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Conventional Lending Guide
06/26/2015
Equal Housing Lender © 2015 Ocwen Loan Servicing, LLC - 1661
Worthington Road, Suite 100 - West Palm Beach, FL 33409. (800-7664622). NMLS#1852, applicable for MA and VA loans only. Trade/Service
marks are the property of Ocwen Loan Servicing, LLC. Some products may
not be available in all states. Information, rates and pricing are subject to
change without notice at the sole discretion of Ocwen Loan Servicing, LLC.
All loan programs subject to borrowers meeting appropriate underwriting
conditions. Advertisement for Mortgage Professionals Only. This is not a
commitment to lend. Other restrictions apply. All rights reserved.
Conventional Lending Guide
100 - Table of Contents
100 -
CONVENTIONAL GUIDE ................................................................................................................ 100-1
INTRODUCTION ................................................................................................................................................... 100-1
Purpose .......................................................................................................................................................... 100-1
Underwriting Guidelines ............................................................................................................................... 100-1
Application .................................................................................................................................................... 100-1
Electronic Signatures ..................................................................................................................................... 100-2
Underwriting Decision................................................................................................................................... 100-2
LOAN LIMITS ...................................................................................................................................................... 100-3
Loan Limits ................................................................................................................................................... 100-3
UNDERWRITING OPTIONS ................................................................................................................................... 100-4
Overview ....................................................................................................................................................... 100-4
Manual Underwriting..................................................................................................................................... 100-4
Acceptable DU Decisions .............................................................................................................................. 100-4
DU Decisions ................................................................................................................................................. 100-4
LP Decisions .................................................................................................................................................. 100-5
AUS Underwriting ......................................................................................................................................... 100-5
DU Tolerances ............................................................................................................................................... 100-6
LP Tolerances ................................................................................................................................................ 100-7
BORROWER ELIGIBILITY..................................................................................................................................... 100-8
Overview ....................................................................................................................................................... 100-8
Primary Borrower .......................................................................................................................................... 100-8
Purchasing Co-Borrower ............................................................................................................................... 100-8
Maximum Number of Borrowers .................................................................................................................. 100-8
First-Time Homebuyer .................................................................................................................................. 100-9
Non-Purchasing Co-Owner ......................................................................................................................... 100-10
Co-Signors ................................................................................................................................................... 100-10
Non-Occupant Co-Borrower ....................................................................................................................... 100-11
Remote Spouses ........................................................................................................................................... 100-12
Non-Arm’s Length Transaction Borrower................................................................................................... 100-13
Non-Arm’s Length Transaction Other Parties ............................................................................................. 100-14
Realtor and Loan Officer ............................................................................................................................. 100-14
Purchasing from a Builder ........................................................................................................................... 100-14
Transactions with Non-Family Members .................................................................................................... 100-14
Transactions with Family Members ............................................................................................................ 100-15
Borrower is an Interested Party to the Transaction ...................................................................................... 100-16
Customer Loans ........................................................................................................................................... 100-16
Eligible Borrowers ....................................................................................................................................... 100-17
Ineligible Borrowers .................................................................................................................................... 100-17
U.S. Citizen ................................................................................................................................................. 100-17
Permanent Resident Alien ........................................................................................................................... 100-18
Non-Permanent Resident ............................................................................................................................. 100-19
Alien ............................................................................................................................................................ 100-19
Trailing ........................................................................................................................................................ 100-19
Co-Borrower Income ................................................................................................................................... 100-19
Multiple Financed Properties ....................................................................................................................... 100-20
for the Same Borrower................................................................................................................................. 100-20
Multiple Financed Properties for the Same Borrower- Multiple Properties Table ...................................... 100-21
Multiple Financed Properties for the Same Borrower (Cont’d)................................................................... 100-23
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Eligibility Requirements for Investor and Second Home Borrowers with Five to Ten Financed Properties100-24
Underwriting requirements for Multiple Financed Properties for the Same Borrower: .............................. 100-25
Inter Vivos Revocable Trust ........................................................................................................................ 100-26
Trust Definitions .......................................................................................................................................... 100-27
Inter Vivos Trust – Compliance Requirements ........................................................................................... 100-27
Obtaining Copies of the Trust ...................................................................................................................... 100-28
Ineligible Trust Scenarios ............................................................................................................................ 100-28
Closing Documents...................................................................................................................................... 100-28
Trust Title Requirements ............................................................................................................................. 100-29
Executing the Loan Documents ................................................................................................................... 100-30
Executing the ............................................................................................................................................... 100-31
Loan Documents .......................................................................................................................................... 100-31
(Cont’d) ....................................................................................................................................................... 100-31
Inter Vivos Revocable Checklist ................................................................................................................. 100-32
Borrower Power of Attorney ....................................................................................................................... 100-33
Borrower Power of Attorney (Cont’d) ......................................................................................................... 100-34
CREDIT ............................................................................................................................................................. 100-35
Overview ..................................................................................................................................................... 100-35
Age of Documents ....................................................................................................................................... 100-35
Electronic Credit Reports ............................................................................................................................ 100-36
Representative Credit Score ........................................................................................................................ 100-36
Tradelines .................................................................................................................................................... 100-37
Credit Report Inquiries ................................................................................................................................ 100-37
Residential Mortgage Credit Report ............................................................................................................ 100-38
In-File and Merged In-File Reports ............................................................................................................. 100-38
Non-Traditional Credit Report..................................................................................................................... 100-39
Delinquency and Derogatory Credit ............................................................................................................ 100-39
Bankruptcy .................................................................................................................................................. 100-40
Foreclosure .................................................................................................................................................. 100-41
Foreclosure, (Cont’d) ................................................................................................................................... 100-42
Foreclosure, (Cont’d) ................................................................................................................................... 100-43
Deed in Lieu, Pre-Foreclosure, Short Sale................................................................................................... 100-44
Restructured Loans ...................................................................................................................................... 100-45
Charge-Off of Mortgage Accounts .............................................................................................................. 100-46
Collections and Non-Mortgage Charge-offs ................................................................................................ 100-46
Past Due Accounts ....................................................................................................................................... 100-47
Judgments, Garnishments and Outstanding Liens ....................................................................................... 100-47
Nebraska Alimony / Child Support Liens .................................................................................................... 100-47
Disputed Credit Information ........................................................................................................................ 100-48
Consumer Credit Counseling ....................................................................................................................... 100-48
Housing History ........................................................................................................................................... 100-49
Commercial Property ................................................................................................................................... 100-49
First Time Homebuyers ............................................................................................................................... 100-49
Departing Property ...................................................................................................................................... 100-50
EMPLOYMENT AND INCOME ............................................................................................................................. 100-51
Overview ..................................................................................................................................................... 100-51
Tax Return Documentation.......................................................................................................................... 100-51
Amended Tax Returns ................................................................................................................................. 100-52
Taxpayer Identification Theft ...................................................................................................................... 100-53
Newly Employed ......................................................................................................................................... 100-54
Extended Employment Gaps ....................................................................................................................... 100-55
Temporary Leave of Absence – Returning Before First Payment ............................................................... 100-55
Temporary Leave of Absence – Returning After First Payment ................................................................. 100-56
Stability of Employment / Income – Standard ............................................................................................. 100-57
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Stability of Employment / Income - Furlough ............................................................................................. 100-57
Allowable Age of Federal Tax Returns ....................................................................................................... 100-58
Self-Employed and Tax Extensions ............................................................................................................. 100-59
Borrowers who have filed 2014 tax returns and the IRS transcript indicate “No Record of Return Filed”. 100-60
Tax Transcript Requirements using the 4506-T .......................................................................................... 100-61
Tax Transcript Requirements using the 4506-T (Cont’d) ............................................................................ 100-62
Alimony / Child Support / Separate Maintenance ....................................................................................... 100-63
Auto Allowance ........................................................................................................................................... 100-64
Calculating Auto Depreciation / Expenses .................................................................................................. 100-65
Boarder Income ........................................................................................................................................... 100-65
Bonus Income .............................................................................................................................................. 100-66
Overtime Income ......................................................................................................................................... 100-67
Capital Gains ............................................................................................................................................... 100-68
Housing........................................................................................................................................................ 100-68
(Non-Military) or Parsonage Allowance ..................................................................................................... 100-68
Commission Income .................................................................................................................................... 100-69
Disability Benefits ....................................................................................................................................... 100-70
Dividends and Interest ................................................................................................................................. 100-71
Employed by Family Members.................................................................................................................... 100-71
Borrowers not required to file Tax Returns with the IRS ............................................................................ 100-72
Foreign Income ............................................................................................................................................ 100-72
Foster Care Income ...................................................................................................................................... 100-73
Gratuities and Tip Income ........................................................................................................................... 100-73
Military Income ........................................................................................................................................... 100-74
Non-reimbursed Business Expense ............................................................................................................. 100-75
Non-Taxable Income ................................................................................................................................... 100-76
Mortgage Credit Certificate ......................................................................................................................... 100-76
Mortgage Differential Payments .................................................................................................................. 100-77
Note Receivable Income .............................................................................................................................. 100-77
Part-Time, Second or Multiple Income ....................................................................................................... 100-78
Pension / Retirement with Actual Income Stream ....................................................................................... 100-79
Income derived from the Asset .................................................................................................................... 100-80
Income derived from the Asset (Cont’d) ..................................................................................................... 100-81
Public Assistance ......................................................................................................................................... 100-82
Rental Income .............................................................................................................................................. 100-83
Rental Income Ineligible Properties ............................................................................................................ 100-83
DU Loans - General Requirements for Documenting Rental Income ......................................................... 100-84
DU Loans - Documenting Rental Income from Subject Property ............................................................... 100-85
DU Loans - Documenting Rental Income from Property OTHER than the Subject Property ..................... 100-86
DU Loans - Partial or No Rental History on Tax Returns ........................................................................... 100-86
DU Loans - Calculating Monthly Qualifying Rental Income (or Loss) ...................................................... 100-87
DU Loans - Treatment of Rental Income (or Loss) ..................................................................................... 100-88
DU Loans - Offset Monthly Obligations for Rental Property Reported through a Partnership or an S Corp .. 10089
DU Loans - Entering Net Rental Income ..................................................................................................... 100-90
DU Loans – Entering Net Rental Income for Special Situations ................................................................. 100-91
DU Loans - Subject Net Cash Flow Calculations ........................................................................................ 100-91
DU Loans - Entering Subject Net Cash Flow .............................................................................................. 100-91
LP Loans – Rental Income General ............................................................................................................. 100-92
LP Loans – Rental Income from the Subject property 2-4 Primary Residence ........................................... 100-92
LP Loans – Rental Income from the Subject Property 1-4 Investment ....................................................... 100-93
LP Loans – Rental Income from Investment Property Owned other than the Subject ................................ 100-94
Rental Income from Converted Property ..................................................................................................... 100-95
Royalty Payments ........................................................................................................................................ 100-97
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Seasonal Income .......................................................................................................................................... 100-98
