notice of Special Flood Hazard must be provided to the borrower immediately upon having knowledge of the property being in a flood zone and no later than one day prior to closing. 3. Borrower must obtain appropriate Flood Insurance coverage. 4. Any detached structure(s) on the property that has a permanent foundation requires the appraiser to provide the value of the detached structure; if the value is $1,000 or more, the flood insurance declaration page has to include the verbiage “additional structure(s) covered”. Note: Flood insurance is required if any part of the structure is located in the following Special Flood Hazard Area zones: A, AE, AH, AO, AR, A1-30, A-99, V, VE, VO or V1-30.
Final Inspection/Completion Report The Improvements section should provide a clear, detailed, accurate and comprehensive description of the subject property’s improvements with any recommended/required repairs, additional features/amenities, modernization described in detail with support data, if appropriate and necessary.
The appraiser must express an opinion regarding the condition of the improvements on the subject property in the comment section and if there are any environmental conditions, repairs of functional inadequacies that have an adverse effect on the subject property must also be addressed in the comment section.
The appraiser must provide factual, specific terms with regards to the condition of the property as well as if the condition affects the value or marketability. All detrimental conditions—even if that condition is typical for competing properties—must be identified along with an estimate of cost to cure; photo’s may also be required.
Any needed repairs or any physical, functional, or external inadequacies must also be identified and repaired prior to the loan clearing underwriting. Physical depreciation (which is traditionally referred to as physical deterioration) represents a loss in value that is caused by deterioration in the physical condition of the improvements. The appraiser will generally classify physical deterioration as “curable” which represent deferred maintenance and “incurable” which represents replacement. The appraiser should be specific with physical depreciation items and if necessary, make recommendations as to
Page 35 of 145 Revision Date 07-25-17 Wholesale and NDC Freddie Mac Conforming and Super Conforming repairs, replacement, inspection, etc. Any needed repairs must also be identified and repaired prior to the loan clearing underwriting. 1. Appraisals completed “Subject to Completion per Plans and Spec’s, or Subject to Repairs or Alterations”: A final inspection or completion report (Form 442) accompanied by at least a photograph of the front of the subject property confirming repairs/work/improvements have been completed as specified and that if meets “subject to” value. If the improvements to be completed/repaired are to the interior of the property, then interior photographs are required. If left in “as is” condition the repairs must be cosmetic in nature and cannot adversely affect value or marketability. 2. Appraisals completed subject to a licensed professional inspection i.e. structural engineer, pest inspection, etc.: The licensed professional must perform the inspection of the property and complete any needed repairs and provide the completion report via a written report or invoice signed by the licensed professional who performed the repairs stating that the repair has been completed and the issue corrected. The report or invoice must provide the professional's license number and signature. 3. For appraisals that are subject to any of the conditions above in number 1 or 2; the inspection of the property and the completion report must meet all of the following: o The final inspection of the property must be performed after completion of the construction, repairs, improvements, alterations or conditions o The completion report must state that all conditions or requirements set forth in the appraisal have been fulfilled, or that the repairs have been completed or were not necessary o The completion report must be dated before the Settlement Date unless the requirements for incomplete improvements have been met per the Escrow Holdback for Incomplete Improvements are present. (Refer to that section in these guidelines.)
Income Approach If the subject property is a 2- to 4-unit property, the income approach is required. The appraisal report is to include unadjusted units of comparison and, for purchase transactions, indicated what factors are considered important in the market.
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2-4-Unit Properties 1. Comparable Rent Data for 2-4 Unit Properties: At least 3 rental comparables must be analyzed in the "comparable rental data" section. These rental comparables must: • Have current rental information • Be units similar to and located near the subject property The rental comparables are usually not the same comparable properties used in the sales comparison approach. The appraisal report should state that the units and properties selected as rental comparables are comparable to the subject property (both the units and the overall property) and should accurately represent the rental market for the subject property unless otherwise stated in the report. 2. Subject's rent schedule for 2- 4-Unit Properties: This section contains the subject property's current actual rents and the estimated market rents. The estimated market rents for the subject property must be supported in the appraisal report and be consistent with the data presented throughout the report. 3. Sales comparison approach for 2- 4-Unit Properties: In addition to the requirements noted in number 1 and 2 above, the appraisal must contain the unadjusted units of comparison for the comparable sales. If the appraisal is prepared in conjunction with a purchase transaction, the units of comparison must be provided for the subject property as well. These units of comparison are the sales price per square foot of gross building area (GBA), per unit and per room and the gross rent multiplier (GRM). The comment area of the sales comparison analysis must reconcile the adjusted sales prices of the comparable sales and the unadjusted units of comparison, as appropriate, according to the manner in which such properties sell in the defined market area.
Investment Properties Gross Rental Income If the borrower qualifies with the full monthly payment amount plus operating expenses for the subject investment property or from other investment properties owned, an Operating Income Statement (Form 998) is not required; however, the gross monthly rent must be reported to Freddie Mac regardless of whether rental income is used in qualifying. An estimate market rents will be acceptable from Zillow.com, Realtor.com, Trulia, etc.
Field Reviews A field review is required if; • The property is valued at $1,000,000 or more and the LTV, CLTV, or HCLTV is greater than 75% Note: If a Field Review is required then the original appraisal must be completed as a Full Appraisal. Important: Field Reviews must be completed by an approved FCBM Appraisal Management Company
Flip Transactions A flip transaction is generally defined as a purchase transaction for a property that has recently been acquired by the seller and is being sold for a quick profit without justification for the rapid appreciation of value. A flip transaction is evident if the title reveals several changes in ownership in the course of a few months.
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Rural Property A rural location relates to the country or anything beyond the suburban area. The property is to be located in a rural area, however the mortgage must be secured by a property that is residential in nature—based on the characteristics of the subject property, zoning and the present land use. Agricultural property (such as a farm, orchard, or ranch), on undeveloped/vacant land, or on land development-type property is not acceptable. If the subject property is located in a rural area that is relatively undeveloped or an area in which properties often have a large lot size, the appraiser may have to go a considerable distance to find property that can be used to develop an opinion of value for the subject property.
A property with minimal outbuildings—such as a small barn or stable—that are of relatively insignificant value in relation to the total appraised value of the subject property is acceptable if it is typical of other residential property in the area. Example: A property that has a small barn or stable is acceptable if the appraiser demonstrates through the use of comparable sales with similar improvements that the improvements are typical of property for which an active, viable residential market exists. If the outbuildings do not represent typical residential improvements for the area and property type, the typical purchaser in the market would probably recognize minimal, if any, contributory value for them. A property with an atypical minimal outbuilding is acceptable if the appraiser's analysis reflects little (or no) contributory value for it. The appraiser must demonstrate in the appraisal through the use of comparable sales, pending sales or listings that these characteristics are typical for residential properties in the market area.
The presence of significant outbuildings—such as a large barn, storage area, facilities for farm-type animals, or a silo-- usually indicates that the intended use of the property is agricultural and is not acceptable. Any manufactured homes on the property must be removed prior to lending.
Excess Land A property with a significant parcel size or lot size should be identified and appraised in its entirety. The site description must accurately describe the entire site and any improvements to include any outbuildings. The comparable sales should have similar acreage; however, if differences in acreage exist between the subject property and the comparable sales, any adjustments or lack of adjustments made to the comparable sales for significant differences must be explained by the appraiser including the effect these differences have on the subject property's value or marketability.
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Additional/Multiple Parcels • When the subject property consists of more than one parcel of real estate, the additional parcels must adjoin one another. The adjoining parcel cannot contain an additional residential dwelling. • When the subject property includes two or more adjoining parcels of real estate, the site description must accurately describe the land and any improvements included in each of the parcels. • The comparable sales should have adjoining parcels similar to the subject property. • If there are separate tax bills or tax identification numbers on each parcel, it is not necessary to combine them. • All parcels must be identified in the appraisal report and identified on a plat map or survey. The appraiser should disclose if each parcel is build able and/or has utilities. • Each parcel must be conveyed in its entirety
Security Bars Properties with security bars will be considered unacceptable collateral unless they comply with local fire codes and they meet the following condition: There must be a "Quick Release" on at least one window in each bedroom
Heating & Cooling Sources All properties must have a permanent source of heat and, if typical for the area, cooling. Space heaters and similar sources are not considered permanent heat sources, even if affixed to a permanent wall. The appraiser must comment on it absence and supply evidence that this is common, customary and compatible for the area; comps should reflect the same condition. Regardless, the property must still be habitable year round.
Uniform Appraisal Dataset The Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac (the GSEs) to collect additional appraisal data for loans delivered to them. To comply with this requirement, the GSEs have created (1) a Uniform Appraisal Dataset (UAD) that defines all required fields and how fields should be completed in the appraisal report forms and (2) a Uniform Collateral Data Portal (UCDP) for submission of electronic appraisal data files to the GSEs. Appraisers are required to provide UAD-compliant appraisal reports for the appraisal report forms listed below: 1. Uniform Residential Appraisal Report (Fannie Mae 1004/Freddie Mac 70) 2. Individual Condominium Unit Appraisal Report (Fannie Mae 1073/Freddie Mac 465) 3. Exterior-Only Inspection Individual Condominium Unit Appraisal Report(Fannie Mae1075 /Freddie Mac 466) 4. Exterior-Only Inspection Residential Appraisal Report (Fannie Mae 2055/Freddie Mac 2055) Each of the forms includes the Fannie Mae 1004MC / Freddie Mac 71 - Market Conditions Addendum to the Appraisal Report.
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Address Discrepancies Per UAD requirements it is required that the appraisal address conform to the USPS (United States Postal Service) address standards which can be found at www.usps.com. The appraiser must enter the physical property address, including the unit number for a condo, in a format that conforms to the United States Postal Service address. EX: Minnesota is abbreviated as MN per the USPS standards and not Minn. Appraisers must use the physical address on the appraisal report. If the physical address differs from the legal address, then the appraiser must provide an addendum with an explanation to clear any discrepancies.
Uniform Collateral Data Portal The Uniform Collateral Data Portal (UCDP) is a portal through which lenders are required to electronically submit appraisal reports for conventional mortgage loans delivered to Fannie Mae and Freddie Mac. The following appraisal reports, including all exhibits, addenda (including the Market Conditions Addendum), and photographs must be submitted to each agency’s UCDP and receive a "Successful" status. Lenders must ensure that unaltered reports submitted by the identified appraisers are submitted to the UCDPs. 1. Uniform Residential Appraisal Report (Fannie Mae 1004/Freddie Mac 70) 2. Small Residential Income Property Appraisal Report (Fannie Mae Form 1025/Freddie Mac Form 72) 3. Individual Condominium Unit Appraisal Report (Fannie Mae 1073/Freddie Mac 465) 4. Exterior-Only Inspection Individual Condominium Unit Appraisal Report(Fannie Mae1075/Freddie Mac 466 ) 5. Exterior-Only Inspection Residential Appraisal Report (Fannie Mae 2055/Freddie Mac 2055) Copies of both the Fannie Mae & Freddie Mac UCDP Successful Submission Summary Reports are required. Important: If any updates are made to the appraisal, updated Copies of both Fannie Mae & Freddie Mac UCDP Successful Submission Summary Reports will be required to document the updates were submitted successfully. Note: Property Inspection Reports (Fannie Mae Form 2075/Freddie Mac 2070) are not required to be submitted to the portals.
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UAD Condition Ratings UAD-compliant appraisal report forms must include a UAD Condition Rating (C1, C2, C3, C4, C5, or C6) that best describes the overall condition of the subject property and each comparable property. The condition of the comparable sales is to be similar to that of the subject property. Any use of superior comparable sales must be explained by the appraiser and supported by market data. Also, the appraisal report must contain additional commentary, descriptions, and explanations to enable the appraisal reviewer to understand the property condition and quality. An appraisal may be completed subject to completion of repairs or alterations required for the subject property to be rated C4 or better, (C5 and C6 rating are not permitted). If the appraisal is completed subject to repairs or alterations, then the UAD Condition Rating must reflect the overall condition of the subject property after all repairs or alterations have been completed.
UAD Quality Ratings UAD-compliant appraisal report forms must incorporate a UAD Quality Rating (Q1, Q2, Q3, Q4, Q5, or Q6) that best describes the overall quality of the subject property and each comparable property. A subject property with an overall quality rating of Q6 is generally not acceptable collateral, unless all issues that caused the property to be rated Q6 are cured prior to closing. Items that may be required to be cured include modifying the property to make it habitable as a year-round residence; upgrading the electrical, plumbing, and other mechanical systems and equipment to meet community standards; correcting any substandard or non-conforming additions to the original structure; and curing any other quality-related items needed to make the property acceptable to typical purchasers in the market in which the property is located.
An appraisal may be completed subject to repairs or alterations required for the subject property to be rated Q5 or better. If the appraisal is completed subject to repairs or alterations, then the UAD Quality Rating for the subject property should reflect the overall quality of the property after all repairs or alterations have been completed.
Private Road Requirements The subject property must have appropriate ingress and egress and must be maintained so that meets community standards. The appraisal must denote the effect to the property value or marketability from the presence of the private road.
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Escrow Holdback for Incomplete Improvements (Conforming Loan Amounts) In order to allow Escrow Holdback there must be evidence in the loan file that the improvements cannot be completed due to inclement weather or if new construction, due to a temporary shortages of building materials. Furthermore, additional conditions must be satisfied in order for the escrow holdback to be permitted: • The appraisal report must denote the value “as completed” as the opinion of market value. • The appraiser must provide a detailed list of the incomplete items, and the appraiser or an independent contractor (disinterested but relevant party) is to provide an itemization of the cost to complete the incomplete items with the cost to complete the incomplete improvements not to exceed 10% of the “as completed” value. • The underwriter must determine that the incomplete improvements do not adversely affect the safety of the occupants, or the soundness or habitability of the premises. • A fully executed escrow holdback agreement is provided denoting that the improvements will be satisfactorily completed within 30 after loan closing. In the event that additional days are necessary to complete weather related improvements, all work must be completed within 180 days after loan closing. • Funds to be held in escrow must be 1.5 times of the estimate except for HUD REOs with escrow holdback repairs (see HUD REO escrow holdback section in FHA guidelines for details) plus the cost of the final inspection form 442 will be collected at closing to be held in escrow as well. • The settlement/escrow agent will hold the funds and a final inspection with photos will be completed prior to release of funds which may include copy of invoices, paid receipts, etc. Note: All loans are subject to full underwriter review for acceptability and reasonableness. The Escrow Holdback may not be allowed even if the loan conforms to the guidelines.
Completion of Improvements Upon completion of all improvements, the Originator must provide to FCBM evidence of completion via a Final Inspection Form 442 that includes photographs of the completed improvements from the appraiser.
Escrow funds release procedure In order for the Escrow Agent to initiate the release of any escrowed funds, the Final Inspection Form 442 along with paid receipts and a statement from the borrower regarding satisfaction with the work completed must be submitted to the following e-mail: [email protected] Upon review and approval of all required documentation, the Post Closing Department will authorize the Escrow Agent to release the escrow repair funds accordingly.
Escrow Holdback for Incomplete Improvements (Super Conforming Loan Amounts) Escrows Holdbacks for incomplete improvements are done on a case by case basis due to weather related conditions for exterior items, or shortage of building materials during the months of October 1st through April 1st,. If there is no valid reason for the items not be completed timely; then the escrow holdback is not permitted. When evidence is provided to FCBM that the improvements cannot be completed due to inclement weather or if new construction, due to a temporary shortages of building materials, an escrow holdback may be acceptable to FCBM so long additional conditions are satisfied: • The appraisal report must denote the value “as completed” as the opinion of market value.
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• The appraiser must provide a detailed list of the incomplete items, and the appraiser or an independent contractor (disinterested but relevant party) is to provide an itemization of the cost to complete the incomplete items with the cost to complete the incomplete improvements not to exceed the lower of either 10% of the “as completed” value or $10,000. • The underwriter must determine that the incomplete improvements do not adversely affect the safety of the occupants, or the soundness or habitability of the premises. • A fully executed escrow holdback agreement is provided denoting that the improvements will be satisfactorily completed within 30 after loan closing. In the event that additional days are necessary to complete weather related improvements, all work must be completed within 180 days after loan closing. • Funds to be held in escrow must be 1.5 times of the estimate except for HUD REOs with escrow holdback repairs (see HUD REO escrow holdback section in FHA guidelines for details) plus the cost of the final inspection form 442 will be collected at closing to be held in escrow as well. • The settlement/escrow agent will hold the funds and a final inspection with photos will be completed prior to release of funds which may include copy of invoices, paid receipts, etc. Note: All loans are subject to full underwriter review for acceptability and reasonableness. The Escrow Holdback may not be allowed even if the loan conforms to the guidelines.
Ineligible for Escrow Holdback for Incomplete Improvements or Repairs • The value of the incomplete items exceeds the max of 10% of the appraised value regardless of the LTV. Exception New construction for the installation of a pool. Not to exceed Pool contract plus inspections. • Roof repair or replacement. Completion of Improvements Upon completion of all improvements, the Originator must provide to FCBM evidence of completion via a Final Inspection Form 442 that includes photographs of the completed improvements from the appraiser. Escrow funds release procedure In order for the Escrow Agent to initiate the release of any escrowed funds, the Final Inspection Form 442 along with paid receipts and a statement from the borrower regarding satisfaction with the work completed must be submitted to the following e-mail: [email protected] Upon review and approval of all required documentation, the Post Closing Department will authorize the Escrow Agent to release the escrow repair funds accordingly.
Escrow Holdback for Swimming Pool - New Construction Only (Conforming and Super Conforming Loan Amounts) • The appraisal must be “subject to” a final inspection; must be done prior to release of funds by the title company. • Amount of escrow holdback for the pool installation is not to exceed the pool contract plus inspections
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Repair Escrow Holdback Determination (All Loan Amounts) If a work completion escrow is necessary, it must adhere to the following policies: Source of Funds for • Purchase: Borrower or seller can establish the funds for work completion Escrow Holdback escrow account. Account: • Refinance: Out-of-pocket funds from the borrower must be used to establish the work completion escrow account. File must document additional assets from borrower used to establish funds for escrow holdback. Control of Escrowed The funds should be held and managed by the escrow agent (usually the closing Funds: attorney, Title Company that performed the loan closing); in some instances, funds may be held by FCBM i.e. FHA HUD REO with escrow holdback. The Escrow Holdback Agreement will be provided by FCBM. Evidence of disbursed funds must be provided (disbursement schedule to be indicated on the holdback agreement)
Use of Escrowed The work completion escrow account cannot be used for any reason other than for Funds: the required repairs/construction to the subject property that cannot be completed prior to the loan closing. Certificate of Required at time of loan closing, if required by the jurisdiction the property is Occupancy: located. Insurance: Mortgage and title insurance cannot be impaired during the Escrow Period. Completion of Work: Work must be completed in a professional workmanlike manner and satisfy all collateral requirements Completion Time All work must be completed within 30 days of closing. 180 days is permitted with Frame: verification that the delay is weather-related. Final Inspection After closing, a final inspection must be performed to ensure the work is complete. This cannot be waived if a work completion escrow account has been established. A final inspection must be present in the permanent loan file along with cop of invoices /paid receipts if applicable prior to the work completion escrow funds being released. The final inspection fee must be collected at closing and shown on the Settlement Statement/Closing Disclosure.
Final inspection must be completed prior to the last disbursement of held back funds.
Note: A Certificate of Occupancy is not an acceptable alternative to the final inspection.
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Conditions Required on Escrow Holdback loans: • Loan will have the following conditions: o Discovery Inspection-LE to be re-disclosed within 3 days with new fees: Final Inspection related to Escrow Holdback as of ___/___/_____ in the amount of $______Loan will have the following PTD-Closing conditions on borrower paid escrow o The escrow repairs are out-of-pocket funds from the borrower; therefore, provide documentation of additional available assets from borrower in order to establish funds for escrow holdback. o On refinance transactions: the total amount to be escrowed (150% of repairs + the final inspection fee) is to be added to the details of transaction of the 1003 in Mortgagebot on line #b so that the appropriate required funds from the borrower are listed. o If the escrow repairs are for a purchase transaction where the borrower will be funding the escrow repairs; the total amount to be escrowed (150% of repairs + the final inspection fee) is to be added in Mortgagebot on the 1003 as a liability to be paid at closing and excluded from the ratios so that the appropriate required funds from the borrower is calculated.
• Loan will have the following conditions at closing PTF: o Borrower and seller are to sign the escrow holdback agreement for repair escrow to be established in the amount of $______[$______cost of $______repair x 150% + $175.00 for a Final Inspection.] o Final inspection by the appraiser, with photos, to confirm completion of the repairs listed on the appraisal and escrow holdback agreement in a workmanship manner. Repairs to be completed within ______days of closing date. o Loan to have the full amount of the escrow holdback added to the fee screen as Miscellaneous Fee of the Settlement Statement/Closing Disclosure (escrow holdback). o The final inspection fee of $175 to be added to the miscellaneous fee of the Settlement Statement/Closing Disclosure.
Construction Conversion or Renovation Mortgages (AKA One time Close) -Not allowed. A One-Time Close transaction for both the construction loan and the permanent financing is defined as the borrower closing on both the construction loan and the permanent financing at the same time. Because the loan documents specify the terms of the permanent financing, the construction loan will modify to a permanent long-term mortgage on completion of the construction.
Construction/End Financing - Two Time Close Permanent financing allowed A Two-Time Close transaction may be used when a borrower obtained interim construction financing to finance the construction of a residence and purchase of lot, if applicable, and needs to obtain permanent financing on completion of the construction. The lender that provides the long-term permanent mortgage may be a different lender than the one that provided the interim financing. The lender must underwrite the borrower based on the terms of the permanent mortgage.
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A Construction to Permanent financing mortgage may be closed as limited cash out refinance, or cash out refinance transaction with the LTV derived from the Appraisal Value. In order for to be eligible for a cash-out refinance transaction, the borrower must have held legal title to the lot for at least six months prior to the closing of the permanent mortgage.
Important: If the borrower is a General Contractor who served as the builder during the construction of his/her primary residence, the LTV is determined by dividing the loan amount by the lesser of:
• The current appraised value of the lot and improvements, or • The total acquisition costs (the cost of the improvements plus the cost of the lot as documented by a copy of the purchase contract, fully executed Settlement Statement/Closing Disclosure, or appraisal report). Note: The right of rescission does not apply when paying off a construction loan with the permanent financing loan (end loan).
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Non-Permitted additions/Building Permits Building permits are required under the following conditions: 1. Whenever the Purchase Agreement or Sales Contract requires it. 2. If indicated in the appraisal report that there is an addition to the original structure, extensive remodeling, or conversions of an existing structure. 3. Whenever a second story, kitchen, bath, multiple rooms, or detached unit has been added to the original structure. Building permit requirements for unpermitted living areas are waived under the following circumstances (all must apply): 1. The addition does not cause the subject property to be in violation of zoning. 2. The property may be rebuilt. 3. The appraisal does not include comments that the addition was completed in less than a workmanlike manner or that there is any impairment to the soundness, structural integrity 4. Any applicable hazard insurance covers the addition.
A one- or two-unit property that includes an illegal additional unit or accessory apartment (often referred to as a mother-in-law, mother-daughter, or granny unit) is permitted when the following conditions are met: 1. The appraiser is required to provide a description of the accessory unit, and analyze any effect it has on the value or marketability of the subject property 2. Must be residential in nature 3. The illegal use conforms to the subject neighborhood and to the market 4. The property must be appraised based on its current use- legal use. 5. The borrower must qualify for the mortgage without considering any rental income from the illegal unit. 6. The loan file must contain evidence that the existence of the illegal additional unit will not jeopardize any future hazard insurance claim that might need to be filed for the property. 7. Local government must allow the property to be rebuilt if damaged or destroyed. The governing agency’s (or official’s) name should be identified in the appraisal report. 8. The appraiser must report that the improvements represent an illegal use. The appraisal must demonstrate that the improvements are typical for the market through an analysis of at least one comparable properties that have the same illegal use. Must be common and customary for the market. 9. As an alternative to providing at least 2 similarly affected comparable sales, the following are acceptable: o The appraiser may include only one comparable sale similarly affected as long as a similarly affected current listing or pending sale is also included.
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A mortgage secured by a 3-4 unit property that includes an illegal accessory apartment is not permitted. In addition, a mortgage secured by a property that is subject to certain land-use regulations (such as coastal tideland or wetland laws) that create setback lines or other provisions that prevent the reconstruction (or maintenance) of the property improvements if they are damaged or destroyed are not permitted. (The intent of these types of land-use regulations is to remove existing land uses and to stop land development—including the maintenance or construction of seawalls—within specific setback lines.)
