CMS Conventional Guidelines—FNMA CMS Conventional Guidelines—FNMA Mortgage Lending Department Version 3.8 – 07/15/21 DOCUMENT OVERVIEW Purpose The following document describes the responsibilities and requirements of the Carrington Mortgage Services, LLC (CMS) Mortgage Lending Division Underwriter (Underwriter) when reviewing and underwriting mortgage loan applications. The purpose of credit and property underwriting is to ensure that each loan meets high quality standards that make the loans acceptable to CMS and Fannie Mae. Table of Eligibility ............................................................................................................. 24 Contents Purpose ....................................................................................................... 24 Loan Application ................................................................................................ 24 Requirements .............................................................................................. 24 Requirements for the Loan Application Package ........................................ 25 Document Images ....................................................................................... 25 Limited Denial of Participation (LDP)/General Services Administration (GSA) Lists .......................................................................................................................... 25 Requirements .............................................................................................. 25 Preliminary Review of Borrower’s Application ................................................... 25 Requirements .............................................................................................. 25 Blanket Authorization Form ............................................................................... 26 Requirements .............................................................................................. 26 Identity Verification ............................................................................................ 26 Requirements .............................................................................................. 26 Social Security Number Validation .................................................................... 26 Acceptable Documentation ......................................................................... 26 Allowable Age of Credit Documents .................................................................. 28 Requirements .............................................................................................. 28 Soft Pull Credit Reports .............................................................................. 28 Occupancy Types.............................................................................................. 28 Principal Residence Properties ................................................................... 28 Second Home ............................................................................................. 30 Investment Properties ................................................................................. 30 Borrower Types ................................................................................................. 31 Borrowers .................................................................................................... 31 U.S. Citizen ................................................................................................. 31 Non-U.S. Citizen ......................................................................................... 31 Guarantors, Co-Signers, or Non-Occupant Borrowers ..................................... 33 Requirements .............................................................................................. 33 Homeownership Education and Housing Counseling ....................................... 33 Overview ..................................................................................................... 33 Compliance with Law .................................................................................. 33 Definitions ................................................................................................... 34 Transactions that Require Homeownership Education ............................... 34 Meeting the Homeownership Education Requirements .............................. 35 CMS Policies & Procedures Page 2 of 426 Proprietary and confidential. For Internal use only. Do not distribute externally. CMS Conventional Guidelines—FNMA Mortgage Lending Department Version 3.8 – 07/15/21 Housing Counseling .................................................................................... 36 Additional Resources .................................................................................. 36 Summary of Homeownership Education and Housing Counseling Options 36 Ineligible Borrower and Vesting Types .............................................................. 37 Ineligible Borrowers ..................................................................................... 37 Ineligible Vesting Types .............................................................................. 37 Previous Financial Crimes ................................................................................ 37 Policy ........................................................................................................... 37 Transactions ....................................................................................................... 38 Multiple Properties Financed ............................................................................. 38 Multiple Properties ...................................................................................... 38 Properties Financed .................................................................................... 38 Simultaneous Submissions ......................................................................... 39 Examples - Counting Financed Properties ................................................. 40 Determining Value ............................................................................................. 41 First Mortgage Transaction Value ............................................................... 41 Loan-to-Value (LTV) Ratios .............................................................................. 41 Calculation of the LTV Ratio ....................................................................... 41 Sales Price and Appraised Value Used by DU ........................................... 42 Calculation of the CLTV Ratio ..................................................................... 43 Calculation of the HCLTV Ratio .................................................................. 43 Permanently Modified HELOCs .................................................................. 44 Subordinate Financing Requirements ......................................................... 44 Acceptable Subordinate Financing Types................................................... 44 Unacceptable Subordinate Financing Terms .............................................. 45 Eligible Variable Payment Terms for Subordinate Financing ...................... 45 Eligible Repayment Terms for Employer Subordinate Financing ............... 45 Re-Subordination Requirements for Refinance Transactions .................... 46 Defining Refinance Transactions Based on Subordinate Lien Payoff ........ 46 General Purchase Transaction Eligibility Requirements ............................. 47 Owner of Record and Chain of Title ............................................................ 48 Non-Arm's Length Transactions ................................................................. 48 Auctioneer's Fees ....................................................................................... 49 Redemption Periods ................................................................................... 49 Private Transfer Fee ................................................................................... 49 Private Transfer Fee Covenant ................................................................... 49 Purchase of Pre-foreclosure or Short Sale Properties — Allowable Fees, Assessments, and Payments...................................................................... 50 Payoff of Installment Land Contract Requirements .................................... 51 Short Payoffs ..................................................................................................... 51 Definition ..................................................................................................... 51 Eligibility Requirements ............................................................................... 51 No Cash-Out Refinance .................................................................................... 52 Definition ..................................................................................................... 52 Eligibility Requirements ............................................................................... 52 Texas Conversion (Refinance) Transactions .............................................. 52 CMS Policies & Procedures Page 3 of 426 Proprietary and confidential. For Internal use only. Do not distribute externally. CMS Conventional Guidelines—FNMA Mortgage Lending Department Version 3.8 – 07/15/21 High Balance Loans .................................................................................... 53 Property Settlement Buyout .......................................................................