Social Security ............................................................................................................................................. 100-99
Trust Income .............................................................................................................................................. 100-100
Unemploy-ment Benefits ........................................................................................................................... 100-100
Union Members ......................................................................................................................................... 100-101
VA Benefits ............................................................................................................................................... 100-102
Unacceptable Sources of Income ............................................................................................................... 100-102
Declining Income ...................................................................................................................................... 100-103
Salaried Borrower ...................................................................................................................................... 100-103
Salaried Income History ............................................................................................................................ 100-103
Salaried Documenta-tion ........................................................................................................................... 100-104
Salaried Documenta-tion ........................................................................................................................... 100-105
(Cont’d) ..................................................................................................................................................... 100-105
Salaried Documenta-tion ........................................................................................................................... 100-106
(Cont’d) ..................................................................................................................................................... 100-106
Non W-2 Income ....................................................................................................................................... 100-106
Self-Employed Borrowers ......................................................................................................................... 100-107
Self-Employed Income History ................................................................................................................. 100-107
Self-Employed Documentation ................................................................................................................. 100-108
Self-Employed Verification of Employment ............................................................................................. 100-109
Non-Purchasing Spouse Income ................................................................................................................ 100-110
Carry Over Losses ..................................................................................................................................... 100-110
Contracts for Employment ......................................................................................................................... 100-110
Partial Year income ................................................................................................................................... 100-111
(i.e. Teacher Income) ................................................................................................................................. 100-111
Documenta-tion Requirements .................................................................................................................. 100-111
ASSETS AND LIQUIDITY .................................................................................................................................. 100-112
Overview ................................................................................................................................................... 100-112
Eligible Assets ........................................................................................................................................... 100-112
Ineligible Assets ........................................................................................................................................ 100-113
Earnest Money ........................................................................................................................................... 100-114
Reserves ..................................................................................................................................................... 100-115
Reserves (Cont’d) ...................................................................................................................................... 100-116
Joint Assets ................................................................................................................................................ 100-117
Verification ................................................................................................................................................ 100-118
of Deposits ................................................................................................................................................. 100-118
Verification of Deposit (Cont’d)................................................................................................................ 100-119
Gifts ........................................................................................................................................................... 100-120
Gift Documenta-tion .................................................................................................................................. 100-121
Gift of Equity ............................................................................................................................................. 100-122
Gifts from Weddings ................................................................................................................................. 100-123
Sources of Funds for Closing .................................................................................................................... 100-124
Deposit on Sales Contract .......................................................................................................................... 100-125
Depository Accounts ................................................................................................................................. 100-125
Donations from Entities ............................................................................................................................. 100-125
Disaster Relief Grant or Loan .................................................................................................................... 100-126
Borrowed Funds Secured by an Asset ....................................................................................................... 100-126
Cash Value of Life Insurance .................................................................................................................... 100-127
Trade Equity .............................................................................................................................................. 100-128
Loan Repayment Proceeds ........................................................................................................................ 100-129
Rent Credit................................................................................................................................................. 100-129
for Options to Purchase ............................................................................................................................. 100-129
Real Estate Proceeds .................................................................................................................................. 100-130
Bridge Loan ............................................................................................................................................... 100-131
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Trust Account Funds ................................................................................................................................. 100-132
Sale of Stocks or Bonds ............................................................................................................................. 100-132
Stock Options ............................................................................................................................................ 100-132
Sale of Other Assets .................................................................................................................................. 100-133
Employer Assistance Programs ................................................................................................................. 100-134
Third Party Contributions .......................................................................................................................... 100-135
Third Party Contributions .......................................................................................................................... 100-136
(Cont’d) ..................................................................................................................................................... 100-136
Payment Abatements ................................................................................................................................. 100-137
Undisclosed Seller Contributions .............................................................................................................. 100-137
Allowable Uses of Interested Party Contributions ..................................................................................... 100-137
Appraisal Review with an Interested Party Contributions ......................................................................... 100-137
Document Reconciliation Involving Interested Party Contributions ......................................................... 100-138
Borrower Paid Seller Closing Cost ............................................................................................................ 100-139
Retirement ................................................................................................................................................. 100-139
Large Deposit ............................................................................................................................................ 100-140
Large .......................................................................................................................................................... 100-141
Deposit (Cont’d) ........................................................................................................................................ 100-141
1031 Exchange .......................................................................................................................................... 100-142
Foreign Assets ........................................................................................................................................... 100-143
Business Funds .......................................................................................................................................... 100-144
Pooled Funds ............................................................................................................................................. 100-145
Individual Development Accounts ............................................................................................................ 100-146
Credit Card ................................................................................................................................................ 100-147
for POC Items ............................................................................................................................................ 100-147
PROPERTIES .................................................................................................................................................... 100-148
Eligible Property Types ............................................................................................................................. 100-148
Legal Non-Conforming ............................................................................................................................. 100-148
Agricultural Zoning ................................................................................................................................... 100-149
Uniquely Designed Homes ........................................................................................................................ 100-149
Hobby Farms ............................................................................................................................................. 100-150
Ineligible Property Types .......................................................................................................................... 100-151
Private Transfer ......................................................................................................................................... 100-152
Fees ............................................................................................................................................................ 100-152
Manufactured Homes on Site .................................................................................................................... 100-153
Borrower Acknow-ledgment for Value ..................................................................................................... 100-153
Well, Septic and Pest Inspection................................................................................................................ 100-153
Age of Appraisals ...................................................................................................................................... 100-154
Age and Adjustments of Comparables ...................................................................................................... 100-155
Appraisal Validation .................................................................................................................................. 100-155
Reuse of Appraisals ................................................................................................................................... 100-156
Transferred Appraisals............................................................................................................................... 100-156
Address Validation .................................................................................................................................... 100-157
Distance of Comparables ........................................................................................................................... 100-157
Land to Value Ratios ................................................................................................................................. 100-157
Location Types .......................................................................................................................................... 100-158
Age Restricted Communities ..................................................................................................................... 100-159
Age Restricted Communities, (Cont’d) ..................................................................................................... 100-160
Multiple Parcels ......................................................................................................................................... 100-161
Land Contracts ........................................................................................................................................... 100-162
Short Sale................................................................................................................................................... 100-163
UAD Condition and Quality Ratings ......................................................................................................... 100-164
Condition and Quality Adjustments .......................................................................................................... 100-165
Property Conditions ................................................................................................................................... 100-165
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Roof Life ................................................................................................................................................... 100-165
Non-Structural Hazards ............................................................................................................................. 100-167
Security Bars.............................................................................................................................................. 100-167
Swimming Pools ........................................................................................................................................ 100-168
Heating and Cooling Sources .................................................................................................................... 100-169
Utilities ...................................................................................................................................................... 100-169
Deferred Maintenance ............................................................................................................................... 100-170
Accessory Unit .......................................................................................................................................... 100-171
Non-Permitted Additions ........................................................................................................................... 100-172
Declining / Soft Markets ............................................................................................................................ 100-172
Declining / Soft Markets, (Cont’d) ............................................................................................................ 100-173
Supervisory Appraisers .............................................................................................................................. 100-174
Sales Contract to Appraiser ....................................................................................................................... 100-174
Appraisal Forms ........................................................................................................................................ 100-174
Photo Requirements ................................................................................................................................... 100-175
Bedroom Count.......................................................................................................................................... 100-175
Investment Appraisal Forms ...................................................................................................................... 100-176
Streamline Appraisal Forms ...................................................................................................................... 100-176
Property Inspection Waivers ...................................................................................................................... 100-177
LP Home Value ......................................................................................................................................... 100-177
Explorer (HVE) ......................................................................................................................................... 100-177
Appraisal Upgrades ................................................................................................................................... 100-178
Appraisal Requirements............................................................................................................................. 100-178
Private Road Maintenance ......................................................................................................................... 100-179
Mixed Use Properties ................................................................................................................................ 100-180
Carbon Monoxide Detectors ...................................................................................................................... 100-181
Mineral Rights ........................................................................................................................................... 100-181
LEASEHOLD ESTATES ..................................................................................................................................... 100-182
Overview ................................................................................................................................................... 100-182
Documenta-tion ......................................................................................................................................... 100-182
Term of Lease ............................................................................................................................................ 100-183
Ineligible Lease Terms .............................................................................................................................. 100-184
Default Provisions ..................................................................................................................................... 100-184
Leasehold Appraisal Requirements ........................................................................................................... 100-185
Purchase Price Calculation ........................................................................................................................ 100-186
Option to Purchase ..................................................................................................................................... 100-186
Lease Payments ......................................................................................................................................... 100-187
Sublease ..................................................................................................................................................... 100-187
INSURANCE..................................................................................................................................................... 100-188
Hazard Insurance Overview ...................................................................................................................... 100-188
Acceptable Insurance Ratings .................................................................................................................... 100-188
Evidence of Insurance................................................................................................................................ 100-188
Insurance Coverage Terms ........................................................................................................................ 100-189
Insurance Coverage Terms, (Cont’d) ......................................................................................................... 100-190
Examples of Insurable Value ..................................................................................................................... 100-190
Evidence of Payment ................................................................................................................................. 100-190
Insurance Exclusions ................................................................................................................................. 100-190
Flood Insurance ......................................................................................................................................... 100-191