Non-Permitted Garage conversion If a garage was converted without a permit, the appraiser must show the value as a garage, not as a converted room. The appraiser must also estimate the cost to cure for re-conversion back to a garage. If the garage is converted to living space with no extra plumbing or electrical work, no permit is required if the appraiser indicates it was completed in a workmanlike manner, the comparables support the value, and the lack of car storage is not prohibited by local ordinances. Note: If the appraiser comments that the addition, remodeling, or conversion was permitted, a copy of the permit is not required.
Assumability Not permitted.
Condominium Project Detached Condominiums Freddie Mac defines a Detached Condominium Project to be one which is a Condominium Project comprised solely of detached, 1-unit dwellings (Site Condominium Units ONLY) and does not include Manufactured Homes.
It is not required for the lender to conduct a project review so long the Detached Condominium Project complies with all of the following requirements: • The project must comply with the definition of detached condominium project noted above. • The unit owners must be the sole owners of, and have the right to the use of, the Common Elements, including all buildings, roads, parking, facilities and Amenities. • The unit owners must have either: o An undivided ownership interest in the land on which the project is located or o A leasehold interest in the land on which the project is located. • If the project is on a leasehold estate, it must comply with the Freddie Mac leasehold estate requirements noted in these guidelines and it Section 5704 of the Sellers Guide. • The project must have insurance coverage that complies with Freddie Mac Section 8202.2 through 8202.9 for 1-4 Units if so permitted by the HOA; otherwise, the homeowners association must maintain all other applicable insurance coverages required in Sections 8202.2 through 8202.9. • The unit is covered by a title insurance policy with its applicable ATLA Form 4 endorsement or its equivalent. To verify the above requirements, the Loan Originator must provide the Underwriter with the completed “Freddie Mac Detached Site Condominium Eligibility-Exhibit A-3” form which can be found in FCBM’s resource center. Note: A Detached Condominium unit located in a project with a mixture of attached and detached units is considered to be a regular Condominium and must follow the Streamline Lender Review process.
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2-4 Unit Condominium Projects 2 -4 Unit condos with no dues: Require condo legal documents proving that there was an HOA established at one time and proper insurance is currently in place in the name of the HOA- it is acceptable if HOA is inactive and no fees collected. Typically Condo hazard and liability insurance should be under the HOA’s name, however, individuals may carry their own insurance if the condominium legal documents allow for individual to carry the appropriate coverage and policy. Important: 2-4 Unit Condominiums must comply with Freddie Mac Sellers Guide Section 5701.7(a).
Investment Condominium Projects Streamlined Reviews for established Condominium Projects are not permitted. Full Project Review is required for Condominium Units on Investment Properties.
Refer to FCBM’s Condo Guides and Exhibits within the Resource Center at www.flcbmtg.com for full requirements.
Purchase/ Sales Agreement All purchase money transactions must have a sales contract. The sales contract, at a minimum, must identify buyers, sellers who must be the owner of record, property address, and the sales price. Buyers and sellers must sign the contract, any addenda, and initial any changes made to either. It must identify all borrowers as buyers. The appraiser must be provided with the complete ratified sales contract and all addenda for the property that is to be appraised. Note: Assignment of the sales contract is not an acceptable practice.
Sales Contract Changes After the Appraisal is Completed The originator must provide to the appraiser the updated/amended sales contract that affects the description of the real property, known affiliation between the property seller and the purchase, income and expense statement and property leases and any other information that the Lender is aware that may affect market value, condition or marketability of the property such as changes to the use of the property, presence of any contaminated site, hazardous substances, or other adverse conditions in order for the appraisal to be updated. The lender is not required to provide the appraiser with an updated sales contract unless the updated terms impact the physical description or the condition of the property.
Changes to the sales contract that are not required to be provided to the appraiser include but are not limited to: • Changes to the transaction terms such as: Sales Price, financing or sales concessions; and • Date revisions, corrections to typographical errors; such as, names or initials, correction of misspellings.
Assignment of the sales contract is not an acceptable practice. A complete copy of the complete ratified sales contract and all addenda for the property that is to be appraised must be submitted to the appraiser with the appraisal request, as well as any amendments.
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Reviewing the Purchase & Sales Agreement Compare the information on the contract with the information on the loan application, preliminary title, and disclosures. 1. Verify that the agreement lists the borrowers as "Buyer". 2. Verify that the seller is in title to the property. 3. Be sure that the receipt of deposit agrees with the amount on the application 4. Verify that the purchase price agrees with the application purchase price under details of purchase section on the application. Also, verify the terms of any other financing to ensure it meets secondary financing requirements. The secondary financing payment must be included in debts when calculating the debt ratio. 5. Verify that the buyer and seller portions agree with the details of purchase section on the application. If the seller is to pay any closing costs on the buyer’s behalf, they must be fully disclosed in the contract. Closing costs may be limited to a dollar amount or percentage of the purchase price, or to specific items 6. The seller may pay all non-recurring closing costs up to the maximum provided in the Interested Party Contributions section of the Underwriting Chapter. Prepaid mortgage payments are not allowed.
Owner of Record The owner of record must be verified via information provided by the appraiser, a property sales history report, a copy of the recorded deed, the property tax bill, or the title commitment or binder: 1. For purchase transactions, the property seller listed in the sales contract must be the owner of record of the subject property. 2. For refinance transactions, the borrower must be the owner of record of the subject property. 3. For transactions that involve the payoff of a land contract, the property seller is the vendor on the recorded land contract and the Owner of Record of the subject property; and the Borrower is a vendee on the recorded land contract.
Rent Backs on sales contracts • Owner Occupied properties only (no Second homes) • It must be a reasonable timeframe as the borrower must occupy the home per the occupancy certification. (Max allowed: 60 days) • Must verify that the rent is reasonable for the market area: • Appraiser to comment on the contract and fair market rent Validate via website: http://www.huduser.org/portal/datasets/fmr.html • 1007 appraisal report to validate fair market rent (at u/w discretion) on and 998 on LPA AUS.
Property Listed for Sale • No Cash Out Refinances and Cash Out Refinances If the property has been listed for sale in the previous six (6) months, the listing agreement must be cancelled prior to loan closing.
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Interested Party Contribution Appraisal Requirements (Reference Interested Party Contribution Guidelines) Appraisers must be provided with information relating to all interested party contributions for the subject property, including both financing and sales concessions that have been, or will be, granted. The appraiser must also be provided with information associated with a temporary or permanent interest rate buy down funded through a standby commitment provided by the lender or the builder.
The appraisal must indicate that the appraiser included all financing terms and whether the terms affected the property value. Positive adjustments for sales or financing concessions are not acceptable.
California, Washington, Oregon and New York Properties State Law requires that carbon monoxide detectors must be installed on all single-family units intended for human occupancy. Florida Capital Bank Mortgage (FCBM) will condition for the installation of a carbon monoxide detector for all loan transactions where the appraisal notates either a concern or lack of a carbon monoxide detector. Any indicators within the loan file, such as a purchase contract or other documentation, notating concerns around the carbon monoxide detector installation will require additional conditions
Other State Specific Requirements California State Building Plumbing Code Law Section 19210-19217, Oregon State Building Code Law Section 507.1, and Washington State Building Code Law Section 507.2 regarding seismic provisions require that water heaters shall be anchored or strapped to resist horizontal displacement due to earthquake motion. Florida Capital Bank Mortgage (FCBM) will condition for the water heater to be anchored/strapped unless the water heater is waterless (which does not need to be strapped) on all loan transactions where the appraisal notates the water heater is not anchored or strapped.
Properties with Solar Panels If the property owner is the owner of the solar panels, standard eligibility requirements apply regarding appraisal, insurance and title. However, if the solar panels are leased, or owned by a third party under a power purchase agreement, or other similar arrangement, the following requirements apply: • The solar panels may not be included in the appraised value of the property. • The property must maintain access to traditional electric utilities. So the property leased solar panels must have traditional electrical utilities in addition to the electricity provided by the solar energy, to ensure consistent access to electricity in the event the solar panels become non- functioning or are removed. • The lease payment for the solar panels must be included in the DTI ratio calculation. Note: Payment that goes entirely to pay for the energy is not to be included in the DTI. • The owner of the solar panels must have a general liability insurance policy that covers damage to the property caused by faulty installation, malfunction, or other manufacturing defects, whether or not covered by the warranty. • The owner of the solar panels must not be named loss payee or named insured on the Homeowner’s insurance policy. • The Homeowner insurance policy must not exclude coverage for any tort liability the borrower may have under the terms of the contract with the owner of the solar panels (i.e. for direct
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damage) and may not exclude coverage for losses to the insured premises by reason of the presence of the solar equipment. • A copy of the solar panel lease or a copy of the power purchase agreement must be provided to FCBM for review to ensure that: o The solar panels are removable without causing damage to the property; o Damage that does occur as a result of the removal of the solar panels is the responsibility of the owner of the equipment and the owner must be obligated to repair the damage and return the improvements to their original condition (for example, sound and watertight conditions that are architecturally consistent with the home); and o In the event of foreclosure, either: . The lender may terminate the lease/agreement and require the third-party owner to remove the equipment; . The lender has the right to become the beneficiary of the borrower’s lease/agreement with the third party without charge; or . The lender has the right, but not the obligation, to enter into a new lease/agreement with the third party, under terms no less favorable than the prior owner.
Note: Any lease/agreement in which the lender is a party in connection with a foreclosure whether as beneficiary or direct party, must also be assignable to a subsequent purchaser of the realty from the lender. In addition, the lender must also have the right to terminate the lease/ agreement and require removal of the equipment (for example, if the third party places restrictions on the assignment to a purchaser). • The title cannot reflect any liens related to the ownership or maintenance of the solar panels that will result in a lien superior to the first lien’s position. • Title exceptions with respect to the solar panels such as, easements, notice of contract may be present on the title provided the interest is not superior to the first lien’s position.
Land contract/ Contract for Deed When the proceeds of Mortgage are used to pay the outstanding balance of a land contract or contract for deed, the loan may be considered either a purchase or a "no cash-out" refinance transaction depending of certain requirements. Purchase The new transaction to pay off a land contract or contract for deed will be considered to be a purchase if the land contract or contract for deed was executed less than 12 months prior to the loan application date and all loan proceeds are used to pay the outstanding balance of the land contract or contract for deed. The LTV must be calculated using the lesser of the following: o The current appraised value, or o The total acquisition cost (the purchase price indicated in the original land contract or contract for deed, plus any cost the Borrower has expended for rehabilitation, renovation, refurbishment or energy conservation improvements). Sufficient documentation evidencing the total acquisition cost must be provided. No Cash Out Refinance If the land contract or contract for deed being paid off was executed 12 months or greater prior to the loan application date, the new transaction will be considered to be a no cash out refinance.
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The LTV must be calculated using the current appraised value and evidence of satisfactory payment history for the most recent 12 months period is required. The payment history must be provided via a third party and all other requirements applicable to no cash out refinances must be met.
Lease to Own/ Rent with Option to Buy A transaction in which the borrower holds a lease with an option to purchase the subject property must be processed as a purchase transaction, with the LTV based on the lesser of the purchase price or appraised value. The property seller may give the purchaser credit toward the down payment for a portion of previous rent payments the purchaser made under a documented rental purchase agreement. If the borrower is currently renting the subject property under a lease option contract, the portion of the monthly rent payment that exceeds the market rent can be applied to the down payment if there is a valid rental/purchase agreement in effect. The 5% minimum cash down payment does not have to come from the borrowers own funds in order to receive the credit.
Example: If fair market rent is $500 per month and the borrower is paying $600 per month, $100 for each month the borrower has rented can be credited towards the down payment. • A copy of the rental/purchase agreement, verifying monthly rent and the specific terms of the lease is required; • The original term may not be less than 12 months and the total credit due to the borrower must not exceed the amount specified in the contract; • The appraiser must develop the market rent; and • Copies of canceled checks or money order receipts for the last 12 months are required to document rent payments. Not permitted for Texas Section 50(a)(6) loans.
Leasehold Estates A leasehold arrangement is one in which there is separate ownership of the land and the improvements on the land. The landowner grants a lease to the owner of the improvements that gives the improvements owner the right to use the land in exchange for a rental payment. The ownership interest in the land is called the “fee interest” or “fee estate.” The ownership interest in the improvements coupled with the rights granted in the lease to use the land is called the “leasehold interest,” “leasehold estate,” or simply “leasehold.” The rental payment is called a “leasehold payment” or “ground rent,” and is usually paid annually. The lease is commonly for a term of 99 years or more, and is usually renewable.
Florida Capital Bank Mortgage may require for a legal opinion letter to be provided the customer’s Attorney/Legal Counsel, the title company or the HOA attorney where it is not clear that all leasehold requirement are met. Not permitted for Texas Section 50(a)(6) loans. Deed Restrictions are not allowed on leasehold estates To be eligible, a leasehold estate must meet the following requirements: • In all respects, the lease or sublease must be valid, in good standing, and in full force and effect. • The leasehold estate and improvements must constitute real property, be subject to a mortgage lien, and be insurable by an acceptable lender’s title insurance policy.
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• For condo, PUD or cooperative projects, the homeowners association or the cooperative association must be the lessee under the ground lease. The fee simple owner must not be the developer, an entity associated with the developer, or a hospitality entity. • The leasehold must be assignable/transferable. • All lease rents, other payments, or assessments must be current, and the borrower must not be in default under any other provision of the lease—nor may the lessor have claimed such a default. • Term: The term of the estate extends a minimum of 5 years beyond the maturity date of the mortgage. (This requirement does not apply if fee simple title will vest in the borrower, owners' association, or a cooperative corporation at an earlier date.) • Recordation: The lease and any sublease, including all amendments, or a memorandum of lease or sublease, must be recorded.
The lease or sublease should provide for the following: • Priority of FCBM (as the leasehold mortgagee) first mortgage lien over all other liens—especially those for assessments to support common amenities. • Contain a provision that interest can be transferred, mortgaged, and/or sublet an unlimited number of times by the lessee—either without restriction or with payment of a reasonable fee and delivery of reasonable documentation to the lessor (owner of the land). The lessor may not impose any credit qualifying criteria on an assignee, transferee, mortgagee or sub lessee. • Contain provisions to protect FCBMs interest in the event of bankruptcy of any party to the lease, foreclosure, the property’s condemnation or destruction, such as the right to assume the lease and any renewal options, or acquire the lease in its own name or in the name of a nominee upon foreclosure or deed in lieu of foreclosure. • Contain a provision that the borrower will pay taxes, insurance, and owners' association dues related to the land—in addition to those they are paying on the improvements. • Any provisions for increases in basic rent, or taxes, insurance and utilities or fees or expenses for maintenance of common areas if collected and paid by the lessor, must be limited to a certain amount at a specific date or time interval, or subject to a maximum annual increase limitation.
The lease or sublease should provide for the following: • If the lessor’s fee simple interest in the land is subject to any encumbrances or liens, or the lease requires the lessee to agree to the subordination of the lease to said liens or encumbrances, the fee simple lien holder has executed and recorded a Nondisturbance and Attornment Agreement that contains the provisions indicated below. • Provide for the leasehold mortgagee to approve any amendments to the lease that relate to the provisions described herein, the modification of the leasehold estate, or the termination or cancellation of the lease • Contain a provision that the borrower retains voting rights in any owners' association. • Provide for the leasehold mortgagee to exercise any renewal options that may exist. • Guarantee FCBM the right to receive a minimum of 30 days’ notice of any default by the borrower and to cure the default or take over the borrower’s rights under the lease. In the event of bankruptcy of the lessor or lessee, the lessee must notify FCBM in a timely manner.
The lease must not:
• Contain default provisions allowing forfeiture or termination of the lease except for non-payment of the lease rents.
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• Contain provisions for termination of the lease in the event of damage to or destructions of the mortgaged premises as long as the leasehold mortgage exists. • Prohibit the leasehold mortgage from being insured under a hazard insurance policy or from receiving hazard insurance proceeds as either mortgagee or insurance trustee. • Prohibit the leasehold mortgagee from exercising renewal options.
Sublease
• The lessor may not require a credit review or impose any other qualifying criteria on transference, mortgage, or sublease. • The sublease must be signed by both the fee owner and the sublessor. • The sublease must contain a Nondisturbance and Attornment Agreement, by which the fee simple lien holder or the lessor agrees to accept the terms of the lease or sublease and not to interfere with the lessee’s rights to use the leasehold estate. • The amount of the sublease payments is at least equal to the amount of the lease payments and is due no less frequently than the lease payments. • The leasehold estate and the mortgage must not be impaired by a title merger between the lessor and lessee, or by a sublessor’s default. • The leasehold documents must confirm that a default under the leasehold estate will not result in the termination of the sublease.
Nondisturbance and Attornment Agreement If the lessor’s fee simple interest in the land is subject to any encumbrances or liens, or the lease requires the lessee to agree to the subordination of the lease to liens or encumbrances on the fee simple interest, the fee simple lien holder has executed and recorded a nondisturbance and attornment agreement that provides for the following: • The lease or the rights of the lessee or the leasehold mortgagee will not be terminated or affected by enforcement of any lien or rights granted to the fee simple lien holder. • The fee simple lien holder will not name the lessee or the leasehold mortgagee as a defendant in any action to enforce its lien. • If the fee simple lien holder forecloses on its lien, the lease will continue in full force and effect as a lease between the lien holder and the lessee, or the leasehold mortgagee, and the lien holder will accept the lessee as its tenant. • The lien of the fee simple lien holder does not include the improvements and fixtures, or any real or personal property owned by the lessee. • The lessee and the leasehold mortgagee have no liability or obligation to the fee simple lien holder in connection with its lien on the fee simple interest. • Condemnation and insurance proceeds awarded to the lessor will be used for the restoration, repair or replacement of the property damaged or taken by condemnation if economically feasible. • These provisions are subject to the lease being in full force and effect and the lessee not being in default in the payment of rent, taxes or property insurance.
Lease with Option to Purchase: • The lease may, but is not required to, include an option for the borrower to purchase the fee interest in the land. If the option is included, the purchase must be at the borrower's sole option
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and there can be no time limit within which the option must be exercised. • If the option to purchase is exercised, the mortgage must become a lien on the fee title with the same degree of priority it had on the leasehold. • Both the lease and the option to purchase must be assignable.
The purchase price is determined as follows: • If the property improvements exist at the time the lease is executed, the purchase price is the appraised value of the land on the date the lease was executed. • If the property improvements exist at the time the lease is executed, and the lease is tied to an external index, such as the Consumer Price Index, the initial land rent should be established as a percentage of the appraised value of the land on the date the lease is executed. The purchase price may be adjusted annually during the term of the lease to reflect the percentage of increase or decrease from the prior year. Leases may be offered with or without a limitation on increases or decreases in the rent payments. • If the property improvements will be constructed after the lease is executed, the purchase price should be the lower of If the lease is tied to an external index, the above criteria applies, but the initial land value may not exceed 40% of the total appraised value. • The current appraised value of the land, or The result of the following: Land Value Alone ÷ Original Total Appraised Value = ___% x current total appraised value.
Appraisal Requirements with Leasehold Estates: The type of ownership in which the property is held—fee simple or leasehold—must be clearly documented. The appraiser must include a detailed description of the terms, conditions, and restrictions of the ground lease, and comment on any effect the terms of the lease have on value and marketability. The appraiser should use sales of similar properties with the same lease terms as comparable sales. If there are no comparable sales of leasehold properties, the appraiser should use similar leasehold sales having different lease terms as comparable sales and describe the differences in the terms of the leases, and report any effect the differences have on the value and marketability. If there are no sales of leasehold properties, the appraiser should use sales of similar properties owned in fee simple as comparable sales. The appraiser must explain why the use of sales with different property rights is appropriate, and make appropriate adjustments to reflect the market's reaction to these differences.
Qualifying the Borrower: Any potential increase in rent payments must be taken into consideration when calculating the borrower’s housing payments and debt ratios.
Title Insurance Requirements with Leasehold Estate The title binder must include the ground rent owner’s information (name and address where to send payments) and the leasehold estate and the improvements must be insured by an ALTA 13 Leasehold Endorsement.
Deed Restrictions Deed restricted Condominium Project or Planned Unit Development are acceptable if the restriction is age related i.e. 55 and older communities that meet FHMLC guidelines that are in compliance with all federal,
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state and local laws, rules and regulations. The mortgage must be underwritten in accordance to the AUS and to Freddie Mac Seller Guide Section 4201.17.
Requirements include, but are not limited to: • Right of Refusal: For properties subject to resale restrictions, any right of first refusal must run to the enabling authority or jurisdiction that imposed the resale restrictions, with a time period not exceeding 90 days from the date of written notice to the authority or jurisdiction that the restricted property is being offered for sale. • Resale controls: Properties subject to resale restrictions, except for age restrictions, must have resale controls for a fixed period of time. The controls must be administered by a duly authorized authority of State, local or municipal government or an agent of the authority that has established mechanisms to provide applicant screening and processing on an ongoing basis. The controls may not be administered by the developer. • Effect of foreclosure or deed-in-lieu of foreclosure: Any resale restrictions, except for age- restrictions, must not survive foreclosure or deed-in-lieu of foreclosure. • Payment of financial obligations: Any requirement in the deed restrictions requiring the owner of the property to make payments under certain circumstances or requiring repayment of financial subsidies must state that the payment obligation is subordinate to the lien of the First Lien Mortgage. • Appraisal requirements for restricted properties: The appraisal must include at least three comparable sales with similar resale restrictions.
Also, title exceptions for restrictive agreements or restrictive covenants of record related to cost, use, setback, minimum size and building materials, and architectural, aesthetic or similar matters (other than single-family-use restrictions on 2-4 unit properties) are acceptable provided that the following conditions are met: • The restrictive agreements or restrictive covenants do not create or provide for any lien that would be not prior to the lien of the home mortgage nor provide for the elimination of the lien of the home mortgage. • The terms and provisions of the restrictive agreements or restrictive covenants are commonly acceptable to private institutional mortgage investors in the area where the mortgaged premises are located. • An endorsement to the title insurance policy affirmatively insures that no violation of any such restrictive agreement or restrictive covenant exists and that any future violation shall not result in forfeiture or reversion of title.
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Credit/Ratios/Liabilities Automated Underwriting System FHLMC Loan Product Advisor (FHLMC Seller Guidelines apply) LPA Recommendation: • Accept/Eligible • Refer , Caution, Invalid, Ineligible or Incomplete Status – not allowed A loan submitted to LPA, the automated system will generate on each loan: • The LPA Full Feedback Certificate, and • The LPA Document Checklist.
The LPA Full Feedback Certificate identifies the LPA recommendation and other messages concerning the loan, including general conditions for approval. The LPA Document Checklist provides a summary checklist of required documentation as identified on the LPA Full Feedback Certificate. This checklist is not all-inclusive of required documentation. Please refer to LPA documentation matrix for required documentation at http://www.freddiemac.com/learn/pdfs/uw/docmatrix.pdf
For additional resources specific to LPA documentation and underwriting requirements; please go to LPA’s sellers guide at http://www.freddiemac.com/singlefamily/guide/?tog=current
Ratios • Conforming Loan Amounts: Max DTI ratios per LPA Accept/Eligible • Super Conforming Loan Amounts: Max DTI ratios 50% regardless of LPA AUS allowing higher DTI ratios
Credit Score A Tri-Merged credit report is required for all transactions (Full RMCR credit report is also acceptable). Representative score used to qualify will be based off the lower of 2 or middle of 3. The representative credit score for the mortgage loan is determined based on the credit scores of each borrower and is used to determine loan eligibility and for pricing purposes. The following criteria may be used to determine each individual borrower's Credit Score using the "middle/lower" method: • If there are three valid credit scores for a borrower, the middle score (numerical middle of the three scores) is used. For example: 710, 745, 695 = the representative credit score is 710 • If there are three valid scores for a borrower but two of the scores are the same, the duplicate score is used. For example: 700, 700, 680 = the representative credit score is 700 710, 680, 680 = the representative credit score is 680 • If there are two valid scores for a borrower, the lower of the two scores is used. For example: 680, 740 = the representative credit score is 680
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Minimum Trade Lines on the Credit Report Florida Capital Bank Mortgage does not have a minimum tradeline requirement on AUS Accept credit risk assessment responses.
In situations where LPA identifies disputed accounts involving derogatory credit information and such derogatory history is not significant and it consists of isolated late payments, the LPA feedback certificate must be followed.
Credit Report Expiration 120 days on Purchase and Refinance
Age of Credit Documents • 120 days for existing construction • 120 days for new construction • Credit documents include credit reports and employment, income, and asset documentation. The age of the documents is measured from the date of the document to the date the note is signed. Income documentation provided must be the “most recent YTD paystub” documenting at least 30 days of income.
Non-Traditional Credit Not Allowed
Documenting Credit Reputation Direct verification of Mortgage debt, rental payments and other debts not shown on the credit reports are typically not required for LPA Accept Mortgages.
Evaluating Borrowers who do not have a Usable Credit Score The below policy applies to mortgages submitted to LPA before May 14, 2017: If not all borrowers have a usable credit report, the following must be met in order for LPA to assess the transaction: o At least one Borrower on the transaction has a usable Credit Score which will be determined by Loan Product Advisor), o The transaction is a purchase or "no cash-out" refinance mortgage, o The Mortgage is secured by a 1 Unit property and all Borrowers will occupy the property as their Primary Residence, o Borrowers with a usable Credit Score contribute more than 50% of the total monthly income, o Borrowers without a usable Credit Score are not self-employed For all Borrowers without usable Credit Scores, any debt that is not reported to the credit repositories must be verified to have a satisfactory payment history and the payment must be included in the monthly debt payment-to-income ratio
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Evaluating Borrowers who do not have a Usable Credit Score (Applies to mortgages submitted to LPA on or after May 14, 2017) Loan Product Advisor (LPA) will require the following when not all borrowers have usable credit score: • At least one Borrower must have a usable credit score (determined by LPA), • The transaction must be purchase money or no cash out refinance, • All Borrowers must occupy the property as their primary residence, • The property type must be 1-Unit. • If the Borrower without usable credit score contributes 50% or more of the total qualifying income, the underwriter must verify and document the following: o Each Borrower without a usable credit score must provide at least two (2) alternate credit references outside of those on the credit report with a recent 12 months payment history. If two or more Borrowers without a usable credit score have the same alternate payment reference, then the payment reference may count for each of those Borrowers. o At least one Borrower without a usable credit score must have a housing related payment history as the one (1) of the two (2) required credit references and all such housing payment history must be verified for the most recent 12 moths. o All housing payments must have no derogatory payment of 30 days or greater. o For all non-housing payment reference: only one payment reference may have 1x30 in the most recent 12 months; and all payment references must have no 60 days delinquent payments in the most recent 12 months. o Each payment reference must be verified directly with the creditor. For all Borrowers without usable Credit Scores, any debt that is not reported to the credit repositories must be verified to have a satisfactory payment history and the payment must be included in the monthly debt payment-to-income ratio
Fraud or Active Duty A consumer has the right to place a fraud or active duty alert on their credit bureau by following a procedure established by the bureaus. An alert means that someone may have used the consumer's identity without his or her consent. Borrowers with security alert in their credit file are not acceptable unless reasonable steps have been taken to verify the applicant's identity. The instructions provided by the consumer located in the consumer's credit report must be followed before an application can receive further processing. Or the borrower may contact the consumer reporting agency and provide the appropriate instructions and identifying information to the credit reporting agency allowing for the re-pull a consumer report clear of fraud or active duty alerts. In some instances the consumer will need to be contacted by phone to verify identity.
Care must be taken in reviewing each credit bureau report carefully to ensure there are no alerts or "red flags" which would require special attention.
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Social Security Identity Alerts If Fraud Guard findings has ANY type of alert related to Social Security; the underwriter must carefully review the credit report, the loan application and compare the social security number entered in the system vs. the social security number listed on the w-2’s or the social security card. If the underwriter determines that the loan officer entered the applicant(s) social security number incorrectly; the underwriter needs to correct the social security number in the system, request a correct credit report and re-order Fraud Guard; at this point, the initial identity alert will no longer show on the updated Fraud Guard findings report and no further action will be necessary from the underwriter other than put comments in Loan Notes that the loan was initially boarded with the incorrect Social Security Number but has now been corrected and no Identity Alerts are present in Fraud Guard.
If Fraud Guard findings reflect identity alerts for the social security number AND the social security number in AVISTA matches the credit report, loan application and the w-2’s or the social security card; then, the underwriter MUST perform the following actions: • Condition for the SSA-89 form to be completed and signed by the applicant so that we can order for the Social Security Number verification through Interthinx. Once received the SSA-89 form is received, the underwriter is to submit the form to Interthix at https://verifications.interthinx.com/login {this link is also available from the navigation bar on the right hand side of the screen, under Other FraudGuard Tools, select the SSV option} • Once Interthinx validates the social security number from the social security administration {the results from interthinx must show “successful” validation}; then, the UW will be able to clear the alert in Fraud Guard and place the proper comments to clear the alert
If the validation results from the social security administration reflect that the social security number is not successful; the loan is not eligible for financing and MUST be decline; the underwriter will need to review the social security validation results with Manager if necessary before issuing a decline notification to the customer.
Date of Birth Identity Alerts This type of alert needs to be carefully reviewed by the underwriter in order to determine the appropriate action to take in order to clear this alert; sometimes, this type of alerts arises from entering the incorrect DOB on the loan application, or because the customer’s social security issuance date does not coincide with the date of birth or the first years thereafter. In the event the alert was caused by data entry error, the DOB is to be corrected in our system and a new credit report to be obtained {the underwriter should be able to see that there is no longer an alert for this issue on the correct/updated credit report}
In the event that the date of birth in our system is correct and matching the customer’s DOB in the documents provided and the alert has any of the following descriptions; then a fully executed SSA-89 is to be obtained and the social security number to be verified through Interthinx: • Credit established before age 18 • Social security number issued on (xxxx/xxxx) at least 18 years after date of birth (xxxx/xxxx)
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OFAC (Office of Foreign Assets Control) Alerts The Office of Foreign Assets Control, known as OFAC, maintains a list of Specially Designated Nationals and Blocked Persons (SDN list) with whom United States Companies, Citizens and Permanent Residents are prohibited from doing business. If a borrower, key principal or a principal of a loan application is listed in the OFAC list, the borrower will not be eligible for a mortgage loan. Important: If the credit report shows an OFAC alert for either borrower, the underwriter is to contact the Compliance Department [email protected] providing them pertinent information.
Name Variations (AKA’s) Validation of borrower(s) information includes addressing variances in the borrower(s) name. This includes name misspellings, AKA’s, FKA’s, etc. Therefore, the borrower(s) is required to sign a same name affidavit listing the name variations listed on the credit report, or name variations identified on the credit documents.
If applicable, each borrower with name variances is to sign a same name affidavit at closing. A separate same name affidavit condition is needed for each borrower and it must effectively show each name variation separated using coma punctuation. The affidavit is to be executed at closing.
Important regarding changes to a borrower’s name: If there are changes to a borrower’s name (i.e., add middle initial, add “Jr” or “Sr”), it is not necessary to resubmit the loan if ALL of the following applies: • The credit report identifies an “AKA” for the borrower with the correct name/spelling, • the borrower’s social security number on the 1003 matches the one on the credit report, and • A name affidavit is completed at closing. However, if the borrower’s social security number is incorrect, it must be corrected and a new credit report will be required and the loan resubmitted to LPA.
Credit Report Address Indicators The credit reporting agencies indicate when the applicant's address provided by a creditor differs, or is a variation, from the address on the credit report. Often there is a simple and logical explanation. However, such discrepancies may be red flags for fraudulent activity. All discrepancies must be reviewed and resolved. • Address Discrepancy Alert: This alert occurs when the applicant’s address is a variation of the address the credit bureau has on file or the credit bureau address history reflects other addresses reported during the same time period as the inquiry address. • Address Mismatch Alert: This alert occurs when the applicant’s address does not show up on the credit bureau report. This indicates the inquiry address is a new address for the applicant’s credit profile, as the address does not match or has never been reported to the credit bureau before To clear the address alert indicator, the underwriter will need to review the loan documents provided to verify the that current residency address provided on the loan application (1003) is showing on at least one of the documents provided such as W-2’s, paystubs, bank statements, or on a recent utility bill to verify residency address. A letter of explanation for the discrepancy will also be necessary.
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Authorized User Accounts When the credit report contains any authorized user accounts, the Loan Product Advisor decision is considered valid only if the underwriter obtains documentation that evidences at least one of the following for each authorized user account: • Another Borrower on the Mortgage owns the Tradeline in question. • The Tradeline is owned by the Borrower's spouse, or • The Borrower has been making the payments on the account for the last 12 months. If the borrower is unable to document one of the above three requirements for each authorized user account, the underwriter may consider the Loan Product Advisor decision is valid and underwrite the Mortgage as a Loan Product Advisor Mortgage if the underwriter determines that the authorized user accounts have an insignificant impact on the Borrower's overall credit history and the information on the credit report is representative of the Borrower's own credit reputation. Payments on "Authorized User" accounts should always be included in the debt-to-income ratio unless written documentation (i.e. 12 months cancelled checks) is provided proving that the owner of the account is making the payments.
Derogatory Credit Bankruptcy: The AUS already considered the borrower's credit reputation has been deemed acceptable with the Accept/Eligible risk assessment. No further evaluation of the bankruptcy is required. Foreclosures: The AUS already considered the borrower's credit reputation has been deemed acceptable with the Accept/Eligible risk assessment. No further evaluation of the foreclosure is required. Deed in Lieu: The AUS already considered the borrower's credit reputation has been deemed acceptable with the Accept/Eligible risk assessment. No further evaluation of the deed-in-lieu of foreclosure is required. Short Sales: The AUS already considered the borrower's credit reputation has been deemed acceptable with the Accept/Eligible risk assessment. No further evaluation of the short sale is required. Note: Derogatory explanations are not required for any of the above events.
Verification of Previous Rental/Mortgage Payment History Direct verification of debts that are not listed on the credit reports are typically not required for LPA Accept mortgages. However, prudent underwriting is required when considering this obligation in the overall qualifying of the borrower’s ability to repay the mortgage.
Credit Inquiries for loans with LPA as the AUS Explanations are required for inquiries reflecting on the credit report if the inquiries are made within 120 days from the credit report date.
Collection and Charge-Off of Non-Mortgage Accounts The AUS already considered the borrower's credit reputation has been deemed acceptable with the Accept/Eligible risk assessment. No further evaluation of the collection/charge-off is required.
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Charge-off of a Mortgage Debt The AUS already considered the borrower's credit reputation has been deemed acceptable with the Accept/Eligible risk assessment. No further evaluation of the mortgage charge-off is required.
Judgments, Garnishments, and Liens Judgments, garnishments and/or liens are not required to be paid off if all Borrowers have traditional credit score and the underwriter is required to ensure that the judgment(s) would not affect the first lien position. In the event the first lien position will be affected if any of these items remain unpaid; then, must be paid off at or prior to closing. Nevertheless, each Borrower without a usable credit score must have no judgments or tax liens filed in the most recent 24 months in order to meet credit standards. Any outstanding judgment, garnishments, tax liens filed over 24 months must be paid off prior to closing and documentation evidencing the satisfaction of these liabilities along with verification of funds used to satisfy these obligations is required.
Past Due Accounts The LPA Feedback Certificate will not identify specific messages concerning past due accounts; therefore, the underwriter will require that the reported past due account be brought current. If there are outstanding collections, the underwriter at his/her discretion will analyze the type and amount of collection and factor any effect that this may have on the borrower’s ability to make future mortgage payments.
Revolving Debt In the absence of a monthly payment on the credit report, and if there is no documentation in the Mortgage file indicating the monthly payment amount, 5% of the outstanding balance can be used to calculate the monthly payment amount. If the revolving account is being paid off then the account is not included in the DTI and documentation confirming the source of the funds used is required.
Open-ended/30-Day Charge Accounts 30-day accounts which require the balance to be paid in full monthly do not required to be included in the monthly debt payment if the Borrower has sufficient verified funds to pay off the outstanding account balance. These funds must be verified in addition to any funds required for down payment, Closing Costs, Financing Costs, Prepaids/Escrows or reserves, if applicable.
Installment Liabilities/Debts Installment debts with a balance that do not have a monthly payment showing on the credit report will require documentation of the payment amount be obtained via: • Direct verification from the creditor • Copy of the installment loan agreement Installment debts with less than 10 monthly payments remaining may be excluded from the DTI ratios, but must be listed on the application.
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Lease Payments All leases (not only car lease payments) must be counted in the monthly payment regardless of the number of payments remaining the monthly payment.
Alimony, Child Support or Separate Maintenance If there are more than ten months payments remaining, this debt needs to be included in the DTI ratios.
Contingent Liability on Co-Signed Loans The contingent liability may be excluded from the debt to income calculation if the Borrower is a cosigner/guarantor on a debt which could be a mortgage debt for another person, requires for underwriter to determine who actually makes the payments on the debt when deciding whether the contingent liability needs to be included in debts by obtaining evidence that timely payments for the most recent 12 months are being made by someone other than the Borrower by obtaining copies of canceled checks or a statement from the lender.
Assumptions If the Borrower is listed as the Borrower on a Mortgage that has been assumed by another, the underwriter must obtain copy of the documents transferring the property and any assumption agreement executed by the transferee. As long as it’s documented that Borrower no longer owns the property, the contingent liability may be disregarded, without having to document the most recent 12 months' payment history.
Court-Ordered Assignment of Debt/Property Settlement Buyouts The contingent liability on a secured debt or mortgage may also be disregarded and the documentation of the most recent 12 months' payment history is not required, if the obligation to make the payments on a debt of the Borrower: • Has been assigned to another by court order, such as a divorce decree, and • The underwriter documents the court order separation agreement or divorce decree awarding the property to someone other than the borrower and documentation reflecting the transfer of title has occurred.
Overdraft Protection Account Overdraft protection is considered a revolving line of credit (given without the benefit of security) that is attached to a checking account. If there is a balance, count a minimum payment in the debt-to-income ratios.
Self-Employed Borrower’s Debt paid by Borrower’s Business When a self-employed Borrower is obligated on a debt that has been paid by the Borrower's business for 12 months or longer, the monthly payment for the debt may be excluded from the monthly debt to income ratio if the following requirements are met: • The Mortgage file contains evidence that the debt has been paid timely by the Borrower's business for no less than the most recent 12 months, and • The tax returns evidence that business expenses associated with the debt (i.e. interest, lease payments, taxes, insurance) have been reported and support that the debt has been paid by the business.
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Unreimbursed Job Related Expenses/Unreimbursed Employee Business Expenses When a borrower has non-reimbursed business expenses, such as classroom supplies, uniforms, meals, gasoline, auto insurance and/or taxes, a recurring monthly debt obligation should be developed based on a 24-month average of the expenses (from Schedule A and IRS Form 2106 from the tax returns).
Automobile depreciation may be netted out. The 24-month average should be deducted from the borrower's stable monthly income. If there is not a full 24-month history, an annualized monthly average should be utilized.
Consequently, when calculating the total debt-to-income ratio, the 24-month average for non- reimbursed expenses should be subtracted from the borrower’s stable monthly income, unless such expenses are automobile lease payments or automobile loan payments, in which case they are to be considered part of the borrower’s recurring monthly debt obligations. If there is not a 24-month history of such expenses, the lender should develop an annualized monthly average for the expenses and add this calculated amount to the borrower’s monthly debt obligations.
Payments for Leased Solar Panels The loan file must contain a copy of the lease agreement, or similar type of agreement, as applicable. The payments for the leased solar panels may be excluded from the monthly debt payment-to- income ratio if the lease: • Provides for delivery of a specific amount of energy for an agreed upon payment during a given period; and • Includes a production guarantee under which the Borrower is compensated on a prorated basis when the energy produced by the solar panels is less than the level required in the lease agreement. Also, the payments for solar panels subject to a Power Purchase Agreement (PPA), or similar type of agreement may be excluded from the monthly debt payment-to-income ratio if the payment is calculated based only on the generated energy.
Notes Due and Payable in < than One Year Whenever tax return reflects notes due and payable in < than one year; careful analysis has to be made to business liquidity is acceptable. Generally, the borrower’s income is to be reduced by the amount of notes payable in less than one year; however, if there is documentation that the notes due and payable in less than one year are typical for the business with regular roll-over, or when the liability was refinanced so that it would not become due within one year; then, it is acceptable to exclude the debt with appropriate documentation.
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Payroll Deductions Any time a payroll deduction appears on the borrower's pay stub, the underwriter must determine if the deduction represents a debt that must be included in the debt ratio. Examples of such debts include, but are not limited to: Credit Union or employer loans, garnishments, child support, etc. The following information is required: • Monthly payment of the debt • Balance of the debt • Reason the debt is being deducted from payroll • All guidelines regarding the debt
Disclosure of Real Estate Owned All secured and/or unsecured real estate must be disclosed with taxes and insurance on the 1003.
Disputed Accounts Credit Reports that show multiple accounts in dispute generate a “False Fico Score” resulting in an Incomplete LPA Results. In order to resolve this, Loan Product Advisor requires the underwriter to confirm accuracy of accounts being disputed, the dispute must be resolved, and a new credit report pulled and ran through the AUS. A credit supplements showing the disputed account resolved are not acceptable. Note: If the LPA Feedback is an “Accept” credit risk despite disputed account; then, no further action is required.
Credit Supplements If a credit supplement is needed it must meet the following: • Be from the original credit reporting agency, • Must contain the name and phone number of person the information was verified with, and • Must state the reason for update/removal of accounts.
Borrowed funds against a Financial Asset The borrower may take a loan against a liquid asset that is secured by stocks, bonds, or any other investment account, life insurance policies, 401(k) accounts, CDs, or other financial assets. Although information regarding the amount of the loan must be provided, the debt is not generally counted in the borrower's qualifying ratios if the loan instrument shows the asset as collateral for the loan, since the loan may be repaid by liquidating the asset. A financial institution must have made the loan. The borrower may only use assets in the account that exceed the loan balance to satisfy cash reserve requirements.
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Qualifying Payment Calculation for loans with Subordinated HELOCs The qualifying payment should be calculated using the payment from the credit report, or the interest only payment from the new subordinate lien, if a draw is being made at closing. • If no payment notated on the credit report and the HELOC has an outstanding balance:
When calculating the total housing expense ratio, borrowers must qualify using a monthly payment equal to 1% of the full line amount, or provide a credit supplement verifying the monthly payment, or the borrower is to provide the payment reflected on the billing statement. For HELOCs with evidence of a line modification, the modified amount limit will be used to calculate the 1% payment.
Note: In order to exclude the monthly payment of the HELOC/Line of Credit being paid off at closing from the DTI; the borrower is to provide evidence that the account has been closed PRIOR to loan closing.
Installment Debts including Student Loans with Deferred Payments Deferred installment debts must be included as part of the borrower’s recurring monthly debt obligations. These installment deferred debts include but are not limited to furniture, household items, and student loans. When a monthly payment is not reported on the credit report or the debt(s) is listed as deferred on a non-student loan deferred debt, the Underwriter must obtain documentation verifying the monthly payment amount. If no monthly payment is reported on a student loan that is deferred or is in forbearance, and there is no documentation in the Mortgage file indicating the proposed monthly payment amount; then, 1% of the outstanding balance will be considered to be the monthly amount for qualifying purposes unless documentation regarding the payment amount is obtained. Documentation to be provided to verify payment amount: • A direct verification obtained from the creditor, • A copy of the installment loan agreement obtained from the Borrower, or • If payments are currently deferred, the payment amount that will be required once the deferment or forbearance period has ended, as stated in a copy of a financial institution’s student loan certification or the installment loan agreement
Consumer Credit Counseling (CCCA)/ Debt Management Services (DMA) Consumer Credit Counseling Agencies (CCCA) and Debt Management Services (DMS) assist borrowers who may have had difficulties in managing their debt in the past to learn how to avoid such problems in the future. It is not required for the borrowers to have completed participation in the Consumer Credit Counseling (CCCA) and/or Debt Management Services (DMS) prior to loan closing. Note: AUS results reflecting an Accept/Eligible on LPA recommendation and adhere to the appropriate program policies and guidelines, including but not limited to FICO, DTI, Derogatory credit, LTV.
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Separated Borrower If borrowers are separated, the necessary documentation must be obtained to determine the division of assets, liabilities, and potential obligations. The recognition of a legal separation is dictated by stated law. If the borrower is legally separated, a copy of the legal separation agreement is required in order to exclude specific joint obligations that would otherwise be included in the borrowers qualifying ratios. If the borrower is not legally separated, any agreements set will be required for review. The borrower should be considered a married individual. All joint obligations must be included in qualifying ratios and the non-borrower spouse must sign the Security Instrument, if required by state law.
When borrowers are separated a closer review of occupancy will be required for lending purposes.
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Disclosures and State Specific Please reference the resource center and bulletins for procedures and further information on the below disclosures.
Broker Categories A Broker and Type B FHA B Broker Non Delegated Correspondents Disclosures Must utilize FCBM/Doc Magic Responsible for generating all Responsible for generating all Disclosures (reference disclosures and ensuring disclosures and ensuring compliance resource center for further compliance with all regulations with all regulations information) LE Re-disclosure Except for Type B FHA loans Broker Responsible for re- NDC Responsible for re-disclosure as (Applicable if the which follow the B Broker re- disclosure as necessary per RESPA- necessary per RESPA-TRID loan application is disclosure process, FCBM is TRID requirements. requirements. dated on or after responsible for all re- 10/03/2015) disclosures once loan has been submitted. Prior to submission, A Broker is responsible for being compliant with RESPA- TRID requirements. Appraisal Must be in FCBM’s name and Must be in FCBM’s name and Appraisal will be in NDC’s name ordered via InHouse ordered via InHouse Submission Must be in FCBM’s name Must be in FCBM’s name Can be in the NDC’s name and/or Summary Reports Florida Capital Bank, N.A. (SSR’s)
MDIA Applicant Intent to Proceed was signed When Broker has paid for When Broker has paid for appraisal and Fee Disclosure appraisal and no money was no money was collected from the (Applicable ONLY if collected from the borrower, this borrower, this form can be used if the the loan application form can be used if the appraisal appraisal was ordered prior to the is dated before was ordered prior to the Intent to Intent to Proceed was signed 10/03/2015) Proceed was signed Compliance Not Required Required Required Appraisal Independence Requirements (AIR) lender Acknowledgement Home Ownership Required at loan submission Required at loan submission Required at loan submission Counseling
Notice of Intent to Required Required Required Proceed with Loan Application
Residential Required Required Required Mortgage Credit Score Disclosure How loan is closed In FCBM’s name and uses In Brokers name and uses FCBM In NDC’s name and uses NDC’s funds FCBM funds funds
Anti-Steering Loan Required for Lender Paid Required for Lender Paid Not Required Options Disclosure Compensation only Compensation only
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Broker Categories A Broker B Broker Non Delegated Correspondents LPMI Disclosure Required Required Required LPMI product only GA Notice of Right to Required Required Required Select an Attorney (Georgia Properties only) Servicing Disclosure On FCBM Doc Magic Required – One of the 3 boxes Required – One of the 3 boxes must be (Applicable ONLY if Disclosures, Required – One must be checked checked the loan application of the 3 boxes must be is dated before checked 10/03/2015)
New Jersey Statement from the borrower attesting that home improvement contractor did not refer borrower to the Properties: If originator. In compliance with N.J.S.A. 46:10B-27a. Purpose for the Cash Out is Home Improvement
Initial Residential Application 1003 • Initial Residential Application- 1003 must be signed and dated by the Loan Officer who took the application. • All Income, Job History for the most recent 2 years, Assets and Liabilities must be fully disclosed on all loan applications. • All secured and/or unsecured real estate must be disclosed with taxes and insurance on the 1003. • All Gift information and any subordinate financing must be fully disclosed in asset section. • Section VIII – Declaration Questions of the loan application must be fully completed.
Initial Loan Disclosures All initial documents provided to a Borrower must be done so as required by: Federal, State and/or Local law, Regulations, Rules or Ordinances, FCBM and Freddie Mac.
Final Residential Application 1003 The Final Residential Application-1003 must match the file documentation and must be signed by all borrowers.