Acceptable Flood Coverage ....................................................................................................................... 100-193
Evidence of Payment ................................................................................................................................. 100-193
Optional Insurance Coverage .................................................................................................................... 100-193
CONDO AND PUD PROJECTS .......................................................................................................................... 100-194
Project Review Methods ............................................................................................................................ 100-196
Ineligible Projects ...................................................................................................................................... 100-198
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Projects that Operate as Hotels or Motels .................................................................................................. 100-201
Sources of Information for Researching Hotel or Motel Operations (Cont’d) .......................................... 100-203
Projects that Contain Multi-Dwelling Unit Condos ................................................................................... 100-204
Projects that Contain Multi-Dwelling Unit Condos (Cont’d) .................................................................... 100-205
Projects with Property that is not Real Estate ............................................................................................ 100-206
Live-Work Projects.................................................................................................................................... 100-211
Litigation ................................................................................................................................................... 100-212
Priority of Common Expense Assessments ............................................................................................... 100-213
Maximum Deductible Amounts ................................................................................................................ 100-216
Special Endorsements ................................................................................................................................ 100-217
Requirements for Condo Projects .............................................................................................................. 100-217
Named Insured ........................................................................................................................................... 100-218
Notices of Changes or Cancellation ........................................................................................................... 100-218
Project Type ............................................................................................................................................... 100-218
Condo ........................................................................................................................................................ 100-218
Fidelity / Crime Insurance ......................................................................................................................... 100-218
Amount of Coverage ................................................................................................................................. 100-219
Cancellation Modification Require- .......................................................................................................... 100-220
ments.......................................................................................................................................................... 100-220
Limited / Streamline Review Process ........................................................................................................ 100-220
Unit and Project Types Eligible for Limited / Streamline Review ............................................................ 100-220
Full Review Process .................................................................................................................................. 100-223
Unit and Project Types Requiring Full Review ......................................................................................... 100-223
Full Review Eligibility Require-ments for Attached Units in Condo Projects .......................................... 100-224
Replacement Reserve Studies .................................................................................................................... 100-228
Condo Project Legal Document Review Require-ments for Attached Units in New or Newly Converted
Projects ...................................................................................................................................................... 100-231
Geographic – Specific Condo Project Considera-tions.............................................................................. 100-233
Florida – Project Review Maximum LTV Requirements for Attached Units in New or Newly Converted, and
Established Projects ................................................................................................................................... 100-233
FHA Approved Condo Review Edibility ................................................................................................... 100-234
Project Eligibility Review Service (PERS) ................................................................................................ 100-235
Required Use of PERS............................................................................................................................... 100-235
Decision Expiration Dates ......................................................................................................................... 100-235
Newly Converted Non-Gut Rehabilitation Condo Projects ....................................................................... 100-236
Additional Requirements for Review of Condo and PUD Projects Comprised of Manufactured Homes . 100-236
Project Eligibility Waivers ........................................................................................................................ 100-237
Environ-mental Hazard Assessments ........................................................................................................ 100-238
Types of Environ-mental Hazard Assessments ......................................................................................... 100-238
Acceptability of Consultants ...................................................................................................................... 100-239
Types of Testing or Sampling under Phase II Environmental Assessments .............................................. 100-240
Unaccept-able Environ-mental Conditions ................................................................................................ 100-241
Eligibility Require-ments for Units in PUD Projects................................................................................. 100-244
Eligibility Requirements for Units in PUD Projects .................................................................................. 100-244
ESCROW (COMPLETION) HOLDBACK .............................................................................................................. 100-246
Overview ................................................................................................................................................... 100-246
NATURAL DISASTERS ..................................................................................................................................... 100-247
Overview ................................................................................................................................................... 100-247
Procedure ................................................................................................................................................... 100-247
Example ..................................................................................................................................................... 100-247
Requirements for Affected Areas .............................................................................................................. 100-248
LOAN PURPOSE............................................................................................................................................... 100-249
Overview ................................................................................................................................................... 100-249
Principal Reductions .................................................................................................................................. 100-249
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Purchase Transactions ............................................................................................................................... 100-250
Purchase Agreements................................................................................................................................. 100-251
Limited Cash-Out Refinance ..................................................................................................................... 100-252
Buyout Refinance ...................................................................................................................................... 100-253
Cash-Out Refinance ................................................................................................................................... 100-254
Delayed Financing Cash-Out Refinance .................................................................................................... 100-255
Divestiture of Interest ................................................................................................................................ 100-256
Continuity of Ownership and Obligation ................................................................................................... 100-256
Continuity of Ownership and Obligation, (Cont’d) ................................................................................... 100-257
Continuity of Ownership and Obligation, (Cont’d) ................................................................................... 100-258
Listed for Sale ............................................................................................................................................ 100-259
Newly Constructed Properties ................................................................................................................... 100-260
New Construction Purchase ....................................................................................................................... 100-261
New Construction Refinance ..................................................................................................................... 100-261
General Contractor .................................................................................................................................... 100-262
MORTGAGE INSURANCE ................................................................................................................................. 100-263
Overview ................................................................................................................................................... 100-263
Approved MI Companies .......................................................................................................................... 100-263
SUBORDINATE FINANCING ............................................................................................................................. 100-264
Overview ................................................................................................................................................... 100-264
Requirements and Restrictions .................................................................................................................. 100-264
Required Documentation ........................................................................................................................... 100-266
Seller .......................................................................................................................................................... 100-267
Carry .......................................................................................................................................................... 100-267
Backs ......................................................................................................................................................... 100-267
Modifying Existing Second Liens ............................................................................................................. 100-268
Municipal Betterment Assessments ........................................................................................................... 100-269
Community Seconds .................................................................................................................................. 100-270
Down Payment Assistance ........................................................................................................................ 100-270
Virginia Automatic Subordination............................................................................................................. 100-271
Maryland Automatic Subordination .......................................................................................................... 100-272
RATIO ............................................................................................................................................................. 100-273
Calculation ................................................................................................................................................. 100-273
Real Estate Tax Payment ........................................................................................................................... 100-274
Real Estate Debt ........................................................................................................................................ 100-275
Revolving Debt .......................................................................................................................................... 100-276
30-Day Charge Accounts ........................................................................................................................... 100-277
Installment Debt ........................................................................................................................................ 100-278
Lease Payments ......................................................................................................................................... 100-279
Paying off / Paying Down Debt ................................................................................................................. 100-279
Authorized User Accounts – DU ............................................................................................................... 100-280
Authorized User Accounts – LP ................................................................................................................ 100-281
Monthly Payment Debts ............................................................................................................................ 100-282
Obligations Not Considered Debt .............................................................................................................. 100-282
Co-Signed Obligations............................................................................................................................... 100-283
Court Ordered Assignments of Debts ........................................................................................................ 100-283
Business Paid Debt .................................................................................................................................... 100-285
Undisclosed Debt ....................................................................................................................................... 100-286
PROPERTY FLIPPING ....................................................................................................................................... 100-287
Requirements ............................................................................................................................................. 100-288
Anti-Flipping and the Sales Contract ......................................................................................................... 100-289
Omitted Transactions ................................................................................................................................. 100-289
Checklist for Business Seller ..................................................................................................................... 100-289
Non-Individual Seller Evaluation & Validation Checklist ........................................................................ 100-290
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Additional Evaluations .............................................................................................................................. 100-291
State Business Website Search .................................................................................................................. 100-292
Better Business Bureau .............................................................................................................................. 100-292
GENERAL COMPLIANCE POLICIES .................................................................................................................. 100-293
Overview ................................................................................................................................................... 100-293
Predatory Lending ..................................................................................................................................... 100-293
Laws .......................................................................................................................................................... 100-294
Laws .......................................................................................................................................................... 100-295
(Cont’d) ..................................................................................................................................................... 100-295
Digital Signatures ...................................................................................................................................... 100-296
Compliance with Points and Fees .............................................................................................................. 100-296
Points and Fees Calculation ....................................................................................................................... 100-297
High Cost Loans ........................................................................................................................................ 100-298
Higher Priced Mortgage Loans .................................................................................................................. 100-299
Higher Priced Covered Transactions ......................................................................................................... 100-299
Prepayment Fees or Penalties .................................................................................................................... 100-299
Net Tangible Benefit ................................................................................................................................. 100-300
Federal and State Regulations ................................................................................................................... 100-300
Repayment Ability ..................................................................................................................................... 100-300
Title Commitment...................................................................................................................................... 100-300
Code of Conduct ........................................................................................................................................ 100-301
Interest ....................................................................................................................................................... 100-302
Closing Protection Letters ......................................................................................................................... 100-302
CLOSING POLICIES & PROCEDURES ................................................................................................................ 100-303
Scheduling a Loan ..................................................................................................................................... 100-303
Closing Practices ....................................................................................................................................... 100-303
Verification of Employment ...................................................................................................................... 100-303
Closing Protection Letter ........................................................................................................................... 100-303
Taxes.......................................................................................................................................................... 100-303
Insurance .................................................................................................................................................... 100-303
Title Commitment...................................................................................................................................... 100-303
Escrow Accounts ....................................................................................................................................... 100-304
Seller Contributions ................................................................................................................................... 100-305
Premium Pricing Credits............................................................................................................................ 100-305
Principal Reductions .................................................................................................................................. 100-306
HUD Approval Process ............................................................................................................................. 100-307
Funding ...................................................................................................................................................... 100-307
Payoff Requests ......................................................................................................................................... 100-308
FNMA LOAN QUALITY INITIATIVE ................................................................................................................ 100-309
LQI Overview ............................................................................................................................................ 100-309
Undisclosed Liabilities .............................................................................................................................. 100-310
Confirmation of Borrower’s Identity ......................................................................................................... 100-311
Validation of Qualified Parties to the Transaction..................................................................................... 100-311
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Conventional Lending Guide
100-ix
Conventional Lending Guide
100 -
Conventional Guide
Introduction
Purpose
The Lending Guide provides underwriting standards to assist in
determining the types of loans eligible for approval; also outlines the level
of acceptable risk and describes general and specific requirements
regarding:






Underwriting
Guidelines
Borrower Eligibility
Credit
Employment and Income
Assets and Liquidity
Property/Collateral
Liabilities
Although this guide covers most circumstances, it does NOT comprise all
possible loan scenarios. Where a specific circumstance is not addressed,
prudent underwriting principals prevail in determining loan eligibility. Two
crucial requirements that apply are:
 Loan terms must relate the borrower’s ability to repay
 Value and marketability of the property is acceptable
IMPORTANT: Underwriting review will consist of analyzing the loan
parameter profile AND any associated layers of risk identified by the
underwriter. The underwriter MAY suspend or decline the loan based on
all associated risk regardless of loan parameters.
Application
Automated underwriting findings (recommendations) and Product
Guidelines will take precedence over this guide.

Guidelines must be interpreted and applied in a manner and that
complies with all applicable laws and regulations, including
consumer protection laws and regulations.
Continued on next page
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Conventional Lending Guide
Introduction,
Electronic
Signatures
Underwriting
Decision
Continued
Loans may be submitted with electronic signatures on upfront
disclosures, sales contracts and applications if completed in
accordance with the below items:
 Must be documented with electronic signature(s) containing
watermarks, serial numbers, and/or a transaction log.
 Electronic signature can be done by typed text, an image, a
holographic signature or a digital signature.
 Must be carried out in manner that meets state and federal
regulations.
 Each vendor must confirm adherence to Uniform Electronic
Transaction Act (UETA) and the federal Electronic Signatures in
Global and National Commerce Act (ESIGN) in order to be eligible
for acceptance.
 An Approved Electronic Signature Vendor List is no longer
maintained; however, all companies providing electronic
signatures must confirm in writing or from their public website an
adherence to all state and federal regulations (UETA and ESIGN).
 Original (live or wet) signatures continue to be required for the
following documents:
 IRS 4506-T
 Any Social Security Administration (SSA) form
 Borrower Power of Attorney or any documents being signed
through a Power of Attorney
Underwriting decisions are as follows:
 Approved
 Approved with Conditions
 Suspended
 Declined
 Counter Offered
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Conventional Lending Guide
Loan Limits
Loan Limits
Maximum Loan Amount for Conforming FRM & ARM
General
Permanent High Balance1
1 Unit
$417,000
$625,500
2 Units
$533,850
$800,775
3 Units
$645,300
$967,950
4 Units
$801,950
$1,202,9252
Property Type
NOTE:
Loan amounts may not exceed the applicable maximum loan limits for the specific area
in which the property is located.
1
Maximum loan amounts are limited by MSA/County. The loan limits by county can
be located in the Federal Housing Finance Agency website:
http://www.fhfa.gov/DataTools/Downloads/Documents/Conforming-LoanLimits/Counties_with_increases_cy2015.pdf OR
Fannie Mae’s website: https://commlend.efanniemae.com/loanlimitgeocoder/pages/login.aspx OR
Freddie Mac’s website:
http://www.freddiemac.com/singlefamily/mortgages/super_conforming.html
2
Agencies permit a maximum $1,202,925 loan limit in certain locations for 4 unit
properties; see specific product matrices for details.
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Conventional Lending Guide
Underwriting Options
Overview
Subject to product limitations within the Product Guidelines, Ocwen will
accept mortgage loans that are submitted only to the following Automated
Underwriting Systems (AUS):
 Fannie Mae Desktop Underwriter (DU)
 Freddie Mac Loan Prospector (LP)
Manual
Underwriting
Manual Underwriting is not permitted under any circumstances for
Conventional products.
Acceptable DU
Decisions
Refer to individual product summaries.
DU Decisions
The following recommendations are results of utilizing Fannie Mae’s
Desktop Underwriter:




Approve/Eligible
Approve/Ineligible
Out of Scope
EA Eligible
NOTE:

Refer to specific product summaries for details regarding specific
acceptable DU decisions.
Continued on next page
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Conventional Lending Guide
Underwriting Options,
LP Decisions
Continued
The following recommendations are results of utilizing Freddie Mac’s Loan
Prospector:




Accept
Caution
Caution/A-Minus
Incomplete/Invalid
NOTE:

AUS
Underwriting
Refer to specific product summaries for details regarding specific
acceptable LP decisions.
The Underwriter must verify the accuracy of the data entered in the
underwriting system by comparing the data to the documentation in the
actual underwriting file. The final decision should ensure all data matches
source documentation and that documentation exists to support all data
used to underwrite the file.
If this validation process reveals material discrepancies between the data
in the underwriting system and the data from source documents, the
mortgage must be re-underwritten and re-submitted using the correct
data. The Underwriter must comply with the requirements of the
Documentation Class (i.e. Approve/Eligible, etc.) resulting from the resubmission.
Although the documentation requested on the findings report is sufficient
for file delivery, additional documentation to substantiate an approval
may be required at the underwriter’s discretion.
Continued on next page
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Conventional Lending Guide
DU
Tolerances
Minor adjustments will not require additional underwriting submissions as
long as the requested income and asset documentation supports the
information disclosed on the loan application within allowable tolerances.
The following tolerances will be permitted for Desktop Underwriter (DU):
Appraised Value: No variance permitted for appraised value.
Assets: DU returns a message setting the minimum amount of assets to
be verified which must be documented within the loan file.
 Funds Required to Close – when the actual amount of assets
required to close the transaction exceeds the amount of “Funds
Required to Close” per the DU Underwriting Findings report, the
lender does NOT need to resubmit the case file if the lender has
documented sufficient liquid assets to cover the actual amount of
assets required to close the transaction. Otherwise, the loan must
be resubmitted to DU.
 Reserves Required to be Verified – if the verified amount of
reserves is less than the “Reserves Required to be Verified” per the
DU Underwriting Findings report due to changes in actual amount
of assets required to close the transaction, lender does NOT need
to resubmit the case file if the lender has documented reserves
that equal at least 90% of the Reserves Required to be Verified per
the DU Underwriting Findings report. Otherwise the loan case file
must be resubmitted to DU.
Debts
 If DU detects undisclosed debts (debts on the credit report that are
not on the loan application) or if it detects discrepancies between
the credit report payments and balances and those on the loan
application, a verification message may require that the data be
reconciled.
 If upon reconciliation, it is determined that the debts on the loan
application are inaccurate, which results in the DTI to exceed
45.00% or increases by more than 3%, resubmission to DU will be
required.
 Also refer to the next section regarding changes to debt and its
effect on DTI.
Income, Debts and/or Interest Rate
 DU must reflect the same as the Note (Interest Rate) Rate signed
at closing.
 The exact income used to qualify the borrower(s) must be entered
into DU.
 The DTI must be reflective all monthly payments as recognized by
DU.
Loan amount: No variance permitted for loan amount (1008 and 1003
must match).
Continued on next page
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Conventional Lending Guide
Underwriting Options,
LP Tolerances
Continued
Minor adjustments will not require additional underwriting submissions as
long as the requested income and asset documentation supports the
information disclosed on the loan application within allowable tolerances.
The following tolerances will be permitted for Loan Prospector (LP):
Appraised Value: No variance permitted for appraised value.
Assets:
 If the verified assets increase, resubmission is NOT required.
 If the amount of verified reserves increases, resubmission is NOT
required.
 If the amount of verified reserves decrease by no more than 10%,
resubmission is not required.
Income, Debts and/or Interest Rate
 LP must reflect the same as the Note (Interest Rate) Rate signed
at closing.
 The monthly debt payment (including monthly housing expense)
decreases; the DTI must be reflective of all monthly payments as
recognized by LP, the income for any Borrower increases, the
income for any Borrower decreases and/or the monthly debt
payment (including monthly housing expense) increases, and
 The total difference does not change the total debt-to-income ratio
by more than three percentage points, and
 The total debt-to-income ratio on the previous submission did not
exceed 45%
Loan amount: No variance permitted for loan amount (1008 and 1003
must match).
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Conventional Lending Guide
Borrower Eligibility
Overview
Ocwen Loan Servicing, LLC defines various borrower types within this
section. Refer to specific product summaries for borrower eligibility.
Primary
Borrower
In the case of a non-occupant co-borrower, the person who occupies the
property must be the primary borrower.
Purchasing
Co-Borrower
A purchasing co-borrower is a person who has applied with the applicant
for joint credit and who takes title to the security property. A purchasing
co-borrower must sign the Note.
Maximum
Number of
Borrowers
Each transaction is limited to a maximum of four (4)
borrowers/applicants.
Continued on next page
Conventional Lending Guide
100-8
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Conventional Lending Guide
Borrower Eligibility,
First-Time
Homebuyer
Continued
A first time homebuyer1 (FTHB) is a borrower with the following
characteristics:

Borrower to acquire the subject property

Borrower who will reside in the subject property as a principal
residence

Borrower has had no ownership interest (sole or joint) in a residential
property during the three-year period preceding the date of the
purchase of the subject property, unless:

He/She is a displaced homemaker or single parent whose only
ownership interest in a principal residence during the preceding
three-year time period was a joint ownership with a spouse. A
displaced homemaker or single parent who during the three-year
period owned a principal residence alone or with anyone other
than a spouse, or who owned a second home or investment
property, cannot be considered a first-time homebuyer.
IMPORTANT:
1
Refer to the Credit section within this Lending Guide for credit history
requirements and to the summaries for possible product restrictions for
FTHB.
Continued on next page
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100-9
Conventional Lending Guide
Borrower Eligibility,
Continued
NonPurchasing
Co-Owner
A non-purchasing co-owner (co-mortgagor) is a person who will take title
to the security property without applying for joint credit. A nonpurchasing co-owner is not required to sign the Note; however, they will
be required to sign the security instrument or any other documentation
required to evidence that the co-owner is relinquishing all rights to the
property in order to perfect the lien under governing state law.
Co-Signors
Not permitted.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Non-Occupant
Co-Borrower
Continued
DU Will analyze the risk factors without the benefit of the non-occupant
co-borrower’s income or liabilities and will not require verification of
employment or income for the non-occupant co-borrower.




Owner-occupant(s) must be able to qualify for the mortgage based
on his/her own financial capacity
Ratios may not be manually calculated (outside of DU) to include
non-occupant co-borrower income.
Newly added non-occupant co-borrowers are not permitted for cash
out refinances.
Assets that are owned by the non-occupant co-borrower can be
included in the 5% minimum borrow contribution requirement
(when applicable), and those funds must be entered in the on line
loan application. Total liquid assets for the occupying borrower and
non-occupant co-borrower are included in DU’s calculation of total
available assets.
NOTE: Non-occupant co-borrower may not be an interested party to the
sales transaction, such as the property seller, property builder, and real
estate broker.
LP: The maximum LTV/(H)CLTV is 90% when non-occupying co-borrower
income is used as qualifying income. The employment and income for the
non-occupant co-borrower must be documented as stated within this
lending guide.