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Income Please refer to LPA documentation matrix for required documentation at http://www.freddiemac.com/learn/pdfs/uw/docmatrix.pdf
For additional resources specific to LPA documentation and underwriting requirements; please go to LPA’s sellers guide at http://www.allregs.com/tpl/Viewform.aspx?formid=00051757&formtype=agency
4506-T Transcript Requirements and Validation of Income A 4506-T signed by the borrowers must be provided in initial package. For Self Employed borrowers, a fully complete and signed IRS Form 4506-T is required for personal tax returns used to underwrite the loan. • Transcripts must match income documentation provided. o LPA may not require previous years W2’s however W2’s will be required to support the most recent year’s transcripts available, along with most recent year W2 available. o Tax Transcripts cannot be used in lieu of tax returns. o If Tax Returns were extended for the tax year being used for qualification, all of the following will apply: . Evidence that the extension was filed and . Tax Transcripts showing “No record of return filed” • Tax Transcripts are required for each borrower whose income is utilized as a source of repayment and must be provided for the number of years of income used to qualify the borrower(s) and are required to support the income used to qualify the borrower. There are two options for tax transcripts: o 1040 transcripts or o W2 transcripts only. The W2 transcripts process is meant to be a tool to streamline documentation requirements and can only be used if only W2 income is used to qualify and there is no evidence of expenses incurred by the borrower that would reduce income, or if commission income exceeds 25% of borrower’s total annual employment income. If there is evidence or proof of expenses that would reduce income the W2 transcript option is not allowed to be utilized. Note: If multiple borrowers are qualifying but the tax returns are not filed jointly (when one borrower requires full returns), then it is acceptable to provide W2 transcripts for the salaried borrower and 1040 transcripts for the self-employed borrower. If using the W2 transcript option, when ordering the transcripts must be sure to select the W2 option on the 4506T. Do not use the 1040 transcript option on the 4506T order form. • For Retired borrowers: In cases where the borrower is not required to file, tax transcripts results denoting “No Record of return filed” is required.
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Amended Tax Returns If Tax returns were amended or filed late a Record of Account will be required and depending on the circumstances why the tax returns were amended, the resulting income from the amended returns is not always acceptable to FCBM and additional documentation may be required. The underwriter must use prudent judgment with respects to: "Did the borrower not qualify originally, and now with the amended returns the borrower now qualifies". If this is the case then the income per the amended returns will not acceptable to be used for qualifying purposes. The underwriter must clearly document how the income was calculated and why it was determined to be acceptable. NOTE: The official IRS period for extension expires October 15; therefore, any loan closing after October 15 that requires tax returns for income verification must have a copy of the signed tax returns and the borrower will not qualify until the required 4506-T Tax Transcripts are received.
IRS W-2 Transcript Requirement IRS W-2 transcript can be provided for Borrower(s) qualifying on W-2 income to satisfy the tax transcript requirement. Note: Tax Transcripts are still required for borrowers with non-W-2 Income.
Taxpayer Identification Theft When a taxpayer’s social security number has been stolen and used to file a forged tax return in an attempt to claim a fraudulent refund a taxpayer identification theft has occurred and is identified by tax transcripts that conflict with the information reported on the tax return, such as inconsistent income or the income on the transcript is significantly different than what is reported on the tax return.
Whenever a borrower claims to be a victim of taxpayer identification theft, proper evidence of this must be provided such as: • Letter explaining the borrower has been a victim of tax payer theft, • Proof that the identification theft was reported to and received by the IRS (form 14039); and • Copy of the notification from the IRS notifying the taxpayer of possible identity theft; Or • A copy of a police report or proof that the borrower filed a complaint regarding the identity theft with the Federal Trade Commission. Also, to validate the income reported on the tax return(s) in question, a Record of Account Transcript for the Borrower for all applicable years missing is required, or all of the applicable documents must be obtained: • W-2 and/or 1099 transcripts that match the applicable income on the borrower’s tax return; • 1098 Mortgage Interest must match the interest reported on Schedule A or Schedule B of the Borrowers tax return (if applicable); • 1099 Interest/Dividend amount must match the income reported on the tax return for dividend and interest (if applicable); • Prior year’s tax return to validate the income is in line with the current year’s income.
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IRS Rejection of Tax Transcript Request In the event of IRS rejection to the request for tax transcript because the taxpayer has been a victim of tax-related identity theft, the following documentation must be provided to verify qualifying income: • Provide evidence the IRS rejected the third-party request with Rejection code 10 “Due to limitations, the IRS is unable to process this request”, or • Other verbiage related to a “limitation” or “unprocessable”, and • Copy of bank statement or copy of cancelled check as evidence of income tax liability payment made or proof of income tax refund received by the applicant(s) that matches the tax returns. FCBM will accept borrower-obtained transcripts if the IRS rejects the request for tax transcripts due to tax-related identity theft along with evidence of the IRS rejection when providing borrower-obtained tax transcripts. Important: Borrower-obtained transcripts are not acceptable to be used with a “No Results” or “No record of return filed” response from the IRS if there is no IRS rejection due to tax-related identity theft.
Tax Transcripts - No record of return filed If tax transcripts are not available due to recent tax filing, FCBM will accept a copy of the IRS notice showing “No record of return filed” and documented acknowledgement receipt from the IRS such as: o A copy of an officially stamped tax returns by the IRS, or evidence that the return was electronically received by IRS; and o Evidence of income tax liability payment made or proof of income tax refund received by the applicant(s) matches the tax returns; and o The previous year(s) tax transcripts.
Verifying and Analyzing Employment History The borrower must have continuous employment history verified for the most recent two full years in order for the income to be considered stable and used for qualifying.
10 Day Pre-Closing Verbal Verification of employment (Wage Borrower and Self Employed) A verification of employment must be completed for all employed/self-employed applicants whose income is being used for loan qualification. The verbal verification of employment (VOE) must be dated within 10 business days prior to loan closing for wage/salary income, and within 120 days prior to loan closing for self-employed income. • The verbal verification of employment must document borrower’s name, employer’s name, name and title of the individual contacted at employer, date of contact, and the phone number used to contact the employer, currently active status, company name, identify name and title and phone # of employer providing information (must be from HR source or authorized employee of company). Phone # of employer must be a listed number which will be able to be verified through 3rd party sources. The individual who verified the above information must provide name, title and date the verification form. • If the verbal verification is completed using employment and/or income information from an electronic database, it must contain the information noted above and the verification must evidence that the information in the database is no more than 35 days old. • Verbal verification of employment is required on self-employed borrowers. The following documentation is acceptable documentation for verbal verification of employment: CPA letter from the CPA/Tax Preparer that is listed on the 2nd page of the borrowers’ tax return, current year’s business or occupational license, copy of current year’s Professional License ( i.e.
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contractor, cosmetologist, MD, etc.), letter from a trade association, copy of current year’s business insurance policy identifying the borrower’s name and the business name i.e. Commercial or Liability Insurance, online documentation or other documentation to validate business is currently active.
An actual Verbal or written VOE form is usually required for a 1099 contract type worker. For self- employed borrowers, the verbal verification of employment must be dated within 120 days prior to note date. • When verbal verifications of employment are required, it must be provided on the Verbal Verification of Employment Form 90, or a similar written document that includes the following: o Name of the person who contacted the employer, o Name of the employer, o Name and title of the individual contacted at the employer, o Phone number for the individual contacted. The phone number must be obtained from an acceptable third party source, o Name of the third party source used to obtain the phone number for the employer (e.g., the phone directory, internet, directory assistance, etc.), o Date of contact, o Dates of employment, o Borrower's position or title, o Borrower’s current employment status, o Whether the borrower is currently employed and on active status or on leave, • When the lender obtains a verbal verification of the existence of the business, the lender must verify the name and address of the business provide the date the information is verified, the entity contacted and the name and title of the person who obtained the verification for the lender. • For a borrower with Military Income or Military Reserve Income, in lieu of a verbal VOE, an LES no more than 30 days prior to the note date may be provided. • In lieu of the verbal verification of employment, a written verification of employment or third-party verification of employment can be provided.
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Clarification for Electronic, Faxed, or Computer-Generated documentation Verification documentation that is faxed, computer-generated, or downloaded from the Internet, including on-line bank and investment statements is allowed. Documentation must meet all of the following requirements: • The source of the information must be clearly identified (such as information from the Internet or “fax” banner at the top of the document). • The documents must clearly identify the name of the depository, investment institution, or borrower’s employer. • The documents must include essential information the same as hard-copy original documents with the account owner’s name, full account number, borrower’s employment, income, assets, and funds for closing (as applicable). Note: Documents must be legible and free of any alterations, erasures, “whiteouts,” or similar indications that changes have been made.
Income Documentation The YTD Paystubs must: o Clearly identify the employer’s name, the Borrower as the employee and the date issued. o Show the time period covered the current pay period dates and earnings, and the complete YTD earnings. If the paystubs do not have the above required information; then: paystubs that are handwritten or typed by the employer and do not contain YTD earnings), the underwriter must verify the required information by obtaining additional documentation such as; a written VOE, a review of payroll deposits on bank statements.
W-2 Forms must: o W-2 form(s) must be the complete Internal Revenue Service (IRS) Form W-2 distributed by the employer issued for the preceding tax year(s), or o The W-2 transcript(s) may be used in lieu of the W-2 form(s) provided the transcript reflects the complete income earned in the previous calendar year
Written VOE (if applicable) must: o Employer’s name and address, o Borrower’s name, o Date employment began; current position; gross base income per pay period; if paid hourly need hourly pay and fluctuating hourly earnings; ytd earnings paid through date. o Earnings from past calendar years if applicable. o Base earnings must be split from other pay i.e. overtime, bonus, tips, commission, o Contain the signature, printed name, title and contact telephone information of the authorized employer representative who verified the information and the date completed.
Tax returns (if applicable) must: o be the borrower's copy of the forms filed with the IRS o be signed by the borrower o include all schedules and forms required (as outlined in the applicable Income subtopic) Note: IRS transcripts in lieu of individual federal tax returns as long as it contains all of the information that would be included in the individual federal tax return.
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Other sources of income requiring tax returns: Although the borrower may not meet the definition of self-employed, the underwriter must obtain the borrower’s individual federal tax returns for certain types of income if using the income to qualify the borrower. These include, but are not limited to: o Commission income greater than or equal to 25% of the income from the commissioned employment. o Tip income. o Income reported on a 1099. o Income from independent contracting. o Income from employment by a family member, property seller, broker or other interested party to the transaction. o Income from employment on a contract basis. o Income from a foreign force. o Dividend and interest income. o Capital Gains. o Royalty payments. o Trust income. o Rental Income. Important: The Underwriters are to document effective qualifying income and utilize FCBM’s Income Calculator Worksheet/Cash Flow Analysis Income Worksheet for all Borrowers whose income is being used for the repayment of the mortgage loan. A copy of the completed Income Worksheet /Cash Flow Analysis worksheet is to be saved in our Imageflow system. The worksheet can be located in the Resource Center at https://www.flcbmtg.com/Pipeline/Default.aspx
Unacceptable Sources of Income Income derived from any of the following may not be used in calculating qualifying income.
Income based on future Draw Income Capital VA Education Benefits earnings withdrawals
Illegal Income/Income not Any income that Trailing Room/boarder rent from listed on Tax Returns cannot be documented Co-Borrower subject property is not an and verified acceptable income type on Super Conforming Loan Amounts
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Stability of Income Analysis The underwriter must perform a thorough income analysis in the determination of borrower(s) qualifying income and there must be a two (2) year of income and employment history. Income sources that cannot be verified, are not stable, not recurring or without evidence of high probability of continued receipt for at least three years cannot be considered. A borrower who has had different types of employment in the past may be considered to have stable income if the income amount has remained at a consistent level. When evaluating a borrower who has changed jobs frequently, the underwriter must focus on whether the changes have affected the borrower's ability to pay the borrower's obligations. Income types that fluctuate must be viewed from a historical earnings history; in most instances, a two- year history of receiving income is required in order for the income to be considered stable and used for qualifying. While the sources of income may vary, the Borrower should have a consistent level of income despite changes in the sources of income. Important: The Underwriters are document effective qualifying income and utilize FCBM’s Income Calculator Worksheet/Cash Flow Analysis Income Worksheet for all Borrowers whose income is being used for the repayment of the mortgage loan. A copy of the completed Income Worksheet /Cash Flow Analysis worksheet is to be saved in our Imageflow system. The worksheet can be located in the Resource Center at https://www.flcbmtg.com/Pipeline/Default.aspx
Primary Employment The Borrower should have at least a two-year history of primary employment documented. When the borrower has less than two (2) years of employment history, the Underwriter may consider the employment stable with documented evidence of the Borrower’s recent school attendance or training program prior to entering current place of employment.
Secondary Employment The borrower must have a two year consecutive history of this type of income. However, under certain circumstances, the Underwriter may be able to justify the use of secondary employment with less than two years but at least one year in history if the income is verified to be stable; such as: • The Borrower previously held a job with base non-fluctuating earnings working 40 hours per week for multiple years; however, due to reasons such as position elimination, work force reduction, or illness, the Borrower is no longer employed at this job and is now working at multiple part-time jobs that are similar in hours and pay, when combined, to the previous full- time job. Since the Borrower’s full-time employment ended 18 months ago, the length of employment at each part-time job is in the range of 13 to 15 months. In this scenario, the Underwriter may be able to justify an employment history of less than two years for the secondary employment and additional jobs provided the earnings are consistent and the Borrower has exhibited the ability to repay obligations. • The Borrower is employed in the educational system as a teacher. During the previous summer the Borrower taught summer school within the same educational system and is now starting summer school teaching for the current year. Although the two-year history is not yet fully developed, given the job type and current employment situation, the Underwriter may be able to justify including the summer school income provided an accurate qualifying amount can be established and documented based on the previous and current earnings. Additional documentation to determine the stable monthly income may be necessary to be documented.
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Fluctuating Hourly Income Trend Analysis The underwriter must analyze the borrower's history of receipt, frequency of payment and the trending of any income that is calculated by an averaging method (i.e. hourly employees with fluctuating hours, commission, and bonus and overtime income): • Fluctuating hourly earnings may be determined by a review of the year-to-date (YTD) income verification documentation with analysis focused on hours per pay period and YTD earnings in relation to hours worked and do not include other additional income such as bonus, overtime, tips, etc. • The Underwriter must review all year-to-date (YTD) earnings and compare those earnings with the earnings from the last one or two years, depending upon the documentation requirements. • Declining income require the Underwriter to conduct further analysis regarding the declining trend, determine if current income has stabilized in order to determine whether the income is currently stable and able to be used for qualification purposes in which case, the lower amount of the income must be used. For additional guidance regarding fluctuating income and employment, please refer to Section 5303.4 of the Freddie Mac Sellers Guide.
Primary and Secondary Employment Documentation Requirements Earnings Types Documentation Requirements Primary employment earnings: All of the following: • Base non-fluctuating earnings and YTD paystub(s) documenting all YTD earnings, W-2 form(s) for the • Fluctuating hourly earnings most recent calendar year, and verbal verification of employment.
Or all of the following: Written verification of employment (VOE) documenting all YTD earnings and the earnings for the most recent calendar year.
Note: 10-day pre-closing verification is required in all instances. Secondary employment earnings: All of the following: • Base non-fluctuating earnings and YTD paystub(s) documenting all YTD earnings, W-2 form(s) for the • Fluctuating hourly earnings most recent calendar year, and verbal verification of employment.
Or all of the following: Written verification of employment (VOE) documenting all YTD earnings and the earnings for the most recent two (2) calendar years.
Note: 10-day pre-closing verification is required in all instances. Seasonal Employment may be primary or When unemployment income associated with the seasonal secondary employment with non- employment is being used as stable monthly income: fluctuating or fluctuating hourly earnings • A documented two-year history of seasonal employment and income receipt is required, • Proof of receipt of unemployment compensation for the most recent two-year period and • The requirements for unemployment income associated with seasonal employment noted in other section of these guides such as paystubs, w-2’s, and written verification of employment (VOE), tax returns.
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Income and debt approach for automobile allowance The borrower must have a two-year consecutive history of receiving automobile allowance or expense payment income and the income must be likely to continue for the next three years in order to consider the income for qualifying. The underwriter may add the full amount of the allowance to the borrower's qualifying income, and when calculating the borrower's debt payment-to-income ratio, the lender must include the full amount of the monthly automobile financing expense in the calculation of the borrower's monthly debt payment. The underwriter may not subtract the automobile allowance from the monthly automobile financing expense.
The Standard documentation requirements are as follows: • A completed written verification of employment covering two full years, OR all of the following: • YTD paystub or salary voucher documenting at least 30 days of income, • W-2 forms for the most recent two-year period
Employment by Relatives or transaction participants If the borrower works for family, or if the transaction is a non-arm’s length, such as the borrower is employed by the property seller, real estate agent, or any party to the real estate transaction, the following documentation must be obtained: • Borrower’s signed and completed personal federal income tax returns for the most recent one (1) year, • Most recent YTD paystub documenting at least 30 days of income • Verbal VOE, and • W2’s for the most recent two tax years
Unreimbursed Employee Business Expenses Unreimbursed employee expenses reflected on the Borrower’s schedule A or IRS form 2106 are not required to be deducted from the Borrower’s income unless the expenses are associated with commission income earned that is 25% or greater.
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Commission Income Must have a two year history of receipt to use as qualifying income, to document, obtain all of the following: • Written VOE covering the ytd earnings and the most recent two years. • Complete signed individual federal tax returns for the most recent two years if commission income that represents 25% or more of the borrower’s total annual income for the underwriter is to determine if the borrower(s) has unreimbursed employee business expenses and such expenses must be deducted from qualifying income. OR, all of the following: • Most recent YTD paystub • W-2s and/or 1099s covering the most recent two years • Complete signed individual federal tax returns for the most recent two years if commission income that represents 25% or more of the borrower’s total annual income for the underwriter is to determine if the borrower(s) has unreimbursed employee business expenses and such expenses must be deducted from qualifying income. • Verbal VOE Note: Unreimbursed employee business expenses are not required to be analyzed or deducted from the borrower’s qualifying income, or added to monthly liabilities regardless of whether unreimbursed employee business expenses are identified on tax returns or the tax transcripts for a borrower whose commission income less than 25% of the borrower’s annual employment income.
It is important to establish the earnings trend for commission income. Annual commissions earning that are level or increasing from one year to the next are acceptable. Whereas, any decline from one year to the next must be adequately addressed by the employer and verification of likelihood of continuance is required before this type of income is considered for qualification purposes For Freddie Mac’s Policy in the Calculation of Income derived from Commission see LPA’s Seller’s Guides 5503.5
Bonus Must have a two year history of receiving bonus income and the bonus income must be likely to continue for at least the next three years in order to consider the income for qualifying. In the event that the borrower has recently changed positions with his or her employer, determine the effect of the change on the borrower’s eligibility and opportunity to receive Bonus pay in the future. The documentation for the receipt of this income must be performed obtaining all of the following: • Most recent YTD paystub documenting at least 30 days of income. • W2’s covering the most recent two years. • A Verbal VOE must be obtained. Or • A written VOE covering the most recent two year period and a verbal verification of employment It is important to establish an earnings trend for bonus income. Utilizing bonus income despite of a decline from one year to the next must be adequately addressed by the underwriter. For Freddie Mac’s Policy in the Calculation of Income derived from Bonus see LPA’s Seller’s Guides 5503.5
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Overtime In order to use overtime income for qualifying purposes, the Borrower must have a documented two year history of receiving this type of income and the overtime earnings must be likely to continue. The underwriter must consider the income trend by considering the hourly rate, the number of hours worked, and use the amount that is most likely to continue for the next three years and include the income analysis calculation in the loan file. The documentation for the receipt of this income must be performed obtaining all of the following: • Most recent YTD paystub documenting at least 30 days of income. • W2’s covering the most recent two years. • A Verbal VOE must be obtained. Or • A written VOE covering the most recent two year period and a verbal verification of employment Note: The Underwriter must consider the income trend by considering the hourly rate, the number of hours worked, and use the amount that is most likely to continue for the next three years.
Tip Income Tip income, averaged over a two-year period, may be included for loan qualification purposes provided it meets the following requirements and documentation is provided: • The borrower must have a two-year history evidencing receipt of tip income. • The tip income must be stable or increasing, and likely to continue. • Provide a Verification of Employment Letter, or a most recent paystubs and W-2’s covering the most recent two years, or the most recent two years of personal tax returns with IRS Form 4137, Social Security and Medicare Tax on Unreported Tip Income to verify tips not reported by the employer. Note: Tip income must be entered in LPA as “Other Types of Income” and the Underwriter must evaluate the income trend and use the amount that is most likely to continue for the next three years.
Trailing Secondary Wage Earner Income Use of trailing secondary wage earner income is not allowed
Boarder Income (Conforming Loan Amounts) Rental income generated from a borrower's 1-unit primary residence may be used to qualify a borrower with a disability if the rental income is from a live-in aide. Typically, a live-in aide will receive room and board payments through Medicaid waiver funds from which rental payments are made to the borrower. 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. Note: Boarder 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.
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Self Employed Borrower Underwriters are to utilize FCBM’s Self Employed Income Worksheet/Cash Flow Analysis Income Worksheet for all Self Employed Borrower in the calculation of Income and a copy of the completed Income Worksheet /Cash Flow Analysis worksheet is to be saved in our Imageflow system. The worksheet can be located in the Resource Center at https://www.flcbmtg.com/Pipeline/Default.aspx or Freddie Mac’s Income Calculator Form 91 http://www.freddiemac.com/learn/lo/forms/form_91.html
Definition of a Self Employed Borrower: An individual receiving income from any of the following sources must be qualified as self-employed: • Borrower has an ownership interest of 25% or more in a business. The business may be a sole proprietorship, a general partnership, limited partnership, corporation, or S-corporation • Borrower relies on investments for income (e.g., interests, dividends, capital gains, or real estate). • Borrower is a member of the clergy and files taxes as self-employed. (see Minister/Clergy section for further detail) • Borrower is a contract worker (1099 income) • Borrower receives income from the subject property Seller or Broker
Underwriting Factors and Documentation for a Self-Employed Borrower The following factors must be analyzed before approving a mortgage for a self-employed borrower: • The Underwriter should focus on earnings trends and the actual sources of the income, not just on the total amount of the income stability of the borrower’s income, • The location and nature of the borrower’s business, • The demand for the product or service offered by the business, • The financial strength of the business, and • The ability of the business to continue generating and distributing sufficient income to enable the borrower to make the payments on the requested mortgage.
Indication of Self Employment in Loan Product Advisor The loan originator must indicate to Loan Product Advisor that a Borrower is self-employed when the Borrower meets Freddie Mac’s definition of self-employment as noted above regardless of whether or not self-employment income is used to qualify the Borrower.
Requirement for Length of Self-Employment History • A two (2) year self-employment history is required to be verified to ensure that the income is stable. • In certain instances if the borrower has been self-employed for less than 2-years may be considered eligible provided the borrower has successful history of receipt of income at the same or greater level in the same or a related field, and the borrower’s experience in the business is determined to be stable and successful as well as the market’s acceptance of the company’s service or products. The Underwriter must perform an analysis of current business activity through a review of the year-to date (YTD) financial statement and/or the most recent three months of business bank statements to this evaluation. • Minimum history of receipt of income: The Borrower’s federal income tax returns must reflect
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at least one year of self-employment income. • Geographical Relocation: If the Borrower is relocating to a different geographic area, prior to considering the income for qualifying purposes, at a minimum the Underwriter must: o Consider and evaluate the acceptance of the company’s service or products in the marketplace. Additional information, such as market studies or relevant industry research, may support this evaluation. o Provide a written analysis justifying the Borrower’s income will continue at the same level in the new location.
Analysis of Self-Employment Business and Income Business review and analysis The Underwriter must evaluate the borrower’s business by reviewing business tax returns and analyze gross receipts or sales, cost of goods sold and gross profits which should be typical for the type of business and reflect consistent year over year trends. In addition, the business expenses should be reasonable for the type of business activity and level of business income in order to determine that it has sufficient liquidity and is financially capable of producing stable monthly income for the Borrower. If necessary, the Underwriter may determine that review and analysis of the business financial statements, business asset statements, and in the case of Partnerships and S corporations, an analysis of the historical cash distributions, is necessary to establish the financial and liquidity standing of the business. Or the Underwriter may calculate and consider the liquidity ratios of the business using generally accepted accounting practices when analyzing the liquidity of the business.
Use of business income reported on the Borrower’s federal individual income tax returns • For Sole Proprietorships or Schedule C: Stable monthly income must be based on the income reported on Schedule C of the Borrower’s federal individual income tax returns. • For Partnerships and S corporations: Stable monthly income may be based on the Borrower’s proportionate share of income for example; ordinary income, guaranteed payments carried from the Form 1065 or 1120 S, through the Schedule K-1 and onto the Borrower’s federal individual income tax returns. Although cash distributions reported on the Schedule K-1 may not be used as qualifying income, they may be used to establish business liquidity and access to business funds, provided they are reasonably consistent with the ordinary income. • For S corporations and corporations: Stable monthly income may be based on the income reported on the Borrower’s W-2 from the business. The corporate tax returns and Form 1125-E if applicable must be reviewed for confirmation of the Borrower’s W-2 income from the business.