When a mortgage includes a non-occupying Borrower and the LTV
is greater than 80.00%, the occupant Borrower must make the first
5% down payment from the occupant Borrower funds. Funds that
are owned jointly by the occupant Borrower and the non-occupying
Borrower are considered the funds of the occupant Borrower.
Newly added non-occupant co-borrowers are not permitted for cash
out refinances.
NOTE: Non-occupant co-borrower may not be an interested party to the
sales transaction, such as the property seller, property builder, and real
estate broker.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Remote
Spouses


Continued
Spouses who reside remotely (not within daily commuting
distance) must be treated as a non-occupant co-borrower;
therefore, their income is not eligible for qualification purposes.
See additional details above.
Spouses who live remotely on a more permanent basis may not
purchase multiple Primary Residences due to their living
arrangements.
Continued on next page
Conventional Lending Guide
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Conventional Lending Guide
Borrower Eligibility,
Non-Arm’s
Length
Transaction
Borrower
Continued
Seller is responsible to determine if the transaction is a Non-arm’s
length transaction.

Non-arm's length transactions are purchase transactions in
which there is a relationship or business affiliation between the
seller and the buyer of the property. Ocwen allows Non-arm’s
length transactions for the purchase of existing properties
unless specifically forbidden for the particular scenario, such as
delayed financing. For the purchase of newly constructed
properties, if the borrower has a relationship or business
affiliation (any ownership interest, or employment) with the
builder, developer, or seller of the property, Ocwen will only
purchase mortgage loans secured by a principal residence.
Ocwen will not purchase mortgage loans on newly constructed
homes secured by a second home or investment property if the
borrower has a relationship or business affiliation with the
builder, developer, or seller of the property.
NOTE: While Non-arm’s lengths transactions are allowed as noted in
the above specific characteristics, additional diligence should be
performed to insure the guidelines are met.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Non-Arm’s
Length
Transaction
Other Parties
Continued
For scenarios in which there is a family or business relationship between
any parties of the transaction, the below documentation is required:



Documented evidence from the borrower acknowledging the
relationship between the parties (i.e. if the LO is related to the
closing attorney).
Parties of the transaction to confirm in writing that no
compensation or benefit was exchanged from the referral of
business.
Provide evidence the company selected (i.e. closing attorney who
is the brother of the LO) is part of the Broker/LO’s business
referral list for all transactions.
Realtor and
Loan Officer
It is acceptable for the loan officer/broker and realtor to be employed by the
same company; however, they may NOT be one in the same persons.
Purchasing
from a Builder
Transactions where the borrowers are purchasing a property from a
builder who is purchasing the borrowers’ existing residence are not
permitted.
Transactions
with NonFamily
Members
Non-arm’s length transactions with non-family members will be
considered only if they are bona fide sales transactions and the borrowers
will occupy the property as their primary residence.
NOTE: Standard Non-arm’s length transactions guidelines stated on
previous page continued to be required in addition to.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Transactions
with Family
Members
Continued
Non-arm’s length transactions with a family member are generally
acceptable if:










The family member or relative is the borrowers’ spouse, child,
parent, or any other individual related to the borrowers by blood,
adoption, or legal guardianship.
An executed purchase or sales agreement between the purchaser
and the family member is in the loan file.
Refinance transactions must have at least one borrower from the
loan being refinanced on the new loan. If no borrower from the
existing loan will be a borrower on the new loan, the transaction
must be underwritten as a purchase.
The source and ownership of funds for the down payment, closing
costs, and reserves are well documented in the loan file.
The appraised value of the property is well supported, particularly
for gifts of equity or gifts of more than 20% of the LTV.
Gifts are not allowed investment properties.
Gifts are allowed for owner-occupied and second home
transactions if they meet the normal gifting guidelines as follows:
The borrowers must have 5% of their own funds as a down
payment; however, if the LTV/CLTV is less than or equal to 80%
then the entire down payment may be a gift.*
Gifts of equity are acceptable if verified by an appraisal and gift
letter.
A signed gift letter and verification of the receipt of the funds are
provided.
*Most conforming loan programs follow FNMA gift guidelines, but some
individual loan programs may have stricter requirements. Always refer to
the individual program guidelines for complete details. The more
restrictive requirements apply.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Borrower is an
Interested
Party to the
Transaction
Continued
Certain transactions are not permitted if:

A company involved in the transaction (construction, realtor’s office,
etc.) is owned by the borrower.

A borrower who is professionally related to the builder, property seller,
or any party currently on title as a (or in the role as a):




Registered agent
Sales agent
Partner
Employee
A borrower may act as an interested party to a sales transaction for the
subject property; however, the borrower may not use any payment for
services rendered from the sales transaction of the subject property
towards the down payment, closing cost, or reserve requirements.
Payment for services rendered means payment for, but is not limited to:



Customer
Loans
Realtor commissions
Broker commissions
Sales associate commissions
Ocwen Loan Servicing, LLC affiliated Mortgage Brokers, owners of
mortgage firms, employees of affiliate mortgage brokers and/or mortgage
firms are permitted; however, the borrower may not be the loan officer or
processor nor may the loan officer or processor be employed by the same
company (i.e. may not be an employee or co-worker of the borrower(s)).
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Eligible
Borrowers
Continued

U.S. Citizen

Permanent Resident Aliens

Non-Permanent Resident Aliens

Inter Vivos Revocable Trusts

Borrowers party to a lawsuit may be eligible as long as the legal action
does not have the potential to adversely impact the first lien are not
permitted.
NOTE: All borrowers must have a valid social security number.
Ineligible
Borrowers

Corporations, General and Limited Partnerships.

“Doing Business As” (DBAs).

Religious/non-profit organizations.

Borrowers with Diplomatic Immunity.

Life Estates

Foreign National defined as legal resident of another country that
periodically visits the U.S.

Borrower(s) party to a lawsuit with the potential to adversely impact
the first lien is not permitted.

Borrowers with a foreign address as their current, primary residence,
including military personnel stationed overseas that do not occupy or
have a current primary residence/address in the U.S.


U.S. Citizen
Note the above requirement is regardless of property tax
(exemption) status. Scenarios are not permitted in which the
borrower is not currently, physically occupying a residence with a
U.S. address.
Illinois or any Community Land Trust
A United States Citizen is a native or naturalized person entitled to all
rights and privileges of the United States. Unless otherwise noted, all
loan program requirements are based on the assumption a borrower is a
United States Citizen.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Permanent
Resident Alien
Continued
A permanent resident alien is an individual who is lawfully residing in the
United States permanently. Ocwen Loan Servicing, LLC will grant loans to
permanent resident aliens under the same parameters extended to U.S.
Citizens. Legal residency may be documented with one of the following:

A valid and current Permanent Resident card “green card” (Form I551) is required.

A passport stamped “processed for I-551, Temporary evidence of
lawful admission for permanent residence. Valid until ______.
Employment authorized”. This evidences that the holder has been
approved for, but not issued, a Permanent Resident card.

The “valid until” expiration date need not be taken into consideration.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Continued
If a Borrower is a non-permanent resident, Ocwen will verify the
following:
 A valid social security number
 Appropriate documentation that supports eligibility to work in
the U.S. A copy of current work authorization documentation
is needed.
NOTE: If a borrower falls under the “Deferred Action for
Childhood Arrivals (DACA) ruling” Ocwen will require a copy of
the unexpired DACA Employment Permit.
NonPermanent
Resident
Alien

Trailing
Co-Borrower
Income
Not Permitted.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Multiple
Financed
Properties
for the Same
Borrower
Continued
Loan and Borrower Requirements

A borrower may finance multiple properties if he or she is qualified
and if the following requirements are met:


The loan must comply with Ocwen’s limitations on the maximum
number of financed properties, including ownership interests in
financed properties, as well as eligibility, delivery, and reserve
requirements.
The borrower must have sufficient assets to close after calculating
reserve requirements. Additional reserve requirements apply,
based on the number of financed properties a borrower will own.
Limits on the Number of Financed Properties

Subject Property is a Primary Residence:


Subject property is a Second Home or Investment Property:




If the subject property is a Primary Residence, there is no
maximum numbers of financed properties.
the Borrower may own up to four (4) financed properties, including
the subject property, except as noted below:
NOTE: If the file is run via Fannie Mae’s Desktop Underwriter and
the mortgage is secured by a second home or an investment
property, the borrower(s) may own or be obligated on up to ten
financed properties (including his or her principal residence).
Standard eligibility and underwriting policies apply if the borrower
is financing a second home or investment property and will have
one to four financed properties; however, if the borrower will have
five to ten financed properties, the mortgage loan must comply
with the eligibility requirements described herein.
The financed property limit applies to the borrower's ownership of
one-to-four unit financed properties or mortgage obligations on
such properties and is cumulative for all borrowers. These
limitations apply to the total number of properties financed, not to
the number of mortgages on the property or the number of
mortgages sold to Ocwen.
The Multiple Properties Table below describes how to apply the
limitations based on the type of property ownership:
Continued on next page
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Borrower Eligibility,
Continued
Multiple
Financed
Properties for
the Same
BorrowerMultiple
Properties
Table
Type of Property Ownership
Joint ownership of residential real estate. (This is considered to
be the same as total ownership of an individual property.)
Property
Included in
Limitation?
Property
disclosed
on list of
REO?
Yes
Yes
Ownership of commercial real estate
No
No
Ownership of multifamily property consisting of more than four
(4) dwelling units.
No
No
Joint or total ownership of a property that is held in the name of
a corporation or S-corporation, even if the borrower is the owner
of the corporation and the financing is in the name of the
corporation or S-corp.
No
No
Joint or total ownership of a property that is held in the name of
a corporation or S-corporation, even if the borrower is the owner
of the corporation; however, the financing is in the name of the
borrower.
Yes
Yes
Ownership in a timeshare.
No
No
Obligation on a mortgage debt for a residential property
(regardless of whether or not the borrower is an owner of the
property).
Yes
Yes
Ownership of a vacant (residential) lot.
No
No
Ownership of property that is held in the name of a limited
liability company (LLC) or partnership where the borrower(s)
have an individual or combined ownership in the LLC or
partnership of 25% or more, regardless of the entity (or
borrower) that is the obligor on the mortgage.
Yes
Yes
NOTE: Other properties owned or financed jointly by the
borrower and co-borrower are only counted once.
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Conventional Lending Guide
Ownership of a property that is held in the name of an LLC or
partnership where the borrower(s) have an individual or
combined ownership in the LLC or partnership of less than 25%
and the financing is in the name of the LLC or partnership.
No
No
Ownership of a property that is held in the name of an LLC or
partnership where the borrower(s) have an individual or
combined ownership in the LLC or partnership of less than 25%
and the financing is in the name of the borrower.
Yes
Yes
Ownership of a manufactured home and the land on which it is
situated that is titled as real property.
Yes
Yes
Ownership of a manufactured home on a leasehold estate not
titled as real property (chattel lien on the home)
No
No
Continued on next page
Conventional Lending Guide
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Conventional Lending Guide
Borrower Eligibility,
Multiple
Financed
Properties for
the Same
Borrower
(Cont’d)
Continued
Examples:




If the borrower owns two financed investment properties and the
co-borrower owns three other financed investment properties, then
jointly, the borrowers have five financed investment properties in
addition to their principal residence(s), if applicable.
If the borrower is obligated on a mortgage for a residential
property (though is not on title) and the co-borrower owns a
second home and an investment property (both of which are
financed), then jointly, the borrowers have three financed
properties that must be included in the count in addition to their
principal residence(s), if applicable.
If a borrower and a co-borrower are purchasing an investment
property and they already own and/or are obligated on five other
investment properties that they jointly own and/or are obligated
on, the new property being purchased would be considered the
borrowers' sixth investment property.
If a borrower owns five properties individually and is 100% owner
of a corporation that owns an additional five properties, of which
two of those properties are secured by mortgages that are shown
on the borrower’s credit report, the borrower would be considered
to have seven financed properties.
Applying the Multiple Financed Property Policy to DU Loan
Casefiles

DU is not able to determine the exact number of financed
properties the borrower owns or is obligated on, but does issue a
message on second home and investment property transactions
when the borrower appears to have other financed properties. The
lender must apply the eligibility requirements manually to
investment property and second home transactions that are
underwritten through DU, as applicable.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Eligibility
Requirements for
Investor and
Second Home
Borrowers with
Five to Ten
Financed
Properties

Continued
Investor and second home borrowers with Five to Ten financed
properties must meet the following eligibility requirements:
Transaction Type
Number
of Units
Maximum LTV/CLTV/
HCLTV Ratio
Minimum Credit Score
Second Home or Investment Property
Purchase
Limited Cash-Out
Refinance
1 unit
Loans subject to general
loan limits
FRM: 75%
ARM: 65%
Loans subject to High
Balance Limits
720
FRM/ARM: 65%
Cash-Out Refinance
(only if within 6 months of
purchase and all Delayed
Financing exception
requirements are met)
1 unit
Cash Out Refinance (> 6
months since the purchase)
1 unit
Purchase
Limited Cash-Out Refinance
Cash-Out Refinance
(only if within 6 months of
purchase and all Delayed
Financing exception
requirements are met)
Cash Out Refinance (> 6
months since the purchase)
Loans subject to general
loan limits
720
FRM: 70%
ARM: 60%
Ineligible
Investment Property
Loans subject to general
loan limits
FRM: 70%
ARM: 60%
2-4 units
Loans subject to High
Balance limits
FRM: 65%
ARM: 60%
N/A
720
2-4 units
Loans subject to general
loan limits
FRM: 65%
ARM: 60%
720
1 unit
Ineligible
N/A
Exception for DU Refi Plus and LP Open Access
 DU Refi Plus and LP Open Access mortgage loans are exempt from these policies
Continued on next page
Conventional Lending Guide
100-24
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Conventional Lending Guide
Borrower Eligibility,
Underwriting
requirements
for Multiple
Financed
Properties for
the Same
Borrower:
Continued

If there are multiple loans for the same borrower recurring
simultaneously, loans need to be underwritten at the same time in
order to measure the impact of each transaction upon the other.

For loans serviced by Ocwen Loan Servicing, LLC, the borrower may
have a maximum exposure of four (4) loans or $2,500,000, whichever
is less.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Inter Vivos
Revocable
Trust
Continued
Inter Vivos Revocable Trust are permitted with the following:

In compliance with federal, state and local law.

Established by a natural person(s), solely or jointly; known as the
Settlor, Trustor or Grantor.

Effective during the Settlor’s lifetime.

Individual established themselves the right to revoke the trust.

Primary beneficiary of the trust must be the Settlor. If more than one
individual establishes the trust jointly, there may be more than one
primary beneficiary. The income or assets of at least one of the
individuals must be used to qualify for the mortgage and sign the
mortgage instruments.

Trust must name one or more trustees to hold legal title to and
manage the property that has been placed in the trust. The trustees
must include the Settlor (or at least one of the individuals, if there is
more than one).
NOTE: A financial institution that is authorized to act as a trustee
under the laws of that state is no longer eligible.

Trustee must have the power to mortgage the security property

Trustee is not required to obtain written consent from the beneficiaries
to mortgage subject property if written consent has been provided.

No unusual risk or impairment of lenders’ rights, such as distributions
required to be made in specified amounts other than net income.

If the trust agreement requires more than one trustee to borrower
money or to purchase, construct or encumber realty, Underwriter
must confirm that the requisite number of trustees has signed the
loan documents.
NOTE: If an existing loan was closed in the name of the individual
borrowers, but has since been transferred to a trust, the loan
continues to be eligible provided the borrowers on the existing
mortgage are the only trustees to the trust and meet all other
requirements.
Eligibility Requirements for DU and LP:

All units and All Occupancies are permitted as allowed within the
summaries.

Underwritten as if the individual(s) establishing the trust were the
borrower(s)

The “Inter Vivos Revocable Trust Checklist” must be completed and
signed for the file by the Underwriter.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Trust
Definitions

Beneficiary: The party with equitable ownership of the trust

Grantor/Trustor/Settlor: The person(s) who established or created
the living trust and donated the property and its obligations, directly
to a trust. The use of terms grantor, trustor, or settlor depends on
the state where the inter vivos trust was created or originated.

Inter Vivos Revocable Trust: A trust that an individual creates and
becomes effective during his or her lifetime, but may be changed or
canceled at any time for any reason during the creator’s lifetime.