Use of business income not reported on the Borrower’s federal individual income tax returns Income reported on the business tax returns but not on the personal tax returns may be considered as stable monthly income, provided the Underwriter’s analysis that based on the financial strength of the business, the use of these funds as personal income would not have a detrimental impact on the business.
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Access to business income The Underwriter is not required to verify access to business income for the following: • Sole proprietorships • Ordinary income, net rental real estate income, other net rental income and guaranteed payments received from partnerships and S corporations • W-2 income received from S corporations and corporations, • Corporations, if the Borrower holds 100% ownership interest Note: If business income not reported on the Borrower’s federal individual income tax returns is being used to qualify and none of the categories above apply, then the Underwriter must verify that the Borrower has legal right to the business income without restriction and it does not represent advances to future earnings via a business resolution (corporate, partnership) or other comparable document.
Business Profit and Loss and Balance Sheet Financial Statement Requirements A profit and loss statement and a balance sheet for the business that cover a specified period of time may be used to assist the Underwriter in evaluating business liquidity, income stability when tax returns are on extension, evaluating a newer business and the impact of business fund withdrawals. These financial statements may not be used for the calculation of stable monthly income (unless audited).
Self-Employment Income Fluctuation The Underwriter must review and consider whether the Borrower’s self-employed income has increased or decreased over the previous two years when the analysis includes review of documents covering a history greater than one year. If the analysis reflects that the Borrower’s income has significantly increased or decreased, the Underwriter must provide sufficient documentation and justification to support the determination that the income used to qualify the Borrower is stable and likely to continue for the next three years. Note: It may be necessary to obtain additional years’ tax returns when the Borrower’s self-employment income fluctuates in order to determine the stability of the income
Adjustments to Self-Employment Income from income Analysis The Underwriter may add back as income when performing the analysis of the tax returns to the self- employment income calculation worksheet: • Non-cash items such as depreciation, depletion and amortization. • Documented nonrecurring losses, such as casualty losses and loss carry-overs from previous tax years. • Mortgages and notes payable in less than one year when the Underwriter verifies that the business has sufficient liquidity to pay off the debt without a negative impact to the business, or if the business type is indicative of debt that would continually roll over, and/or if the debt is a line of credit that is consistently renewable.
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Self-Employment Income Not Used for Qualification If the loan application or other documentation denotes that the Borrower is self-employed but the self- employment is not considered for qualification purposes, the Underwriter must obtain pages 1 and 2 of the Borrower’s federal individual income tax returns. If the tax returns denote a business loss and the Borrower qualifies with the loss, then the Underwriter is not required to obtain any additional documentation. If the tax returns or other documentation such as IRS tax transcripts, or Schedule K-1’s reflect positive income from self-employment but that income is not used to qualify, additional documentation is not required.
Self-Employment Documentation requirements In addition to verifying the existence of the business, complete Federal Tax Returns with all schedules as per the chart below reflecting at least 12 months of self-employed income.
Business Business in existence greater Business in existence less than five Structure than or equal to five years years Sole- Complete signed federal income tax return Complete signed federal income tax Proprietorship/ (1040) for the most recent year. return (1040) for the most recent two Schedule C (2) years. Partnership Complete signed federal individual and Complete signed federal individual and Partnership (Form 1065) income tax Partnership (Form 1065) income tax returns, returns, including the Schedule K-1s for Including the Schedule K-1s for the most the most recent two (2) years. recent year. S Corporation Complete signed federal individual and S Complete signed federal individual and corporation (Form 1120s) income tax S corporation (Form 1120s) income tax returns, including the Schedule K-1s), Form returns, including the Schedule K-1s, 1125-E and W-2(s) if applicable, for the Form 1125-E and W-2(s) if applicable, most recent year. for the most recent two (2) years. Corporation Complete signed federal individual and Complete signed federal individual and Corporation (Form 1120) income tax Corporation (Form 1120) income tax returns, including Form 1125-E and W-2(s) returns, including Form 1125-E and W- as applicable, for the most recent year. 2(s) as applicable, for the most recent two (2) years.
Rental Income and Expenses of a Partnership or an S-Corporation All rental real estate income and expenses reported on IRS Form 8825 for partnerships and S-Corporations are to be treated as self-employment income, regardless of whether or not the Borrower is personally obligated on the Note. Please refer to Freddie Mac’s Income Form 91 for the appropriate treatment and calculation of the Borrower’s proportionate share of the net rental real estate income or loss.
For Rental Income not Reported through a Partnership or an S-Corporation, refer to the Rental Income section in these guides.
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Foreign Income Foreign income (income generated from non-U.S. sources) may be used only if its stability and continuance can be verified, and is supported by the most recently filed tax return. If the income is paid in a foreign currency the file must contain a printout evidencing the source used for the conversion of the foreign currency into U.S. dollars. The income must also be verified in the same manner as U.S. income sources.
Employment Contracts • Employment contracts in the educational industry: It is common for Borrowers working in the educational field to be given annually renewable or term contract. If such Borrower provides a copy of the annually renewable contract along with other required income documents and the borrower is scheduled to begin the employment after the loan closing due to the school year schedule, the income can be used for qualification and no additional requirements are needed. • Employment contracts in other industries: If the Borrower is employed in a field where employment contracts are reasonably common, the pay structure must be outlined within the terms of the contract, the Borrower must demonstrate the ability to consistently maintain employment and income with similar pay structure for the most recent two years in the same or similar field or industry.
Employment and Income Commencing After the Note Date For Borrowers starting new employment, income commencing after the Note Date may be considered a stable source of qualifying income, provided all requirements below are met: • The employment and earnings type must be primary employment (non-fluctuating salaried earnings) and the Borrower must not be employed by a family member or by an interested party to the transaction. • The transaction must be for the purchase of a 1-Unit primary residence.
Required Documentation: o The Underwriter must write on the Underwriting Transmittal or on an addendum, a written analysis confirming employment contracts are reasonably common to the field, industry and/or region where the Borrower is being employed. o The Borrower must provide a copy of the employment offer letter or employment contract that is fully executed and accepted by the Borrower that is: . Is non-contingent, or provide alternative documentation, such as letter or e-mails, from the employer verifying all contingencies have been cleared, . Includes the terms of the employment, including but not limited to, employment start date and annual base non-fluctuating earnings. o A 10 day pre-closing verification of employment verifying the terms of the offer letter or employment contract have not changed. o Additional Requirements: The Underwriter must document on the Underwriting Transmittal or on an addendum which of the following options where chosen for qualification purposes: . Option One: No paystub is required from the new employment if the loan consummates ≤ 60 days of the employment start date as documented per the offer
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letter or employment contract, and the Underwriter verifies adequate income and/or liquid assets to pay the monthly housing expenses as well as other monthly liability obligation between the loan closing and the employment start date, and evidence of six (6) months reserves in excess of any reserves required by the product are verified. . Option Two (FCBM does not offer Option Two): A paystub from the new employment validating qualifying income is required prior to loan salability in the secondary market and the Underwriter must document adequate income and/or liquid assets to pay the monthly housing expense and other monthly liabilities between the loan closing date and the employment start date.
Temporary Staffing Employment The Borrower must be able to document his/her ability to maintain steady and continuous employment and income with this employment structure over the most recent two year period with W-2 forms from the temporary staffing firm for the most recent two year period. All other remaining standard document to verify income whether based non-fluctuating earnings or fluctuating hourly earnings must be provided.
Seasonal Income A minimum two-year of documented history and receipt in the same line of work is required; the borrower must be reasonably expected to be rehired the next season. Unemployment income associated with seasonal employment income must have two years of consecutive receipt and this type of income must be likely to continue for at least the next three years. To document, obtain all of the following: 1. A recent YTD paystub. 2. W-2s covering the 2 most recent years. 3. Evidence of receipt of unemployment compensation by the borrower for the most recent two- year period i.e. IRS Form 1099-G’s and/or equivalent documentation. Note: If the mortgage transaction will consummate while the Borrower is in the “off season”; then, a statement from the employer confirming that the borrower will be rehired for the next season is required; and sufficient assets in reserves after closing to meet all current and proposed payment obligations through the month the borrower is expected to return to work is required.
Union Members Union members may switch employers frequently and the union facilitates the next position; consequently, the Borrower may have multiple W-2 forms and may have multiple YTD paystubs to be used for the verification of stable YTD income. If the Underwriter is able to determine that the Borrower’s employment and income history is stable; then, a verbal verification of employment obtained through the Union is acceptable without the need of a written verification of employment.
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Temporary Leave/Short Term Disability Temporary leave/Short Term Disability from an employer may encompass various circumstances (e.g. family and medical, short-term disability, maternity, other temporary leaves with or without pay). Temporary leave is generally short in duration. The period of time that a borrower is on temporary leave may be determined by various factors such as applicable law, employer policies and short-term insurance policy and/or benefit terms. Leave ceases being considered temporary when the borrower does not intend to return to the current employer or does not have a commitment from the current employer to return to employment.
For Borrowers returning to their current employer prior to or on the first Mortgage payment due date, the Underwriter may use the borrower’s regular employment income as qualifying income.
For Borrowers returning to their current employer after the first Mortgage payment due date, the following must be obtained: • Commitment from borrower and employer of their return to work must include date due back. • The Underwriter must use for qualifying income, the lesser of the borrowers temporary leave income (if any) or their regular employment income. o Evidence of the source, amount, insurance and/or benefit type, for the duration of the leave will be required. • The Underwriter’s written rationale explaining the analysis used to determine the qualifying income.
Employment Gaps For a Borrower who experienced recent employment gaps of 30 days or greater, the underwriter must obtain documentation from the Borrower explaining the circumstances surrounding the gap.
Recent Job Change Borrowers who have recently changed jobs just before or during the loan transaction must show the ability to maintain steady income and the changes have not affected the borrower’s ability to pay their obligations. Significant variations in the income from each job should be investigated thoroughly along with variations in job title/functions. The application must reflect the most recent 2 years employment history. • The borrower must have started employment prior to the closing date. • A paystub covering a full 30 days will be required prior to final approval.
Re-entering the Workforce/Extended absence Borrowers who are re-entering the workforce and have an employment and income history that covers less than the 2 most recent years must be with their current employer for a minimum of 6 months and must have evidence of previous employment history.
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Newly Employed Borrowers who are newly employed and have an employment and income history that covers less than the 2 most recent years may be eligible for a mortgage loan as long as the borrower was either attending school, or in a training program related to the new position, immediately prior to their current employment. Note: When the borrower has less than a two-year history of receiving income, there must be documented analysis to justify the determination that the income used to qualify the borrower is stable.
Alimony/Child Support/Separate Maintenance Spousal or child support must continue at least three years after the date of the loan closing to be considered. FCBM will accept as verification of the award of spousal and/or child support one of the following documents: • Proof of receipt of the total court ordered amount for the most recent six months; and • Copy of the signed court order documenting the payor’s obligation for the previous six months and the duration of the obligation; and • For child support income, proof of the ages of the children for which child support is received. Important: if the payments are not for the full amount or are not received on a consistent basis, the income must not be considered for qualifying.
Notes Receivable Income A copy of the note is required to document payment amount and duration of note payment to be received. Evidence of continued receipt for the most recent 12 months is required and verification that the income will continue for at least three years. A 12-month history of receipt must be verified with the following: • A copy of the Note confirming the amount, frequency, duration of payments; and • Proof of receipt of regular payments for the most recent one year period.
Capital Gains/losses A capital Gain or Loss is generally a one-time transaction and must not be included as either a gain or loss in determining income. If, however, there is a history of the borrower turning over assets resulting in gains or losses, the capital gain or loss must be considered in the determination of qualifying income.
Evidence of ownership of additional property or assets that can be sold for future income is required to make future mortgage loan payments. The Borrower must provide copies of the filed individual federal tax returns signed, Schedule D along with all additional schedules including copy of the applicable Sale of Business Property (IRS Form 4797) to support the recurring nature of the capital gains for the most recent two years if the recurring capital gain relates to the sale of business property. If Schedule D includes principal payments on an installment sales contract; the borrower must provide a copy of • The Installment Sale Income (IRS Form 6252), and • The note or contract to verify that the borrower will continue to receive the payments for at least three years. A two year average must be completed when using Capital Gain income as qualifying income using the lowest average calculation.
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If the capital gain is determined to be nonrecurring, the amount must be deducted from the borrower’s cash flow. Note: Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring.
Dividends and Interest Income A history of receipt for the most recent two years must be documented with copies of the most recent two years' signed personal income tax returns and current asset account statements are required to verify remaining assets after closing support the continuance of this type of income at the same level used for at least three years after closing.
Royalty Payments The income must have a 12-month history of receiving payments on a regular basis and be likely to continue for 3 years. To document, obtain all of the following: • Obtain copy of the borrower's most recent federal income tax return signed for the past year, including the related IRS Form 1040, Schedule E.
Trust Income Income from a trust may be considered qualifying income if the mortgage file contains evidence of the amount, frequency and duration of payments. To document, obtain the following: • A copy of the trust agreement confirming the amount, frequency, duration of payments. If the trust agreement does not contain the frequent and duration of payments; then in addition to a copy of the trust agreement; a statement from the trustee confirming the amount, frequency, duration of payments is required. • A history of receipt is not required for the income to be considered stable; however, the trust income must be likely to continue for the next three years.
Minister/Clergy Income Ministers and other clergy members are typically paid a monthly base pay plus “other” income. The amount of “other” income may vary widely and may or may not be taxable income. Often, ministers are self-employed. And/or have unreimbursed business expenses. Housing allowance is typical and may be considered with acceptable verification and documentation. Review YTD paystubs and W-2s/1099s and personal tax returns to determine income. Review personal federal tax returns/IRS transcripts to determine unreimbursed business expenses which must be deducted from qualifying income. If there is any indication that all or part of the income is not likely to continue, it should not be used to qualify the borrower.
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Rental Income Rental income may be used to qualify the borrower, provided the requirements of this section are met. Rental income may be generated from: • Subject Property: 1-Unit Primary Residence. • Subject Property: 2-4 Unit Primary Residence property in which the borrower occupies one of the units. • Subject Property: 1-4 Unit Investment Property. • Investment property owned by the Borrower other than the subject property.
If the borrower owned a rental property during the previous tax year, the Borrower’s individual federal income tax returns must be obtained to determine the net rental income or loss for qualifying. In some instances, the income reported on the borrower's individual federal tax returns may not reflect the property's current rental value (i.e., the tax returns show large one-time expenses or the property was under renovation). In these instances, individual federal tax returns must be obtained; however, Form 998, Operating Income Statement, may be used to determine rental income. The lender must explain the reasons for not using the income or loss from the individual federal tax returns to determine rental income, in the mortgage file.
Rental income from the subject property 1-Unit Primary Residence Rental income generated from a Borrower’s 1-unit Primary Residence may be used to qualify a Borrower with a disability if the rental income is from a live-in aide. 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. 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. Note: Typically, a live-in aide will receive room and board payments through Medicaid waiver funds from which rental payments are made to the Borrower.
Rental income from the subject property 2- to 4-unit Primary Residence Rental income from unit(s) in the borrower's 2- to 4-unit primary residence that are not occupied by the borrower may be used to qualify the borrower if the following requirements apply: • The underwriter must obtain Form 998 Operating Income Statement unless the subject property has been owned for at least one year and is reported on Schedule E of the borrower's prior year individual federal tax return. If income from the subject property is reported on the borrower's individual federal tax returns the lender must use Schedule E to determine the net rental income. • If Form 998 Operating Income Statement is used to determine rental income, it must be completed up to the Monthly Operating Income (MOI) reconciliation. • The underwriter must substantiate the rental income using the income approach on the appraisal and copies of the present lease(s), if applicable, must support the rental income used to qualify the borrower. If rental income from the subject property is not considered in qualifying the borrower; the Form 998 is not required; however, the gross monthly rent must be reported to Freddie Mac regardless of whether rental income is used in qualifying. An estimate market rents will be acceptable from Zillow.com, Realtor.com, Trulia, etc.
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Rental income from the subject property 1- to 4-unit Investment Property If the borrower qualifies with the full monthly payment amount plus operating expenses for the subject investment property included in the borrower's monthly DTI ratio, no further evaluation or calculation of rental income from the subject property is required and Form 998 Operating Income Statement is not required; however, the gross monthly rent must be reported to Freddie Mac regardless of whether rental income is used in qualifying. An estimate market rents will be acceptable from Zillow.com, Realtor.com, Trulia, etc.
If rental income from the subject investment property is to be considered in qualifying the borrower, the following requirements apply: • The Operating Income Statement Form 998 must be obtain unless the subject property has been owned for at least one year and is reported on the Schedule E of the borrower's prior year individual federal tax return. If income from the subject property is reported on the borrower's individual federal tax returns, the underwriter must use Schedule E to determine the net rental income. Note: If Form 998 is used, it must be completed up to the MOI reconciliation. • The income approach on the appraisal and copies of the present leases, if applicable, must support the rental income used to qualify the borrower. If the Net Cash Flow shown on the Form 998 or net rental income from Schedule E of the borrower's tax returns is a positive number, that figure may be entered as rental income in the "Gross Monthly Income" and may be considered stable monthly income. If the Net Cash Flow shown on the Form 998 or net rental income from Schedule E of the borrower's tax returns is a negative number, it must be included as a liability for qualification purposes.
Rental Income from Investment Property Owned by the Borrower Other than the Subject Property Rental income from investment properties that are owned by the borrower, other than the subject property, must be shown in the "Schedule of Real Estate Owned". When rental income from other investment properties owned by the borrower in the previous tax year is reported on the borrower's individual federal tax returns, the underwriter must use Schedule E of the borrower's tax returns to determine the net rental income. Signed leases may be used to determine the net rental income for an investment property not owned during the previous tax year. Additionally, signed leases may be used to substantiate gross rents that are higher than the rental income documented on the tax returns; however, no more than 75% of the gross rental income from the signed leases may be used, unless the prior two years' individual federal tax returns clearly support the use of a higher percentage. The aggregate net rental loss must be considered a liability for qualification purposes. Aggregate net rental income may be counted as stable monthly income, provided the reliability of receipt is clearly supported by the documentation in the file.
Important Considerations: A. If the borrower is converting the primary residence to an investment property, we will need the copy of a fully executed lease agreement with evidence of the security deposit received into the borrower(s)’ bank account and provide evidence of 2 months reserves are verified for the newly converted investment property in compliance with FHLMC’s minimum reserves required. B. If the borrower is converting the primary residence into a second home or the primary residence is pending sale but will not close prior to the subject transaction, the PITIA of the primary residence being converted must be counted in the borrower’s debt to income
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obligation.
Please refer to the Minimum Reserves required on the Assets Guidelines to ensure proper reserves are documented.
Calculating Monthly Qualifying Rental Income (or Loss) If the property was in service • For the entire tax year, the rental income must be averaged over 12 months; or • For less than the full year in service due to purchase time in prior tax calendar year or due to major documented renovation, the rental income must be averaged over the number of months that the borrower used the property as a rental unit • For less than full year in service due to vacancy period, the rental income (or loss) may be determined by using an annualized average calculation from the most recent tax Schedule E on the tax return.
If the net rental income (or loss) relates to the borrower’s principal residence: • The monthly net rental income (as defined above) must be added to the borrower’s total monthly income. • Any net rental loss must be added to the borrower’s total monthly obligations. • The full amount of the mortgage payment (PITIA) must be included in the borrower’s total monthly obligations when calculating the debt-to-income ratio.
If the net rental income (or loss) relates to a property other than the borrower's principal residence: • The monthly net rental income (as defined above, but excluding the full amount of the related mortgage payment) must be added to the borrower’s total monthly income. • Any monthly net rental loss must be added to the borrower’s total monthly obligations. • The full PITIA for the rental property is factored into the amount of the net rental income (or loss); therefore, it should not be counted as a monthly obligation. • The full PITIA for the borrower's principal residence must be counted as a monthly obligation.
Required Rental income calculation: • Net income/loss + • Depreciation + • Interest + • property taxes + • insurance + • HOA fees= • Annual Total • Monthly income (Annual/12) – PITI payment for property = Total Rental
Note: The term "subject net cash flow" applies to net rental income from the security property, and the term "net rental income" applies to rental income from properties other than the security property.
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Long Term Disability Long-term disability income (e.g. VA disability compensation, worker’s compensation, private disability insurance) may be considered qualifying income that has a reasonable expectation of continuance unless there is a pre-determined insurance and/or benefit expiration date that is less than three years (e.g., stated termination of a private disability insurance policy). Pending or current reevaluation of medical eligibility for insurance and/or benefit payments is not considered an indication that the insurance and/or benefit payment will not continue. If long term disability is received from Social Security, there is no expiration date and must be expected to continue.
The borrower is to provide the one of the following to document the amount of the gross income benefit: • Evidence of the source, frequency, amount, insurance and/or benefit type via an award letter dated within 120 days from loan closing, or • Evidence of the source, frequency, amount, insurance and/or benefit type via an award letter dated within 12 months from loan closing, and obtain consistent receipt for the most recent two months must be obtained
Social Security Income, Survivor and Dependent Income Benefit including VA Benefit Requirements Social Security Income may be considered as qualifying income unless there is evidence that the benefits will not continue. Pending or current reevaluation of medical eligibility for benefit payments is not considered an indication that the insurance and/or benefit payment will not continue.
To document, the following is required: • For existing established income benefits: Evidence of the source, benefit type, pre-determined payment amount, payment frequency and current receipt must be obtained (a history of receipt is not required). To document this, the Underwriter must obtain one of the following documents: o Recent bank statement documenting current receipt, benefit verification letter, notice of award letter or other equivalent documentation.
• For newly established income benefits: Current receipt is not required; however, the finalized terms of the new income commencing prior to or on the first mortgage payment due date must be documented. The Underwriter must obtain the following: o Document the finalized terms of the newly established income benefit including, but not limited to, the source, benefit type, effective date of income commencement, payment frequency and pre-determined payment amount with the benefit verification letter, notice of award letter or other equivalent documentation that establishes these terms. o The income must commence prior to or on the first Mortgage payment due date.
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Grossing up Tax Exempt/ Non-Taxable Income: Social Security Benefits, Disability Retirement payments, Workman’s Compensation benefits, and Tax- exempt trust and inheritance income may be considered provided there is sufficient documentation to support the tax-exempt status.
Verify that the particular source of income is tax-exempt and that both the income and its tax-exempt status are likely to continue. Acceptable forms of documentation include award letter, policy agreements, and account statements.
If the income is verified to be nontaxable, and the income and its tax-exempt status are likely to continue in the foreseeable future, the underwriter can utilize 25% as the grossing up amount.
Pension/Retirement The borrower is to provide the one of the following to document the amount of the gross income benefit: • Copy of the award letter, or equivalent documentation showing income type, source, amount dated within 120 days from loan closing, or • Copy of the award letter, or equivalent documentation showing income type, source, amount, (dated within 12 months from loan closing) and most recent two months bank statements evidencing consistent receipt of the retirement income, or • Copy of the most recent year’s 1099 and most recent two months bank statements. Verification that such income will continue for at least 3 years from loan closing is necessary.
Retirement Account Distributions as Income Distributions from retirement accounts such as 401(k), IRA may be considered as monthly qualifying income so long the account is not subject to early withdrawal penalty. The Borrower must provide documentation to evidence of the income source, distribution amount and frequency, current receipt and history of receipt (if applicable). Required Minimum Distributions: • If distributions are being taken in accordance with certain IRS rules, such as the required minimum distributions rule, and evidence of current receipt of the required minimum distribution amount is obtained; then history of receipt is not required for the income to be considered stable. History and stability requirements and guidance: The underwriter must determine that the source and amount of the income are stable. Factors that must be considered include the following: • Frequency and regularity of receipt of the distributions, • Length of time the distribution has been taken to determine stable pattern over a period of time; • IRS rules governing required minimum distributions (RMD) provide the information regarding the frequency and regularity of the receipt. • Document that sufficient assets remain in the retirement account(s) after closing to support continuance of the retirement account distributions as income for at least the next three years. Required documentation: o Provide the most recent retirement account statement from the financial institution holding retirement account that verifies regularly scheduled distribution arrangements;
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o The most recent year’s 1099(s) and/or; o Other equivalent documentation showing the distribution amounts, frequency and history of receipt; and o Documentation showing evidence of current receipt of distribution i.e. current bank statement or copy of cancelled check; and o Sufficient assets remaining after loan closing to support continual receipt of the retirement distribution of income for at least 3 (three) years Note: If the retirement distributions are not scheduled monthly payments (e.g., annual, semi-annual, quarterly), the most recent distribution verified through a retirement account statement, 1099 and/or other equivalent documentation, as applicable, is sufficient in lieu of current receipt.
Personal Assets as a basis for mortgage income qualification Personal assets may be used to qualify the Borrower provided that all the requirements in this section are met.
The borrower must not currently be using the eligible assets as a source of income. Furthermore, the assets described in this section may only be used to qualify the borrower if the mortgage meets all of the following requirements: • 80% maximum LTV/TLTV/HTLTV, • Purchase or limited cash-out refinance transactions only, and • 1-2 Unit primary residence or 1 Unit second home transactions only.
The Retirement Assets must be verified by the most recent asset account statement and must document the borrower as the owner of the account. The underwriter may use 70% of the balance of the eligible asset after deducting any funds to be used towards the transaction for down payment and closing costs divided by 360 months regardless of the loan term or account balance to qualify the Borrower.
The retirement assets must comply with the eligibility requirements below: • The assets must be in a retirement account recognized by the Internal Revenue Service (IRS); i.e. 401(k), IRA. • Borrower must be the sole owner of the account(s). • The account must be immediately accessible in its entirety. • Account funds must not be subject to a penalty. • The Borrower must be fully vested.
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Interested Party Contributions
Maximum Interested Party Contributions Interested Party Contributions (IPCs) are funds provided by someone other than the borrower(s) to pay costs associated with obtaining a mortgage that are normally the responsibility of the property purchaser. They may be paid by the builder, developer, seller, lender, real estate agent, or by any other third party who has an interest in the property sale or purchase transaction.
Interested Parties An interested party is defined as anyone other than the borrower who has a financial interest in, or can influence the terms and sale or transfer of, the property including: the property seller, builder/ developer, real estate agent, or broker (or an affiliate who may benefit from the sale of the property and/or the sale of the property at the highest possible price). A relative, domestic partner, fiancé, fiancée, municipality, non-profit organization, or employer is not considered an interested party unless s/he is the property seller or is affiliated with the property seller.
A lender is not considered an interested party unless it is the property seller, or is affiliated with the property seller or another interested party to the sales transaction. For example, a lender would be considered an interested party if it was that lenders real-estate-owned (REO) property transaction. An affiliation exists if there is direct common ownership or control by the lender over the interested party or vice versa or if there is direct common ownership or control by a third party over both the lender and the interested party. A relationship between a builder and a lender that serves as its financial institution is not an affiliation.
Interested Party Contributions Interested party contributions may include either financing and/or sales concessions. The payment of no more than 12 months of HOA dues by an interested party is considered an interested party contribution, subject to the requirements of this section. Also, the funds for the payment of the HOA dues must be collected at closing and transferred directly to the homeowners association, as documented on the Settlement/Closing Disclosure Statement. Important: A lender credit derived from an increase in the interest rate is not considered an interested party contribution.
Lender Credit A lender credit may only be used as a credit towards the Borrower’s closing costs and must not exceed the amount of the Borrower’s closing costs.
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Financing Concessions Financing concessions are funds that originate from an interested party to the transaction that are used to: • Reduce the interest rate on the mortgage permanently. • Fund a buydown • Make contributions toward financing Costs, Closing Costs, or Prepaid items, including up to 12 months of homeowners association (HOA) dues.
Property Type LTV/CLTV Contribution
90.01%-95.00% 3% Primary Residence and Second Home 75.01%-90.00% 6%
<75.00% 9%
Investment Property All LTV’s 2%
Any financing concession amount in excess of the amount above are considered to be “sales concessions”
Sales Concessions Interested Party Contributions (IPCs) that exceed allowable Financing Concession limits are considered Sales Concessions. In addition to contributions that exceed those limits, additional inducements may come in the form of cash or personal property such as furniture, automobiles, securities, and/or other "giveaways" granted by any interested party to the transaction. Often they are used as an incentive to the buyer and may or may not be disclosed on the Settlement Statement/Closing Disclosure. Other inducements to purchase that are not disclosed on the Settlement Statement/Closing Disclosure are not permitted. The costs of items that are in the form of personal property (i.e., furniture, decorator items, automobiles, or other "giveaways") are also considered Sales Concessions. Sales Concessions are not subject to IPC contribution limits, but their value must always be deducted from the sales price of the property. For underwriting purposes, the sales price must be reduced to reflect the amount of all Sales Concessions. The LTV ratio should then be calculated based on the lesser of the reduced sales price or the appraised value.
Sales Concessions include, but are not limited to: • Payment of various fees on the borrower's behalf that are not considered allowable Financing Concessions • Pre-foreclosure or short sale processing fees that are charged to the borrower (also referred to as short sale negotiation fees, buyer discount fees, short sale buyer fees, etc) must be treated as a sales concession if any portion is reimbursed by the seller or an interested party to the transaction. • Financing Concessions that exceed allowable IPC Financing Concession limits or that exceed the dollar amount of actual costs. • Cash • Furniture • Automobiles
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• Decorator Allowances • Repair Allowances • Moving expenses
For underwriting purposes, the value of Sales Concessions must be deducted from the sales price. The LTV and CLTV ratios should then be calculated based on the lesser of the reduced sales price or the appraised value.
Appraisal Requirements Appraisers must be provided with information relating to all interested party contributions for the subject property, including both financing and sales concessions that have been, or will be, granted. The appraiser must also be provided with information associated with a temporary or permanent interest rate buy down funded through a standby commitment provided by the lender or the builder.
The appraisal must indicate that the appraiser included all financing terms and whether the terms affected the property value. Positive adjustments for sales or financing concessions are not acceptable. Contribution limits are based on the LTV and occupancy type and are measured using the lesser of the sales price and appraised value. The dollar amount of the contributions may not exceed the actual total dollar amount of the allowable closing costs. The contribution limits are as follows:
Real estate commissions as well as any non-lien related disbursements such as marketing expenses, finder’s fees, referral fees, consulting fees or assignment of sale fees should appear on the CD. Any combination of these disbursements to exceeding 8% of the sales price must be treated as a sales concession and deducted dollar-for-dollar from the sales price for calculation of the LTV.
Minimum Borrower Contribution Requirements Transactions using LPA as the Automated Underwriter Owner Occupied: • 1 Unit: A minimum borrower contribution from the borrower's own funds is not required with LTV/CLTV greater than 80%. • 2-4 Units: A minimum borrower contribution from the borrower's own funds is not required with LTV/CLTV ≤ than 80%. Note: LTV’s > than 80% are not permitted on 2-4 primary residence.
Second Homes: • A minimum contribution from the borrower's own funds in the amount of at least 5% is required on second home.
Investment Property: • All funds used for the transaction must be Borrower personal funds.
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Loan Limits and Product Codes Conforming and Super Conforming
Conforming loan size limits Minimum loan amount-$50,000.
2017 Number of Units Continental U.S One $424,100 Two $543,000 Three $655,350 Four $815,650 In order to originate a conventional loan utilizing the new loan limits at FCBM, the following is required: • The AUS must recognize the new loan limits in the AUS findings and • The loan must close after January 1, 2017.
Transaction Types • Purchase • No Cash-out Refinances • Cash-Out Refinance (see specific product guidelines for Texas (A)(6) Mortgages)
Fixed Rate Program Description A fixed rate, fully amortizing mortgage with Conforming Loan amounts. Product Codes – LPA • CON30 – Conventional Conforming Fixed 30 year • CON25 – Conventional Conforming Fixed 25 year • CON20 – Conventional Conforming Fixed 20 year • CON15 – Conventional Conforming Fixed 15 year • CON10 – Conventional Conforming Fixed 10 year
Loan Term 10, 15, 20, 25, and 30 years.
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ARM Rate Program Descriptions
5/1 ARM A 30 year Conforming Conventional 5/1 ARM; fixed for the first 5 years and then rolls to a one year ARM for the remainder of the Loan term.
7/1 ARM A 30 year Conforming Conventional 7/1 ARM; fixed for the first 7 years and then rolls to a one year ARM for the remainder of the Loan term.
ARM Product Codes – LPA • CLA51 – Conventional Conforming 5 year LIBOR ARM 30 year • CLA71 – Conventional Conforming 7 year LIBOR ARM 30 year
Loan Term 30 years
Index 1 Year LIBOR: The average of interbank offered rates for one year U.S. dollar-denominated deposits in the London market (LIBOR) as published in The Wall Street Journal
Margin A margin of 2.25% is required.
First Adjustment Cap 5/1 ARM The first adjustment may change the previous interest rate by no more than 2% up or down.
7/1 ARM The first adjustment may change the previous interest rate by no more than 5% up or down.
Subsequent Adjustment Cap 5/1 and 7/1 ARMS Each subsequent adjustment may change the interest rate by no more than 2% up or down.
Lifetime Cap 5/1 ARM and 7/1 ARM The lifetime cap is 5% over the initial note rate. There is no downward cap, except for the margin.
First Interest Rate Change Date 5/1 ARM Fifty-nine (59) months from the first payment due date.
7/1 ARM Eighty-three (83) months from the first payment due date.
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Subsequent Interest Rate Change Date 5/1 and 7/1 ARM Once every 12 months after the first interest rate change date.
Conversion to Fixed Rate Conversion to a fixed rate option is not permitted
ARM Qualifying 5/1 ARM Borrower is qualified at the greater of the Note rate plus 2% or the Fully Indexed Rate.
7/1 ARM Borrower is qualified on the greater of the Note Rate or the Fully Indexed Rate.
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Super Conforming loan size limits
Limit varies by county.
Minimum and Maximum loan amounts for 2017 Continental U.S. High Balance Loan Amounts
Number of Units Minimum Continental U.S. Base Loan Maximum Continental U.S. Base Loan Amounts Amounts
One $424,101 $636,150
Two $543,001 $814,500
Three $656,351 $984,525
Four $815,651 $1,223,475
In order to originate a conventional loan utilizing the new loan limits at FCBM, the following is required: • The AUS must recognize the new loan limits in the AUS findings and • The loan must close after January 1, 2017.
Please refer Freddie Mac’s website for loan amount eligibility. FHLMC - http://www.freddiemac.com/singlefamily/mortgages/super_conforming.html
Fixed Rate Program Description A fixed rate, fully amortizing mortgage utilizing the increased agency loan limits.
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Product Codes - LPA • CJB30 – Conventional Conforming Fixed 30 year • CJB15- Conventional Conforming Fixed 15 year
Loan Term 15, 30 years only.
ARM Program Description A 30 year Super Conforming Conventional 5/1 ARM; fixed for the first 5 years and then rolls to a one year ARM for the remainder of the Loan term.
Product Codes - LPA • CJB51 – Conventional Super Conforming 5/1 year LIBOR ARM
Loan Term 30 year only.
Index 1 Year LIBOR: The average of interbank offered rates for one year U.S. dollar-denominated deposits in the London market (LIBOR) as published in The Wall Street Journal
Margin A margin of 2.25% is required
First Adjustment Cap The first adjustment may change the previous interest rate by no more than 2% up or down.
Subsequent Adjustment Cap Each subsequent adjustment may change the interest rate by no more than 2% up or down.
Lifetime Cap The lifetime cap is 5% over the initial note rate. There is no downward cap, except for the margin.
First Interest Rate Change Date Fifty-nine (59) months from the first payment due date.
Subsequent Interest Rate Once every 12 months after the first interest rate change date. Change Date
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Conversion to Fixed Rate Conversion to a fixed rate is not permitted.
ARM Qualifying Borrower is qualified at the greater of the Note rate plus 2% or the fully indexed rate
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LPMI Product Codes and Loan Limits-Lender Paid Single Premium Mortgage Insurance
Minimum loan amount-$50,000
Loan size limits
Continental U.S. Continental U.S. Conforming Number of Units Super Conforming 2017 2017 FIXED ONLY
One $424,100 $636,150
Transaction Types:
Eligible Transaction Types Ineligible Transaction Type Purchase Cash Out No Cash Out
Property Types
Eligible Property Types Ineligible Property Types Single family detached or attached 2-4 Units PUDs detached and attached Condos low rise or high rise Please reference Collateral section of the Underwriting guidelines for additional ineligible property types
Occupancy:
Eligible Occupancy Ineligible Occupancy Primary Residence Investment Second Homes (conforming only) Second Homes for Super Conforming
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Approved Insurers Arch* https://mi.archcapgroup.com/Underwriting/Products Genworth http://mortgageinsurance.genworth.com/ * BPMI – Borrower Paid Monthly Premium Mortgage Insurance to be ordered through Arch MI and only available in FCBM’s retail channel.
Each MI Company offers different rates and program parameters. Please visit the respective MI Company’s website for further details.
Important: The Loan Originator is to disclose on the “Loan Estimate” the first month of the MI premium that will be collected at closing.
Cancellation of MI Not applicable, program is a single premium, non-refundable.
Payment of MI Premium Premium is built into the rate, please refer to your rate sheet and contact Secondary.
Price Adjustments Certain transactions may be subject to price adjustments if RADIAN is not utilized as the Mortgage Insurance Company. Refer to your rate sheet and contact Secondary.
Program Description FIXED A fixed rate, fully amortizing mortgage with Conforming and Agency Jumbo Loan amounts featuring lender paid single premium mortgage insurance.
Product Codes - LPA LPC30 – Lender Paid Mortgage Insurance Conventional Conforming Fixed 30 year LPC15 – Lender Paid Mortgage Insurance Conventional Conforming Fixed 15 year LPJB3 – Lender Paid Mortgage Insurance Conventional Agency Jumbo Fixed 30 year
Loan Term Fixed 15, 30 year (15 year term only available for Conforming product)
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Program Description: ARM A 30 year Conventional Conforming 5/1 & 7/1 ARM, fixed for the first 5 or 7 years respectively, and then rolls to a one year ARM for the remainder of the Loan term.
Product Codes - LPA CLP51 – Lender Paid Mortgage Insurance Conventional Conforming 5 year LIBOR ARM CLP71 – Lender Paid Mortgage Insurance Conventional Conforming 7 year LIBOR ARM
Loan Term: ARM 30 year
ARM Qualifying 5/1 ARM: Borrower is qualified at the greater of the Note rate plus 2% or the fully indexed rate 7/1 ARM: Borrower is qualified at the Note rate.
Index 1 Year LIBOR: The average of interbank offered rates for one year U.S. dollar-denominated deposits in the London market (LIBOR) as published in The Wall Street Journal
Margin A margin of 2.25% is required
First Adjustment Cap 5/1 ARM The first adjustment may change the previous interest rate by no more than 2%up or down.
First Adjustment Cap 7/1 ARM The first adjustment may change the previous interest rate by no more than 5%up or down.
Subsequent Adjustment Cap Each subsequent adjustment may change the interest rate by no more than 2%up or down.
Lifetime Cap The lifetime cap is 5% over the initial note rate. There is no downward cap, except for the margin.
First Interest Rate Change Date 5/1 ARM: Fifty-nine (59) months from the first payment due date. 7/1 ARM: Eighty-three (83) months from the first payment due date.
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Subsequent Interest Rate Change Date Once every 12 months after the first interest rate change date.
Conversion to Fixed Rate Conversion to a fixed rate is not permitted.
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Maximum Number of Financed Properties
Maximum Amount of Loans with FCBM The maximum number of loans per borrower eligible for purchase by Florida Capital Bank Mortgage is four (4) not to exceed maximum aggregate loan amount $ 1,000,000. (Max aggregate loan amount for California properties is $2,000,000) Florida Capital Bank will only finance 3 non-owner occupied (including second homes)
Maximum Number of Financed Properties for all Borrowers (when the AUS is LPA)
Occupancy Maximum Number of Financed Properties (FHLMC)
Owner-Occupied Unlimited
Second Home 6 (including primary)
Investment Property 6 (including primary)
Below is a list of financed properties that do not have to be counted in the total number of owned and/or obligated properties: • Commercial real estate • Multifamily (five or more units) real estate • Timeshares • Undeveloped land • Manufactured homes not titled as real property (chattel lien), unless the • property is situated on the land that is titled as real property • Property titled in the name of the Borrower’s business provided that the Borrower, in his or her individual capacity, is not on title and/or is not obligated on the property • Property titled in the name of a trust where the Borrower is a trustee, provided that the Borrower, in his or her individual capacity, is not on title and/or not obligated on the property Important: It is the lender’s responsibility to ensure eligibility requirements are met.
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Super Conforming Loan Amounts Investor and Second Home borrowers with six financed properties must meet the following eligibility requirements (when the AUS is LPA) Second Home or Investment Property (FHLM) Super Conforming (ONLY) Transaction and Property Number of Units LTV/CLTV/HTLTV Minimum Credit Type Score Second Home Purchase/Rate Term Refinance 1 Unit Fixed & ARM Rate 85% 720 Cash Out Refinance 1 Unit Fixed & ARM Rate 75% 720 Investment Property
Purchase 1 Unit Fixed & ARM Rate 85% 720 2-4 Unit Fixed & ARM Rate 75% Rate Term Refinance 1-4 Unit Fixed & ARM Rate 75% 720
Cash-Out Refinance 1 Unit Fixed & ARM Rate 75% 720 2-4 Unit Fixed & ARM Rate 70% Important: The maximum LTV requirements for Mortgages with secondary financing are 5% lower than the LTV ratio requirements for Mortgages without secondary financing.
Conversion of Primary Residences Current Primary Residence Pending Sale If the borrower’s current primary residence is pending sale but the transaction will not close prior to the new principal residence being purchased, the current PITIA and the proposed PITIA must be used in qualifying the borrower for the new mortgage loan. However, the current principal residence's PITIA does not have to be used in qualifying the borrower as long as the following documentation is provided: • The executed sales contract for the current residence, and • Confirmation that any financing contingencies have been cleared.
Conversion into Second home A current principal residence converting to a second home, requires the lender to include the PITIA of the second home as part of the borrower's recurring monthly debt obligations in the DTI.
Conversion into Investment Property Rental income from the converted property may be used, as long as the borrower qualifies using standard rental income documentation, requirements, reserves and calculations. There is no equity requirement in the converted property in order to use rental income to qualify.
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Mortgage Insurance
Private Mortgage Insurance For Loans with LTV s > 80% private mortgage insurance is required. LTV Coverage Coverage
>20 year term < 20 year term
90.01 - 95.00 30% 25%
85.01 - 90.00 25% 12%
80.01 - 85.00 12% 6%
MI Requirements REDUCED PERCENTAGES MAY APPLY IF ALLOWED BY THE LPA FEEDBACK CERTIFICATE. • Custom or Lower cost MI not allowed • If mortgage insurance is required the % of coverage should be calculated off of the lesser of the sales price or appraised value.
Approved Insurers Arch* https://mi.archcapgroup.com/Underwriting/Products Genworth http://mortgageinsurance.genworth.com/ * BPMI – Borrower Paid Monthly Premium Mortgage Insurance to be ordered through Arch MI and only available in FCBM’s retail channel.
Each MI Company offers different rates and program parameters. Please visit the respective MI Company’s website for further details.
Important: The Loan Originator is to disclose on the “Loan Estimate” the first month of the MI premium that will be collected at closing.
Important: The Loan Originator is to disclose on the “Loan Estimate” the first month of the MI premium that will be collected at closing.
Cancellation of MI Follow FHLMC standards.
Financed MI and Split MI Not Allowed
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MI Loan Process and Approval All loans with MI will be required to obtain approvals directly from the Mortgage Insurance Company issuing the policy. FCBM will be responsible for submitting all documentation necessary for the approval but will not submit until a full package has been obtained by FCBM in order for the Mortgage Insurance Company to render a decision.
LPMI – Lender Paid Mortgage Insurance Please reference specific guidelines and Matrices
BPMI (Only available in the Retail Channel) BPMI – Borrower Paid Single Premium Mortgage Insurance BPMI – Borrower Paid Monthly Premium Mortgage Insurance to be ordered through Arch MI To request a rate quote under FCBM’s Master Policy #14789-0001-0 please visit https://archmiconnect.archmi.com/CMGMI/rateQuote.do?screenName=RateQuote- Marketing&type=lm&GETRATE_ID=109&page_from=rateQuoteCMG
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Relief Refinance Mortgages Open Access – Conforming Loan Amounts
Product Description The Freddie Mac Relief Refinance Mortgage– Open Access Program is a no cash out refinance program for loans already owned or guaranteed by Freddie Mac. This program provides underwriting flexibilities, expanded eligibility criteria and/or reduced documentation requirements as compared to standard refinance transactions.
To determine if the mortgage is currently owned or securitized by Freddie Mac, the following website may be used: https://ww3.freddiemac.com/corporate/
Conforming loan size limits Minimum loan amount-$50,000
Number of Units Continental U.S. Conforming 2017
One $424,100
Two $543,000
Three $656,350
Four $815,650
Eligible Transactions No Cash Out Refinance
Refinance Proceeds • Refinance loan proceeds must be e used to pay off a first mortgage • Proceeds can NOT be used to pay off any junior liens, even if used to purchase the subject property • Pay related Closing Costs, Financing Costs and Prepaids/Escrows not to exceed $5,000 • The excess loan amount (if applicable) must be applied as a principal curtailment to the new refinance mortgage at closing and must be clearly reflected on the Settlement Statement/Closing Disclosure form or other equivalent closing statement, or the loan amount must be reduced
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Eligible Property Types and Occupancy • 1- to 4-unit primary residences. • 1-unit second homes. • 1- to 4-unit investment properties.
Ineligible Property Types
Geodesic Domes Manufactured Homes Cooperatives Working Farms and Ranches Condotels Unimproved Land Hotel Condominiums Commercial Properties i.e. Bed & Breakfast, Boarding House, Hotels Timeshares
State Restriction The maximum LTV/TLTV allowed on a Texas 50 (A)(6) Refinance mortgage is 80%
Maximum LTV/TLTV/HLTV • 105% is the maximum LTV/CLTV/HTLTV ratio for fixed-rate mortgages. • The maximum LTV ratio for ARMs is 105% however; FCBM does not offer Open Access for ARM rate.
Product Codes -Conforming CRP3P – Freddie Mac Open Access Conforming Fixed 30 year with or without PIW for LTV of 105% or below.
CRP2P – Freddie Mac Open Access Conforming Fixed 20 year with or without PIW for LTV of 105% or below.
CRP1P – Freddie Mac Open Access Conforming Fixed 15 years with or without PIW for LTV of 105% or below.
Loan Terms 15, 20 or 30-year fixed-rate, fully amortizing mortgages
Maximum Ratios • Per LPA Accept AUS
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Program Criteria The existing loan must have a note date on or before May 31, 2009 in order to be eligible and the new refinance transaction must have an application date on or before September 30, 2017.
AUS Recommendation Loan must receive an Accept/Eligible recommendation
Temporary Buydowns Buydowns are not permitted
Assumptions Assumptions are not permitted
Pre-payment Penalties Pre-payment penalties are not allowed Important: An accurate address is critical to determining if the subject property address on the loan case file matches a subject property address for an existing Freddie Mac mortgage.
MI Requirements For an LTV ratio greater than 80% • If the mortgage being refinanced has mortgage insurance coverage, then the same mortgage insurance coverage percentage must be maintained for the Relief Refinance Mortgage – Open Access. • If the mortgage being refinanced does not have mortgage insurance, then no mortgage insurance coverage is required for the Relief Refinance Mortgage – Open Access. For additional guidance, refer to Freddie Mac’s Seller Guide Chapter 4303.4 for special delivery requirements related to mortgage insurance for Relief Refinance Mortgages – Open Access. IMPORTANT NOTE: Customers are responsible to verify before registering the loan if the current MI coverage is in-force. Customer can log into Radian or MGIC’s website to verify existing loan coverage by logging to: MGIC - https://loancenter.mgic.com/ New users must register with MI Company to obtain user name/password. Click on the tab “Manage Existing Loans” and search the existing loan’s coverage by any of the criteria on the Search by section. The existing MI Certificate should be included in the loan documents uploaded to Mortgagebot. RADIAN - https://radian.secure.force.com/CertLookup Enter the data in the section for Certificate Lookup to obtain verification of existing coverage. The existing MI Certificate should be included in the loan documents uploaded to Mortgagebot. GENWORTH - http://mortgageinsurance.genworth.com/RatesAndGuidelines/RateFinder.aspx New users must register with MI Company to obtain user name/password. Click on the tab “Rates & Guidelines” and click on the orange tab “HARP Info” and for the existing loan coverage by entering the MI Certificate. The MI Certificate should be included in the loan documents uploaded to Mortgagebot. UNITED GUARANTY (UG) - https://www.ugcorp.com/services/harp.html New users must register with MI Company to obtain user name/password. Complete the loan modification form either for new servicer or same servicer and submit it electronically via e-mail
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to address noted on the modification request. The existing MI Certificate should be included in the loan documents uploaded to Mortgagebot. Important: The loan originator is to disclose on the “Loan Estimate” the first month of the MI premium that will be collected at closing whenever mortgage insurance will continue or will be transferred through the existing Mortgage Insurance Company as noted above.
Notes to Operations: MI Transfers instructions can be found in the UW process and procedures internal folder
BORROWER BENEFIT The loan must present a benefit to the borrower such as: • Reduction in the interest rate of the first lien mortgage, • Replacement of an ARM, Initial Interest Mortgage (or any mortgage with an interest- only period) or a balloon/reset mortgage with a fixed-rate, fully amortizing mortgage, or • Reduction in the amortization term of the first lien mortgage. • Reduction in the monthly principal and interest payment of the first lien. Note: The Benefit to Borrower requirement must be determined by the underwriter. LPA will not determine this. It is the underwriter’s responsibility to ensure this requirement is met. Underwriters must complete a Net Tangible Benefit for all Relief Refinance loans.
Recently listed properties There is no need to confirm the subject property is not currently listed for sale.
Underwriting Requirements The loan must receive an “Accept/Eligible” risk class factor from Loan Product Advisor. The Offering Identifier must indicate “Relief Refinance – Open Access”. Manual Underwriting is not allowed. Loans must follow the LPA Findings Report income and asset documentation
Subordinate Financing • Existing secondary financing must be subordinated; a copy of the subordination agreement and the note of the subordinate loan must be in the loan file. • New subordinate financing is permitted if it replaces existing subordinate financing and proper documentation to verify this is necessary along with a copy of the old and the new subordinate financing notes are required i.e. reduces the interest of the existing subordinate financing; replaces an ARM, an interest only, or a subordinate financing with a balloon payment; reduction in the amortization term or in the payment. Note: The UPB of the subordinate financing may not be more than the UPB, at the time of payoff, of the existing subordinate lien being refinanced. Also, if the subordinate financing being refinanced is a fixed-rate, the new subordinate lien may not be an ARM. • Subordinate financing cannot be paid off or paid down with the proceeds of the new first Open Access Refinance mortgage
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Documentation The loan file must comply with the documentation required by the LPA Feedback Certificate Report. Tax transcripts are required for each borrower whose income is utilized as a source of repayment. The most recent available tax transcripts are required to support the income used to qualify the borrower. If only W2 income is used to qualify, W2 transcripts may be obtained as long as tax returns are not included in the loan file. When the documentation used to verify income is from the same calendar period as the tax transcript, the information must match exactly. However, if the income documentation is from the current calendar year and the transcript is from a prior year, there can be acceptable variances to qualifying income. If this variance exceeds 20%, provide documentation and/or commentary for the rationale for using current income. If tax transcripts are not available (due to a recent filing) a copy of the IRS notice showing “No record of return filed” is required along with documented acknowledgement receipt (such as IRS officially stamped tax returns or evidence that the return was electronically received) from the IRS and the previous year’s tax transcript.
A 4506-T, signed at application and closing, is required for all transactions. Tax transcripts are required for each borrower whose income is utilized as a source of repayment. Transcripts must be provided for the number of years of income used to qualify the borrower.
Additional Documentation Original Note is not required however is the best indicator to document the borrowers on the Open Access transaction are the same as on the existing loan being refinanced. Alternative documents may include credit report, title and/or payoff. A current payoff statement that identifies the current servicer is required. Mortgage History showing loan is current up to month of closing. Taxes and Homeowners Insurance is required to be validated prior to clear to close A subordination agreement, if applicable, along with a copy of the note of the subordinate financing Title Policy and applicable Endorsements (Short form policy is acceptable if provided through the original Title Company)
Assets Assets must be verified in accordance with the LPA Feedback Certificate report.
Reserve There are no minimum reserve requirements, except that reserves must be verified in accordance with the LPA Feedback Certificate.
Ineligible Existing Mortgage Loans • Reverse Mortgage loans • Second Mortgage loans • Government Mortgage loans • Loans that are currently subject to any outstanding repurchase request from Freddie Mac • Mortgage loans that are subject to any credit enhancement (e.g. full or partial recourse) other than borrower paid or lender paid mortgage insurance
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Ineligible New Mortgage Loans • All ARM Product types • Higher Priced Mortgage Loans (HPMLs) • Mortgage loans with an interest-only feature • Balloon mortgage loans • My Community Mortgage loans • Home-style Renovation mortgage loans prior to the completion of the property • Loans that "buy out" the interest of another borrower • Loans that receive an ineligible or refer risk result
Removing a Borrower An existing borrower(s) may be removed from the new loan provided that at least one of the original borrower(s) is retained on the new loan
Adding a Borrower A new borrower may be added to the new loan, provided the existing borrower is retained A non-occupying co-borrower may not be added to a mortgage secured by a primary residence.
Project/Condo Approval There is no requirement for a review of condo projects, or PUDs; however, project cannot be any of the following: Hotel/Resort, Houseboat, Timeshare, a project with fragmented or segmented ownership. In order to confirm this, the Homeowners Association is to complete the DU REFI PLUS HARP 2.0/Open Access Condominium and Attached PUD questionnaire located in the Condo Guide and Exhibits section located in the Resource Center www.flcbmtg.com
Appraisal Requirements The appraisal requirement will be determined by Loan Product Advisor. A full appraisal is required unless LPA provides acceptable Home Value Explorer (HVE) findings and both the original HVE point value estimate and the appraisal are valid up to 120 days but never surpass the original LPA Assessment Expiration Date. Acceptable HVE Results: • 1-2 unit properties only (attached or detached, including condos and PUDs) • A Forecast Standard Deviation (FSD) less than or equal to 0.20 • A Confidence Score of “M” (medium) or “H” (high) In LPA, the data input field for Appraised Value of the Property must match the HVE Value. This generally means LPA must be updated and re-run after an initial LPA submission returns acceptable HVE findings. • The initial LPA submission is submitted with the property value input in the Estimated Value of Property field in LPA. • If acceptable HVE findings are returned, LPA must be immediately re-run with the HVE value now entered in the Appraised Value of the Property field in LPA and having been removed from the Estimated Value field. • Verify acceptable HVE findings are again returned and the HVE value matches the Appraised Value of the Property. • The HVE value is valid for up to 120 days through loan closing but never beyond the
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original LPA Assessment Expiration Date as printed at the top of the LPA Findings. Note: Subsequent LPA submissions may return a different HVE value. These subsequent values can be disregarded and the original HVE value may be used for up to 120 days, but not to exceed the original LPA Assessment Expiration Date. In cases where subsequent LPA submissions return a lower value and the original HVE value continues to be used, the original LPA Findings must be kept in the file and be filed as Final LPA Findings along with the most recent and Final LPA Findings.
Disaster Protocol Properties identified to be located in a FEMA Declared Disaster Area will require a final inspection (1004D) before loan closing regardless of the transactions having the Property Fieldwork Waivers (PFW) {formally known as Property Inspection Waivers (PIW)} that do not require an appraisal will require the following: • A 1004D Final Inspection must be obtained (must be requested through specific (Websites listed on page #2). Note: 1004D Final Inspections will be required for any loan transaction where LPA issued a PFW (Property Fieldwork Waivers) for 180 days after the disaster incident period end date for the affected areas.
Escrow Account Escrow accounts waiver will be based on the existing mortgage escrow requirements so if the existing mortgage does not have escrows set up; the new loan does will not be required to have escrows set up however, Hazard Insurance and Flood Insurance must be paid current. Loans requiring private mortgage insurance premiums must have the MI premium escrowed unless there is a single premium.
Cash Back Cash back to the borrower is permitted up to a maximum of $250.00 to allow or changes in closing costs. Note: Any excess cash representing the difference between the estimated and the actual payoff of the original loan plus closing costs and prepaid fees that is more than $250 must be applied as a principal curtailment to the new mortgage or a reduction in the actual loan amount.
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Title Requirements • The newly originated refinance loan must remain in first lien position • Ensure all real estate taxes and assessments that could become a first lien are current including property taxes, condominium and homeowner’s association dues, utility assessments and the personal property tax on manufactured homes • The title insurance policy must be written on an American Land and Title Association (ALTA) 2006 Form with appropriate endorsements • The title insurance policy must protect the mortgagee up to at least the current principal balance • The title policy must have correct information regarding the insured’s name, loan number and amount of coverage • Property Reports, Ownership and Encumbrance Reports, Attorney’s Opinions are not acceptable • Any existing tax or mechanic’s liens must be paid in full through escrow. Proceeds from the new loan may not be used to pay liens • Taxes must be collected if due within 30 days of closing, regardless of the establishment of an impound account.
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Mortgage Eligibility-Refinance Transactions
General Requirements for All Refinances For all refinance transactions, at least one of the following requirements must be met: o At least one Borrower on the new refinance was a Borrower on the mortgage being refinanced; or o At least one Borrower on the new refinance has held title to and resided in the Mortgaged Premises as a Primary Residence for the most recent 12-month period and documentation is provided evidencing that the Borrower, either: . Has been making timely Mortgage payments, including the payments for any secondary financing, for the most recent 12-month period; or . Is a Related Person to a Borrower on the Mortgage being refinanced; or o At least one Borrower on the refinance Mortgage inherited or was legally awarded the Mortgaged Premises (for example), in the case of divorce, separation or dissolution of a domestic partnership)
Mortgage Ownership Seasoning
Refinance Type Ownership Seasoning Requirement No Cash Out No Requirement
Cash Out At least one Borrower must have been on title to the subject property for at least six months prior to the Note Date of the cash-out refinance Mortgage. If none of the Borrowers have been on the title to the subject property for at least six months prior to the Note Date, the requirements specified in the cash out refinance section in these guideline and FHLMC’s Guide Section 4301.5 must be met.
Special purpose cash-out The Borrower and the co-owner receiving the buy-out proceeds must refinance (buy out of an have jointly owned the property for a minimum of 12 months prior to Owner’s Interest) the initial loan application. Note: Borrowers who inherited an interest in the property are exempt from this requirement.
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No Cash Out Refinances The proceeds for a no cash out refinance can be used only to: • Pay off of the current first mortgage regardless of its age, • Pay off any junior lien that was used in its entirety to acquire the subject property ; a copy of the Settlement Statement/Closing Disclosure from the borrower’s purchase of the subject property must be provided evidencing that any subordinate financing was used in its entirety to acquire the subject property, • Pay related Closing Costs, Financing Costs and Prepaids/Escrows • Pay off the outstanding balance of a land contract or contract for deed (must meet the requirements set forth by FHLMC Sellers Handbook Section 4404.1, • Incidental cash to the borrower not to exceed the lesser of $2000 or 2% of the principal balance of the new loan amount (does not apply to owner occupied refinances of property located in Texas). Any remaining proceeds in excess of the prior bullet point require for the loan amount to be reduced or the excess amount must be applied as a principal reduction at closing and must be clearly reflected on the Closing Disclosure (CD) Statement. The subject property must not be currently listed for sale. It must be taken off the market on or before the application date and the borrowers must confirm their intent to occupy the subject property (for principal residence transactions). Note: It is not permissible to pay off a PACE type loan with the proceeds of no cash out refinance.
Cash Out Refinances Any refinance transaction not meeting the requirements for a no cash out refinance is a cash-out refinance. To be eligible for a cash-out refinance: • The borrower must have been on the title to the subject property for at least six months prior to the note date of the cash out refinance; otherwise, the transaction is ineligible. • There is no waiting period if the lender documents that the borrower acquired the property through an inheritance or was legally awarded the property through divorce, legal separation or dissolution of a domestic partnership. • Paying off a second lien PACE type loan, • Or all the delayed financing requirements below are met: o The Settlement/Closing Disclosure Statement from the purchase transaction reflect that no financing secured by the subject property was used to purchase the subject property (a recorded trustee's deed or equivalent documentation may be used when a Settlement/Closing Disclosure Statement was not used for the purchase transaction). o The preliminary title report for the refinance transaction reflects the Borrower as the owner of the subject property and denotes that there are no liens on the property. o The source of funds used to purchase the subject property must be fully documented. o If funds were borrowed to purchase the subject property, those funds must be repaid and reflected on the Settlement/Closing Disclosure Statement for the refinance transaction. o The amount of the cash-out refinance Mortgage must not exceed the sum of the original purchase price and related Closing Costs, as documented by the Settlement/Closing Disclosure Statement for the purchase transaction, less any gift funds used to purchase the subject property (a recorded trustee's deed or equivalent documentation may be used when a Settlement/Closing Disclosure Statement was not used for the purchase transaction). o There must have been no affiliation or relationship between the buyer and seller of the
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purchase transaction • The subject property must not be currently listed for sale. It must be taken off the market on or before the application date and the borrowers must confirm their intent to occupy the subject property (for principal residence transactions). Note: FCBM’s Early Pay-off contractual agreement will apply in all instances.
Special Purpose Refinance a/k/a Buy Out an Owner’s Interest A Special purpose refinance is a cash-out refinance mortgage where the owner of a property uses the proceeds of the refinance transaction to buy out the equity of a co-owner.
The following conditions must be present in order to provide financing under this product: • The Borrower and the co-owner receiving the buy-out proceeds must have jointly owned the property for a minimum of 12 months prior to the initial loan application (this does not apply to parties who inherited the property); • The Borrower and the co-owner receiving the buy-out proceeds must provide evidence that they occupied the subject property as their Primary Residence (this does not apply to parties who inherited the property); • The Borrower and the co-owner receiving the buy-out proceeds must provide a written agreement, signed by all parties, stating the terms of the property transfer and the disposition of the proceeds from the refinancing transaction; and • The Borrower who retains sole ownership of the property may not receive any of the proceeds from the refinance transaction.
The loan amount is limited to amounts used to buy out the equity of the co-owner: • Paying off the first Mortgage, regardless of age, • Paying off junior liens secured by the Mortgaged Premises, • Paying related Closing Costs.
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Land contract/ Contract for Deed When the proceeds of Mortgage are used to pay the outstanding balance of a land contract or contract for deed, the loan may be considered either a purchase or a "no cash-out" refinance transaction depending of certain requirements. Purchase The new transaction to pay off a land contract or contract for deed will be considered to be a purchase if the land contract or contract for deed was executed less than 12 months prior to the loan application date and all loan proceeds are used to pay the outstanding balance of the land contract or contract for deed.
The LTV must be calculated using the lesser of the following: o The current appraised value, or o The total acquisition cost (the purchase price indicated in the original land contract or contract for deed, plus any cost the Borrower has expended for rehabilitation, renovation, refurbishment or energy conservation improvements). Sufficient documentation evidencing the total acquisition cost must be provided. No Cash Out Refinance If the land contract or contract for deed being paid off was executed 12 months or greater prior to the loan application date, the new transaction will be considered to be no cash out refinance.
The LTV must be calculated using the current appraised value and evidence of satisfactory payment history for the most recent 12 months period is required. The payment history must be provided via a third party and all other requirements applicable to no cash out refinances must be met.
Refinance Transactions with a Short Payoff A short payoff is a mortgage loan in which the servicer of the mortgage agrees to a payoff of a lesser amount than is actually owed. This type of situation constitutes a modification of the original terms of the repayment note with principal forgiveness. A mortgage transaction with a short payoff is not acceptable.
Refinance of Modified/Restructured Mortgage Refinance of a restructured/modified mortgage is ineligible for financing. A restructured/modified mortgage is one in which the original terms have been changed, resulting in any of the following characteristics that make the loan ineligible for financing: • Forgiveness of principal and/or interest on either the first or second mortgage • Application of a principal curtailment by or on behalf of the investor to simulate principal forgiveness • Conversion of any portion of the original mortgage debt to a mortgage that is fully forgiven over a period of time or due upon the sale of the subject property (a "soft" subordinate mortgage) • Conversion of any portion of the original mortgage debt from secured to unsecured
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Mortgage Eligibility-Qualified Mortgages /Ability to Repay
Qualified Mortgage Loan Eligibility A Qualified Mortgage (QM) loan is a mortgage that complies with the Consumer Financial Protection Bureau (CFPB) /Dodd-Frank Rule that the mortgage loan was made by the creditor/lender on the premise that a reasonable and good faith determination based on verified and documented information that the consumer/borrower has a reasonable ability to repay the mortgage loan based on the terms, all applicable taxes, insurance (including mortgage insurance) and assessments. The rule is effective on applications dated on or after January 10th, 2014
The requirements for a mortgage to meet the QM criteria limits the points and fees charged in relation to the transaction, prohibits risky loan features and practices such as negative amortization, interest only payments, balloon payments and loan terms greater than 30 years. Further, the creditor/lender must verify and document the consumer’s Ability to Repay the Qualified Mortgage (ATR/QM). The ATR/QM rule provides a temporary qualified mortgage rule that mortgage originated and closed in accordance to Fannie Mae, Freddie Mac, FHA, VA or USDA (identified as “agency”) guidelines are considered QM until the earlier of January 10th, 2021 or when either Fannie Mae or Freddie Mac leaves the CFPB’s conservatorship or when rules are promulgated for FHA, VA or USDA loans. A Qualified Mortgage must adhere to the following updated points and fees and loan amount thresholds for loan applications with an interview date on or after January 1st, 2015:
Ability to Repay/ Qualified Mortgage Points and Fees Test Loan amount thresholds for loans with an Allowable Points and Fees for loans with interview date on or after 1/1/2015 an interview date on or after 1/1/2015 >/= $101,953 3% of the ATR/QM Total Loan Amount Greater than or equal to $61,172 but less Flat dollar cap of $3,059 than $101,953 Greater than or equal to $20,391 but less 5% of the ATR/QM Total Loan Amount than $61,172 Greater than or equal to $12,744 but less than Flat dollar cap of $1,020 $20,391 < $12,743 8% of the ATR/QM Total Loan Amount (NOTE: The minimum loan amount FCBM allows is $50,000.)
HOEPA Points and Fees Test Loan amount thresholds for loans with an Allowable Points and Fees for loans with interview date on or after 1/1/2015 an interview date on or after 1/1/2015 >/= $ 20,391 5% of the HOEPA Total Loan Amount Greater than or equal $12,750 but less than Flat dollar cap of $1,020 $20,391 < $12,750 8% of the ATR/QM Total Loan Amount
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• Cannot have risky features such as; negative amortization, interest payment only, balloon payments or loan terms greater than 30 years • The loan must be eligible for purchase or guarantee by Fannie Mae, Freddie Mac, FHA, VA or USDA • The loan must be underwritten based on eight underwriting factors using reliable third party verification/records: 1. Current or reasonably expected income or assets; 2. Current employment status; 3. The monthly payment on the covered transaction; 4. The monthly payment on any simultaneous loan; 5. The monthly payment for mortgage-related obligations; 6. Current debt obligations, alimony, and child support; 7. The monthly debt-to-income ratio or residual income; and 8. Credit history. • Loans underwritten through an Automated Underwriting System (AUS) with a credit risk Approve/Eligible or Accept are not required to meet the maximum DTI requirement of 43% threshold and may follow FCBM’s maximum ratios listed in the underwriting credit section. Manual downgraded loans must adhere to the maximum ratio of 43%.
Qualified Mortgages/Ability to Repay Florida Capital Bank Mortgage offers financing only to Qualified Mortgages that are originated and closed in accordance to Agencies QM Guidelines and FCBM’s underwriting guidelines.
The Dodd-Frank Act has two categories for qualified mortgages that are presumed to comply with Ability to Repay: . QM Safe Harbor Loans: A safe harbor QM loan is one that is not a “Higher Priced Mortgage Loan” (HPML).
. QM Rebuttable Presumption Loans: A rebuttable presumption QM loan is a “Higher Priced Mortgage Loan” (HPML). Safe Harbor QM loans: Are mortgages that are not Higher Priced Mortgage Loans (HPML) under Regulation “Z” thus the APR does not exceed the Average Prime Offer Rate (APOR) as of the date the rate is set by 1.5% or more for a first mortgage, or 3.5% or more if a second mortgage. A safe harbor loan means that once the creditor proves that the loan is a QM loan and is not a higher priced mortgage loan, the ability to repay requirements were met by the creditor. Rebuttable Presumption QM Loans: Are mortgages that are Higher Priced Mortgage Loans (HPML) under Regulation “Z” because the APR exceeds the Average Prime Offer Rate (APOR) by 1.5% or more. Conventional, VA and USDA loans must be originated and closed under the Safe Harbor QM (non-HPML) criteria at Florida Capital Bank Mortgage; while Rebuttable Presumption QM (HPML) loans are acceptable for financing on all FHA Fixed Rate loans and Credit Qualifying Streamline Refinances with Fixed Rate characteristics in which case the maximum DTI for Rebuttable Presumption QM loans (HPML) loans is 43%.
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Qualified Mortgage Documentation In addition to standard loan documents necessary to be obtained in the assessment of the consumer’s credit worthiness and ability to repay the mortgage, the following must also be included in documenting QM: • Income and debt underwriting assessment must be documented with the appropriate worksheets available in our resource center in the Exhibit Section under Income and Debt Worksheet Analysis. • Document the loan was originated and closed in compliance with QM/ATR rule (encompasses not only points and fees and ability to repay but also, evidence of required disclosures provided timely and signed by the consumer. • Document creditor’s compliance with appraisal and valuation delivery to the consumer upon lender’s acceptance of the value or within three business days before consummation of the mortgage transaction, whichever is earlier. Note: The regulation allows applicants to waive the timing requirement of the receipt of the appraisal copies. However, applicants who waive the timing requirement must be given a copy of all appraisals and other written valuations at or prior to consummation of the loan or, even if the transaction is not consummated they are to be provided a copy of the appraisal or valuation, no later than 30 days after the creditor determines the transaction will not be consummated. • The creditor must have evidence that all compliance and regulatory items were met through loan funding.
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Secondary Financing
Secondary Financing Effective April 24, 017, Mortgages with secondary financing: The terms of the secondary financing must be disclosed to the appraiser and to the Mortgage Insurance (MI) Company. The terms of the secondary financing that must be disclosed include but are not limited to: the note rate, the institution providing the financing. Important: The Originator may not indicate a value needed to support the transaction, or provide any information to the appraiser about an expected loan-to-value (LTV) ratio. • Outside secondary financing is permitted thru a licensed financial institution. • Seller held seconds not permitted. • Negative Amortization Subordinations are not allowed. • The maturity date or amortization of the subordinate lien must not be less than five years after the Note Date of the First Lien Mortgage, unless the junior lien is fully amortizing, or a Home Equity Line of Credit (HELOC). In addition, the junior lien must not contain a call provision within the five-year period, unless the junior lien is a HELOC. • The terms of the secondary financing must provide for regular monthly payments sufficient to meet the interest due; interest may not accrue. • Any modification or subordination requires an executable document from the 2nd lien holder that is prior to issuing an underwriting final approval. The document is required to be recorded by the closing/title agent. • When a HELOC or a fixed second lien is subordinated, a copy of the Note and the Security Instrument is required. • A municipality which includes any duly authorized authority or agency of the Federal, State, local or municipal government. o Must have supporting documentation that it will not be an ongoing liability o Both the Note and Security instrument must be submitted prior to a clear from underwriting o Documentation of automatic subordination or subordination at closing.
• Employer Assisted Homeownership (EAH) secondary financing are only eligible if the meet the following requirements: o Allow the Borrower to continue making payments on the loan in the event the Borrower no longer works for the employer and may not require repayment in full unless: 1. The Borrower terminates his or her employment for any reason, or 2. The employer terminates the Borrower’s employment for any reason other than long-term disability, the elimination of the employee’s position or reduction-in- force.
• Scheduled Payments for Secondary Financing: The terms of the secondary financing must provide for regular monthly payments sufficient to meet the interest due; interest may not accrue. If the secondary financing is an Employer Assisted Homeownership (EAH) Benefit and the monthly payment of principal and interest, or interest only begins on or after the 61st monthly payment under the First Lien Mortgage, or if repayment of the principal is due only upon sale or default, the amount of the monthly payment may be excluded from the monthly
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housing expense-to-income ratio and monthly debt payment-to-income ratio. Otherwise, the required monthly payment must be included in both the ratios. Documentation required at closing: o Purchase: . Copy of the Closing Disclosure (CD) that evidences the fees and costs paid by the Borrower at closing in connection with the secondary financing, . If a HELOC, provide the HELOC agreement indicating all fees and costs paid by the Borrower at closing, and the maximum permitted credit advance, . Copy of the Note, or other evidence of the subordinate lien terms, and . Copy of the Security Instrument. o Refinance: . Copy of the Subordination agreement. Note: The subordination agreement will list the name of the first lien holder to whom the second lien is subordinating to i.e. Florida Capital, the first lien holder listed on the subordination agreement should be “Florida Capital Bank, N.A. d/b/a Florida Capital Bank Mortgage”. Note: Refer to the Texas (A)(6) guidelines for specific requirements related to subordinate financing.
Special Requirements for Affordable Second Mortgages (Available in Retail Channel ONLY) Affordable Second Mortgages must be provided by an agency with an established, documented secondary or financial assistance program.
Only first mortgages with the following characteristics may receive Affordable Second Mortgages: • Fixed Rate or an ARM rate with an initial fixed rate period of five ears or greater; • Be a purchase transaction or a no cash out (rate and term) refinance of a Primary Residence and • Secured by a 1-4 Unit. The terms of the Affordable Second must not require a balloon payment due before the maturity or payment in full of the first mortgage.
The interest rate of the Affordable Second must not be more than 2% higher than the interest rate of the First Mortgage. Interest accruals, which are added to principal, may not increase the total loan-to-value (TLTV) ratio beyond the maximum TLTV ratio allowed for the First Mortgage at any time during the term of the First Mortgage.
If monthly payments on the Affordable Second begin on or after the 61st monthly payment under the First Mortgage or if repayment of the entire Affordable Second amount is due only upon sale or default, the amount of the Affordable Second monthly payment may be excluded from debt-to-income ratios. Important: for additional eligibility and requirements related to Affordable Second, please refer to “Freddie Mac’s Seller’s Guide 4204.2: Special requirements for Affordable Seconds”.
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Entering Affordable Second Mortgages in Loan Product Advisor (LPA) When submitting a Mortgage with an Affordable Second to Loan Product Advisor (LPA), the Originator/Underwriter may enter the amount of the Affordable Second as “Gift Funds” in the property and in the assets tab of the loan application (1003) instead of entering it as “Secured Borrowed Funds” field for asset and down payment purposes only if the following applies: : • The Affordable Second does not require a payment before the Due Date of the 61st monthly payment, and • The Affordable second meets all the other requirements for an Affordable Second stated in the “Special Requirements for Affordable Second Mortgages” written in the prior section. Nevertheless, the Affordable Second amount must still be entered as secondary financing in all other sections of the loan application (1003) and the underwriter loan transmittal to be counted in the CLTV/TLTV ratios.
States with Automatic Subordination The following States allow for “Automatic Subordination” for certain mortgages for properties located in Texas, Maryland, and Virginia. There are specific requirements that need to be present in order for the existing subordinate financing to be eligible for automatic subordination.
Maryland Properties Automatic Subordination Process The State of Maryland “automatic” subordination process may be used to eliminate the need for obtaining a written subordination from the existing second lien holder.
Criteria: The State of Maryland enacted an “Automatic Subordination for Junior Mortgages” statute that took effect on October 1, 2013. The statute (SB 199, Chapter 205 of the 2013 Laws of Maryland) provides that a mortgage or deed of trust (collectively “mortgage”) on residential property which refinances in full, a First Mortgage at an interest rate lower than the First Mortgage will, upon recording, have the same lien priority over a Junior Mortgage as the First Mortgage being refinanced.
Maryland Eligibility Requirements: The property being refinanced must meet all of the following conditions to be eligible for the automatic subordination process. See the legend* below when reviewing the requirements for eligibility: o The property must be a 1-4 unit properties; o Principal Residences, Second Home and Investment property occupancies are eligible; o The first mortgage cannot be a “cash-out” refinance transaction; o At least two open mortgages (deeds of trust), with outstanding balances or credit line, must be of record. o The Principal amount secured by Deed of Trust B* cannot exceed $150,000. o Principal amount secured by the new Deed of Trust C* must not exceed the sum of: . Unpaid outstanding principal balance (not the payoff amount) secured by Deed of Trust A, plus . An amount to pay closing costs not to exceed $5,000. o Interest rate of the new loan secured by Deed of Trust C* must have an interest rate that is less than or equal to the interest rate of the loan secured by Deed of Trust A*. . If the interest rate of either of said loans is adjustable, the maximum interest rate allowed under the Note must be used to determine the maximum interest rate allowable under the Note.
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*Legend: 1. Deed of Trust A = first mortgage that will be paid off by the subject transaction 2. Deed of Trust B = second mortgage that will remain in place 3. Deed of Trust C = new first mortgage
Closing Requirements: The Deed of Trust of the new first mortgage must have the following typed on the first page in bold or capitalized letters: o THIS IS A REFINANCE OF A DEED OF TRUST/MORTGAGE/OTHER SECURITY INSTRUMENT RECORDED AMONG THE LAND RECORDS OF _____COUNTY/CITY, MARYLAND IN LIBER NO. _____FOLIO ____, IN THE ORIGINAL PRINCIPAL AMOUNT OF ______, AND WITH THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF ______. THE INTEREST RATE PROVIDED FOR IN THE EVIDENCE OF INDEBTEDNESS SECURED BY THIS REFINANCE MORTGAGE IS LOWER THAN THE APPLICABLE INTEREST RATE PROVIDED FOR IN THE EVIDENCE OF INDEBTEDNESS SECURED BY THE DEED OF TRUST/MORTGAGE/OTHER SECURITY INSTRUMENT BEING REFINANCED.
The existing first mortgage must be paid in full with the proceeds from the new first mortgage refinance transaction; and the title company must agree to insure the subject refinance transaction in first lien position, without any exception.
Texas Properties Automatic Subordination Process The State of Texas “automatic” subordination process may be used to eliminate the need for obtaining a written subordination from the existing second lien holder.
Criteria: First mortgage refinance loans on primary residences that have an existing second recorded Deed of Trust and are eligible to close with an existing second are eligible for the automatic subordination process, provided the new loan is not subject to the provisions of Texas Constitution Article XVI Section 50(a)(6) (Texas Cash Out).
Texas Eligibility Requirements: The property being refinanced must meet all of the following conditions to be eligible for the automatic subordination process:
o Primary one unit residence (homestead) properties only; o Existing first lien on the subject property cannot be a loan that was subject to Texas Constitution, Article XVI, Section 50(a)(6) Texas Cash Out loan; o Existing first lien and the second lien must encumber only the subject premises (i.e. no additional real or personal property can be secured other than the homestead property that is the subject of the new loan); o Second mortgage must meet agency guidelines for an acceptable subordination of secondary financing; o Deed of Trust being refinanced must have been recorded prior to the subordinate Deed of Trust (per title report).
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Closing Requirements: The Refinance Deed of Trust must include a Renewal and Extension Agreement as a Rider to the refinance Deed of Trust and include the following language: o Renewal and Extension of Liens against Homestead Property: The Note is in renewal and extension, but not in extinguishment of the indebtedness described on the attached Renewal and Extension Exhibit which is incorporated by reference. Lender is expressly subrogated to all rights, liens, and remedies securing the original holder of a note evidencing Borrower’s indebtedness and the original liens securing the indebtedness are renewed and extended to the date or maturity of the Note in renewal and extension of the indebtedness.
Title Company must certify that: o The recording of the new Deed of Trust with the additional language required above will automatically subordinate to the new first lien; o Obtain an Assignment or Transfer of Lien from the first lien holder to the refinancing lender; and o Issue a first lien policy for the entire amount of the loan (including closing costs). Virginia Properties Automatic Subordination Process Virginia State Law Code 55-58.3 permits the automatic subordination of junior liens (second liens), provided specific conditions are met for the new transaction.
Criteria: The State of Virginia allows for automatic subordination.
Virginia Eligibility Requirements: The property being refinanced must meet all of the following conditions to be eligible for the automatic subordination process:
o The existing subordinate financing is not a promissory note payable to any county, city or town or any agency, authority or political subdivision of the Commonwealth if the subordinate mortgage is financed pursuant to an affordable dwelling unit ordinance adopted pursuant to § Virginia Code 15.2-2304 or 15.2-2305, or o Pursuant to any program authorized by federal or state law or local ordinance or resolution, for: . Low-and moderate-income persons or households or . Improvements to residential potable water supplies and sanitary sewage disposal systems made to address an existing or potential public health hazard AND o Which mortgage, if recorded on or after July 1, 2003, states on the first page thereof in bold or capitalized letters: “THIS (DEED OF TRUST, MORTGAGE OR OTHER SECURITY INTEREST) SHALL NOT, WITHOUT THE CONSENT OF THE SECURED PARTY HEREUNDER, BE SUBORDINDATED UPON THE REFINANCING OF ANY PRIOR MORTGAGE.” o The property must be a single family dwelling (1-unit only) located in Virginia; o The principal amount secured by the second mortgage that will remain in place cannot exceed $150,000; o The principal amount secured by the new first mortgage must not exceed the sum of the unpaid principal balance secured by the first mortgage being paid off, plus an amount to pay closing costs not exceeding $5,000. o The new first mortgage must be a first lien and no cash out to the borrower.
Page 134 of 145 Revision Date 07-25-17 Wholesale and NDC Freddie Mac Conforming and Super Conforming o The interest rate for the new first mortgage must be less than or equal to the interest rate on the first mortgage that will be paid off with the new loan proceeds.
Closing Requirements: The Deed of Trust of the new first mortgage must have the following typed on the first page in bold or capitalized letters just before the Definitions (but after the Lender, Borrower, Trustee granting clause:
THIS IS A REFINANCE OF A (DEED OF TRUST, MORTGAGE OR OTHER SECURITY INTEREST) RECORDED IN THE CLERK’S OFFICE, CIRCUIT COURT OF ______(NAME OF COUNTY OR CITY), VIRGINIA, IN DEED BOOK ______, PAGE ______, IN THE ORIGINAL PRINCIPAL AMOUNT OF ______, AND WITH THE OUTSTANDING PRINCIPAL BALANCE AMOUNT WHICH IS ______.
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Texas (A)(6)
Program Overview FCBM provides financing to “home equity” first liens originated under Section 50 (a)(6) of Article XVI of the Texas Constitution, subject to the requirements of this Texas (a)(6) Product Guide, Texas Constitution, Article XVI, Section 50 (a)(6), and applicable agency program requirements.
Program Description A Fixed Rate, fully amortizing mortgage Texas Home Equity (a)(6) Loan
Product Codes CA630 – Conventional Conforming 30 year Fixed Texas A6 CA615 – Conventional Conforming 15 year Fixed Texas A6
Loan Term 30 and 15 years.
Conforming loan size limits Minimum loan amount-$50,000.
Number of Units Continental U.S. 2017
One $424,100
Note: FCBM does not finance Super Conforming loan amounts on the Texas (A)(6) Program
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Property Types Eligible Property Types Ineligible Property Types
Single family (1 Unit) detached or attached 2-4 Units PUDs detached and attached Agricultural Property (may not have a property tax exemption for agricultural use as of the date of closing). Rural (see rural properties section) If the property was previously designated with an agricultural exemption, the exemption must have been removed a minimum of 12 months prior to the application date. Please reference Collateral section of the Underwriting guidelines for additional ineligible property types
Occupancy
Eligible Occupancy Ineligible Occupancy
Primary Residence Investment
Note: Must be Borrower’s Texas Homestead 2nd Homes
Borrower Eligibility Eligibility Borrower Ineligible Borrower Must have a valid Social Security number Loans closing in Inter vivos revocable trusts. US Citizen Non-occupant co-borrowers Permanent Resident Aliens Non-Permanent Resident Aliens Please reference General Borrower Eligibility Chapter for additional ineligible Borrower criteria
Power of Attorney Not allowed, no exceptions
Minimum Credit Score 620
Maximum Ratios Allowed Per LPA Accept on for Conforming Loan Amounts 45% with LPA Accept for Super Conforming Loan Amounts
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Transaction Types
Eligible Transaction Types Ineligible Transaction Type Owner Occupied – Primary Residence Texas (a)(6) loans are subject to the following restrictions: Cash out refinance • An (a)(6) loan may not be closed sooner than 12 months , plus one day, after the closing of the previous (a)(6) loan. • There can be only one (a)(6) loan secured by the property at one time. • The (a)(6) loan may not be identified as a rate-and-term refinance. • The (a)(6) loan may not be used to acquire the property or to finance construction. • The payoff of existing second liens with a new (a)(6) loan is not Owner Occupied – Primary Residence permitted. No Cash Out • New second lien financing is not permitted. Subordination of existing 2nd liens is permitted subject to the 80% LTV/CLTV requirement.
Loan Purpose/ Transaction Type Refer to the Texas Section 50(a)(6) Refinance Matrix at the end of this Chapter to determine if the new first mortgage is a rate/term refinance or a cash out refinance and whether it is subject to Texas 50(a)(6) regulations.
No Cash Out Refinance: A Texas 50(a)(6) rate/term refinance loan must meet FCBM’s definition of a rate/term refinance except for the following: • The first mortgage or any second mortgage being paid off that is permitted for a rate/term refinance transaction must be identified in the title work as a Texas Section 50(a)(6) loan, and; • Closing costs and prepaid items may be included in the loan amount, but the total amount that may be charged is subject to limits imposed by the Texas regulations (refer to the Closing Costs section of this program description for additional information.); and • Seasoning requirements as described below apply to every loan; and • The borrower may not receive any cash back at closing, including amounts normally permitted for a rate/term refinance
Cash-Out Refinance: A loan is considered a Texas Section 50(a)(6) cash out refinance if it includes the following: • The borrower receives any amount of cash back, including amounts normally permitted for a rate/term refinance; or • The payoff or refinance of all or part of an existing Texas 50(a)(6) loan, whether or not the borrower receives any cash back at closing; or • Proceeds of the loan are used to pay off or pay down debts that are not secured by the homestead property. • Closing costs and prepaid items may be included in the loan amount, but the total amount that may be charged is subject to limits imposed by the Texas regulations. (Refer to the Closing Costs
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section of this program description for additional information.); and • Seasoning requirements as described below apply to every loan.
If an existing equity line of credit (HELOC) is being paid off, the account may not remain open; it must be closed. Proceeds of the new loan may not be used to pay deficiencies in the escrow account of the existing mortgage that may be reflected in the payoff letter.
Subordinate Financing • New secondary Financing is not allowed for TX (A)(6) • Existing non-(a) (6) secondary financing (for example, an existing (a) (5) home improvement loan) is allowed if subordinated to the new (a)(6) mortgage. Additionally the loan must meet the 80% CLTV requirement. See TX (A)(6) Underwriting Guidelines Chapter.
Restriction There cannot be more than one Texas Section 50 (a) (6) loan secured by a property at any time. Delayed Financing is allowed on Texas (A)(6) so long the delayed financing does not violate Texas A(6) law requiring the borrower to receive the 12 day disclosure.
Examples of (a)(6) Loans The following are considered (a)(6) loans: • Loans using proceeds to pay off an existing (a)(6) loan. • Loans using proceeds to pay off federal tax debt liens. • Loans using proceeds to pay property tax liens on the property securing the new loan. • Loans with any cash back to the borrowers.
The following are not considered (a)(6) loans: • Loans using proceeds to pay current taxes due on the property securing the loan. • Loans using proceeds to buy out equity pursuant to a court order or agreement of the parties (usually applies to a divorce settlement). • Loan proceeds used to pay a prepayment penalty assessed on an existing non-(a)(6) loan, and the prepayment is included in the payoff amount. The new loan must have a new title policy issued without exception to the financing of the prepayment fee. • If the title company requires them to be paid, loans that include the payment of HOA dues.
Seasoning Requirement Only one Section 50(a)(6) loan may be closed in any 12-month period. A new Section 50(a)(6) loan may not be closed before the anniversary of the recording date of the most recent Section 50(a)(6) loan that was secured by the subject property, including any existing Section 50(a)(6) first or second mortgage, as well as any Section 50(a)(6) mortgage that was closed, paid off and released of record within the past twelve months. Exceptions to the seasoning requirement are only permitted if a state of emergency has been declared (by the president of the United States or the governor of the State of Texas) that applies to the area where the homestead is located, and the borrower submits a sworn affidavit indicating the reason for requesting an earlier closing date.
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Identification of Spouses It is the responsibility of the broker to ascertain all the owners of the property and the owners’ spouses, including common-law spouses.
Homestead Texas (a) (6) loans require that the subject property be verified as the borrower’s urban homestead. If the borrower owns only one property in Texas, even if it is a second home or investment property, it may be considered a Texas homestead. In order to prove that the property is not the borrower’s homestead: • A copy of the borrower’s most recently filed tax return must be provided showing that the property has been a second home or investment property for the most recent 12 months AND • The title company must verify that the property is not considered the borrower’s homestead, and the borrower must submit an affidavit to that effect.
Ownership Interest Ownership interest must be held as fee simple. The borrower’s ownership interest may not be based on: • Contract for deed
A non-titled owner whose ownership arises out of marital community property rights and/or homestead rights may be a borrower even though they are not a titled owner.
Conveyed Property Any consumer initiated conveyances of property adding new owners must be completed at least 12 days before closing. Additionally, the new owners must receive the “Notice Concerning Extensions of Credit” at least 12 days before closing.
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Urban Homestead Guidelines The urban homestead must adhere to the following guidelines:
Criteria Guidelines Acreage May not exceed 10 acres
Location The property must be located within one of the following areas:
• Municipal boundaries • Its extraterritorial jurisdiction • A platted subdivision
Access to The property must be served by police protection, paid or volunteer fire protection, and at least three of the following services provided by a municipality or under contract to a Local municipality:
Services • electrical • storm sewer • natural gas • sewer • water
Rural Homestead Guidelines
Criteria Guidelines
Acreage The acreage may exceed 10 acres. However, the lot size must be typical and common with highest and best use as residential. In no case may the lot size exceed 20 acres.
Property The property is not located within municipal boundaries or its extraterritorial jurisdiction, or if the property is located in one of those types of areas: Location and • It is not served by police protection or paid or volunteer fire protection Services provided by the municipality or under contact to a municipality, and • The municipality provides directly or under contract less than three (3) of the following services: • Electric • Natural Gas • Sewer • Storm Sewer • Water Note: If the property is designated as “agricultural exempt” or for timber use under the property tax laws or FCBM policy, it may not be included as collateral: please reference exclusion guidelines below.
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Exclusion of Agricultural and Timber-Designated Property If the property acreage includes an agricultural or timber exempt tax designation (or exceeds the above acreage limits), the homestead parcel must be surveyed out and appraised separately. The homestead parcel, as identified on the county appraisal district records (commonly one acre), must include ingress/egress to a properly identified public road. FCBM’s lien may only be secured by the homestead parcel and the market value for LTV calculation can only be assessed on that parcel. If a portion of the homestead property is designated for agricultural or timber use under the Texas property tax statutes, whether an Urban Property or a Rural Property, no Texas Section 50(a)(6) home equity loan may be made unless the agricultural or timber-designated property is excluded from the mortgage/security instrument legal description, as verified by a survey. If the property was previously designated with an agricultural exemption, the exemption must have been removed a minimum of 12 months prior to the application date. Provided the property is not designated for agricultural use on the date of closing, there should be no lien validity or priority issue if the property is later designated for agricultural use. • Agricultural Property (may not have a property tax exemption for agricultural use as of the date of closing). If the property was previously designated with an agricultural exemption, the exemption must have been removed a minimum of 12 months prior to the application date. • Timber use properties (same restrictions as for agricultural-designated property) • Leasehold properties
Fee Restrictions: Under Texas law, there is a 3% fee restriction on closing costs that a borrower must pay to obtain an (a)(6) loan. FCBM does to offer rates that result in a discount.
Use of Proceeds and Payoff of Debts The Texas Constitution prohibits a lender from requiring that the proceeds from an (a)(6) loan be used to pay off any debts to that lender (Florida Capital Bank) that are not secured by the homestead. • If the payoff of debts to other lenders/creditors is required in order to qualify the borrower, then those payoffs must be disbursed directly to the creditor by the title company.* • Debts that are elected for pay off by the borrower, but are not required to be paid off in order to qualify the borrower, may be disbursed directly to the borrower.* • A loan used for consolidating debt must be originated as an (a)(6) loan even if the proceeds at closing are paid directly to the creditors and the borrower personally receives no cash from the transaction *Certain Debts must be closed if paid off or included into the DTI- please reference the Underwriting Chapter – Credit/Ratio’s/Liabilities for further guidance.
Additional Appraisal Requirements for Texas (a)(6) The appraisal report must have attached the statement for the borrower to acknowledgment and sign at closing that the “fair market value” was based on an appraisal prepared “in accordance with a state or federal requirement applicable to the extension of credit”. Refer to Required Documents to be executed at closing in these guidelines.
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Survey If obtaining a new survey, a bill or statement will be required as the cost will be included into the 3% fee restriction. If a survey has been ordered within the last year and was not included into a previous transaction this cost will be included in the current transaction and 3% fee restriction calculation. A survey is required for every loan. The survey must: • Provide a legal description of the property to be covered by the mortgage; • Exclude any property designated as "agricultural" or "timber" on tax records; • Be no more than 10 acres if the property is an urban property; or up to 100 acres for a single person or up to 200 acres for a family if the property is a rural property; • Show access to a public road, and • Exclude any rental use improvements or any other non-homestead use property. Note: The final title policy must not include any exceptions to survey matters.
Title Endorsement Requirements In addition to any other required endorsements, the title commitment must contain the Form T-2 with T-42 Endorsement (Equity Loan Endorsement) and T-42.1 Endorsement (Supplemental Coverage Equity Loan Mortgage Endorsement) without any exception of deletion.
Gift Funds Not Allowed
Source of Funds-Business Assets Not Allowed
Retirement Assets for Reserves If reserves are required by LPA on owner occupied primary residences; retirement assets such as 401K can be used toward the reserve requirement as long as we verify the vested amount of the retirement asset with a copy of the most recent statement along with the terms of withdrawal; 60% of the available vested balance case be used toward the reserve requirement. If reserves are required on other financed property listed on the 1003; the required reserves must be liquid i.e. checking, savings, money market, etc. Retirement assets such as 401K usually cannot be used toward reserves because these funds cannot be withdrawn to relieve the applicant from foreclosure and/or hardship for owned properties other than for the primary residence.
Closing Required Documents In addition to standard closing document to be executed by the Borrower(s) at closing, below is a list of additional documents required to be executed for Texas (a)(6) loans: • The attorney is to provide the Texas 50(a)(6) Legal and Compliance Checklist and Statement of Opinion signed by Attorney certifying that the loan meets all Texas (a)(6) requirements. • The Borrower and the non-borrowing spouse if applicable are to execute the “Notice Concerning Extension of Credit” (12 day Notice). • The Borrower is to execute the “Affidavit of Fair Market Value of Homestead Property”. Note: If the non-borrowing spouse is on title, he/she will also be required to sign the form.
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Texas 50(A)(6) Refinance Matrix To determine if current 1st and/or 2nd mortgage is subject to Texas 50(a)(6) regulations, loans will be identified as such in the title commitment or title policy. Any existing HELOC is a 50(a)(6). No cash to borrower at closing permitted for Rate/Term Refinances. No new second mortgage is permitted with a new 50(a)(6) loan. If the following conditions exist: Then the new loan is considered:
Is Current Is Current First a Second a Is Second to Is Second to be Any Cash to Rate/Term Cash Out Subject to Current Lien(s) 50(a)(6)? 50(a)(6)? be Paid Off? Subordinated? Borrower Refinance Refinance 50(a)(6)?
No No X No
No Yes X Yes First Mortgage Only1 No Second Mortgage Yes No X Yes
Yes Yes X Yes
No No No Yes No X No
No No No Yes Yes X Yes
No No Yes No X No
First Mortgage and No No Yes Yes X Yes Second Mortgage equal Purchase Money (Except HELOC) Yes No No Yes No X Yes
Yes No No Yes Yes X Yes
Yes No Yes No X Yes
Yes No Yes Yes X Yes
No No No Yes No X No
No No No Yes Yes X Yes
No No Yes No No First Mortgage and Second Mortgage equal No No Yes Yes X Yes Qualified Home Improvement Loan Yes No No Yes No X Yes (Except HELOC) Yes No No Yes Yes X Yes
Yes No Yes No Yes
Yes No Yes Yes X Yes
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Not No Yes No Yes Permitted X Not Permitted
2nd used entirely for purchase money: Eligible. First Mortgage and Second Mortgage equal No Yes Yes No nd Yes HELOC2 2 not 2nd NOT used used entirely for entirely for purchase purchase money: money: Ineligible Eligible
No Yes Yes Yes X Yes
Not No Yes No Yes Permitted X Not Permitted First Mortgage and Second Mortgage equal No Yes Yes No X Yes Not a HELOC; Not Purchase Money or Home Improvement No Yes Yes Yes X Yes
¹ Second mortgage that is subject to 50(a)(6) may not be re-subordinated if the new first mortgage will be subject to Section 50(a)(6); it must be closed
² HELOC subordinate financing is not permitted
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