Inter Vivos
Trust –
Compliance
Requirements
Continued
Revocable: A living trust is referred to as “revocable” when the
grantor/trustor/settlor can change or cancel it any time, for any
reason, while he or she is living. The ability to revoke a living
trust is important because it permits the grantor/trustor/settlor,
who would otherwise own the property directly, to maintain control
of the property.
Trust: A fiduciary relationship whereby legal title to a property is
transferred to the trustee with the intention that such property be
administered by the trustee for the benefit of another, or
beneficiary, who holds equitable title to such property.
Trustee: A person who holds or controls property and manages it for
the benefit of another (the beneficiary). Under an inter vivos trust,
the people who, according to the properly executed trust
documentation, has been granted the power to mortgage the subject
property and administer the trust. The trustee(s) must be or must
include the individual who established the trust, or an institutional
trustee (i.e., attorney, bank, trust company) that customarily
performs trust functions under the laws of the state.
Although mortgages defined under the terms of Inter Vivos Revocable
Trust may be exempt from Ability to Repay under the Truth-in-Lending
Act and its implementing regulations, Ocwen will require such mortgages
to meet all requirements within the Lending Guide, including meeting the
Qualified Mortgage and Ability to Repay (ATR covered loan) definitions.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Obtaining
Copies of the
Trust
Continued
Loan file must contain either a complete copy of the trust agreement OR
in (the below) states that require dependence on an abstract, summary or
certification of the trust.
NOTE: In the following states, due to privacy law restrictions, a
Certification of Trust may be used in place of a certified copy of the living
trust agreement.

Ineligible
Trust
Scenarios
Closing
Documents
Alabama, Arkansas, California, Delaware, District of Columbia,
Idaho, Iowa, Kansas, Maine, Michigan, Minnesota, Missouri,
Nebraska, Nevada, New Hampshire, New Mexico, North Carolina,
Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee,
Utah, Vermont, Virginia, and Wyoming.

A trustee may not utilize a Power of Attorney (i.e. a power of attorney
may not be utilized if the loan is closing in the name of a trust).

Mixed vesting is not permitted.

The subject property cannot be held in Multiple Trust Names (i.e. only
one trust permitted per property).
All fixed rate Mortgages sold to Ocwen Loan Servicing, LLC must use the
most current Fannie Mae uniform instruments for the fixed rate Note and
for the Security Instrument.
Document Type
Form
Addendum to the Note
VMP Form 371N
Rider to the Deed of Trust/Mortgage
VMP Form 372R
NOTE:
 Must use the most current agency uniform documents.
 State-specific documents as required for the jurisdiction in which the subject property
is located.
Continued on next page
Conventional Lending Guide
100-28
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Conventional Lending Guide
Borrower Eligibility,
Trust Title
Requirements
Continued

In the trustee of the inter vivos revocable trust.

Jointly in the trustee of the inter vivos revocable trust and in the name
of an individual borrower.

If title will be vested in the trustees of more than one inter vivos
revocable trust, the terms of the two revocable inter vivos trust
documents must complement each other and may not be in conflict
with one another.

Title exceptions with respect to the trust are not permitted.
Continued on next page
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100-29
Conventional Lending Guide
Borrower Eligibility,
Executing the
Loan
Documents
Continued
Each trustee of the inter vivos revocable trust must individually execute
the Note, Mortgage/Deed of Trust, and any necessary addendums and/or
riders. Each qualifying applicant must execute the Note and any
necessary addendums. In addition, each qualifying applicant must
acknowledge all of the terms and covenants in the Security Instrument
and any applicable riders and agree to be bound thereby, by placing his or
her signature after a statement of acknowledgement on such documents.
Any other party that is required to sign either the Note or Mortgage/Deed
of Trust must also execute the applicable document(s).
Note Signature Requirements
Form of Signature Required on Mortgage Note and Addendum to the Note for an Individual Trustee
Who is Both a Settlor and a Credit Applicant:
 Each individual trustee of the living trust who is both a “settlor” and a credit applicant must sign
the Note (and any necessary addendum). This may be accomplished by either one or two
separate signatures (see below).
Example 1: One signature presented - acceptable format
Signature: David Jones
Typed Name: David Jones, Trustee for the Jones Family Trust under trust instrument dated
mo/day/year.
Example 2: Two signatures presented - acceptable format
Signature: David Jones
Typed Name: David Jones
AND
Signature: David Jones OR David Jones, Trustee
Typed Name: David Jones, as Trustee for the Jones Family Trust under trust instrument dated
mo/day/year.
Form of Signature Required on Mortgage Note for an Institutional Trustee and for an Individual
Trustee Who is Not Both a Settlor and a Credit Applicant:

Each institutional trustee of the living trust and each individual trustee of the living
trust who is not both a “settlor” and a credit applicant must sign the Note (and any
necessary addendum), using a signature block substantially similar to the following:
Example:
Signature: David Jones
Typed Name: David Jones, as Trustee for the Jones Family Trust under trust instrument
datedmo/day/year.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Continued
Executing the
Loan Documents
(Cont’d)
Security Instrument Signature Requirements
Form of Signature Required on Security Instrument and Riders for all Trustees:
Each trustee of the living trust must sign the Security Instrument (any necessary Rider),
using a signature block substantially similar to the following:
Example:
Signature: David Jones
Typed Name: David Jones, individually and as Trustee for the Jones Family Trust under
trust instrument dated mo/day/year.
Form of Settlor/Credit Applicant's Signature Acknowledgment Required on Security
Instrument and
Riders:
The following must be added to the Security Instrument (and any applicable Riders)
following the
Borrower's Signature lines (and then must be signed by each settlor of the living trust who
is a credit
applicant):
Example:
By SIGNING BELOW, the undersigned, Settlor(s) of the ___________________ Trust
under trust instrument dated______________, ______________, acknowledges all of
the terms and covenants contained in this Security Instrument and any Rider(s)
thereto and agrees to be bound thereby.
_________________________________(Seal) Trust Settlor
Rider Signature Requirements
The Revocable Trust Rider to the Security Instrument must be executed by the trustees on
behalf of the trust. Each individual establishing the trust whose income and assets are
used to qualify for the Loan must acknowledge all of the terms and covenants in the
Security Instrument and any Riders and agree to be bound thereby by placing his or her
signature after a statement of acknowledgment on the Security Instrument and Riders.
See Security Instrument section, above.
Continued on next page
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100-31
Conventional Lending Guide
Borrower Eligibility,
Inter Vivos
Revocable
Checklist
Continued
The following checklist is provided to assist in determining whether an Inter Vivos
Revocable Trust complies with Ocwen Loan Servicing, LLC’s guidelines.
IMPORTANT: All topics must be Confirmed.
Question
Results
An authorized person from Ocwen Loan Servicing, LLC has approved the trust
document.
Confirmed __
The trust is signed, notarized, and dated by all applicable parties.
Confirmed __
A complete copy of the trust including all referenced schedules and amendments
except where an executed Certificate of Trust is acceptable.
Confirmed __
The Settlor is alive at the time of application, and loan closing/funding.
Confirmed __
The trust has been established in writing by a natural person and is to be effective
during his/her lifetime. The trust is not created in a will or codicil.
Confirmed __
The Settlor has the right to revoke or alter the trust.
Confirmed __
The primary beneficiary of the trust is the Settlor (the interest and principal of the
trust estate is applied for their benefit) and the mortgage has been underwritten as
if the Grantor (or at least one of the Grantors) is the borrower (or the co-borrower,
if there are additional individuals whose income or assets will be used to qualify for
the mortgage).
Confirmed __
The loan applicant(s) are both the Settlor and the Trustee.
Confirmed __
The trustees must include at least one of the Settlors if there are two or more.
Confirmed __
The trustee(s) has the power to mortgage the subject property and borrow money
for the creator of the trust.
Confirmed __
The trust does not contain an unusual risk or impairment of Ocwen Loan Servicing,
LLC’s rights (i.e., distributions required to be made in specified amounts from other
than net income).
Confirmed __
The subject property is a primary residence (1-4 unit), occupied by at least ONE of
the Settlors (and whose income/ assets are used to qualify), 1-unit second home or
Condo/ PUD.
Confirmed __
Title must be vested in the name of one trust; jointly in the trustee(s) on the inter
vivos revocable trust and in the name(s) of an individual borrower(s).
Confirmed __
Title policy does not list any exceptions arising from the trust ownership of the
property.
Confirmed __
Full legal title to the property must be vested in the Trustee(s) on behalf of the
Trust (there may be no other owners).
Confirmed __
Loan will be underwritten as if the individual establishing the Trust (or at least one
of the individuals) were the borrower (or the co-borrower, if there are additional
individuals whose income or assets will be used to qualify for the loan).
Confirmed __
Continued on next page
Conventional Lending Guide
100-32
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Conventional Lending Guide
Borrower Eligibility,
Borrower
Power of
Attorney

Ocwen will accept a Power of Attorney that:









Continued
Is used for purchase transactions as well as rate and term refinance
transaction.
Is signed and dated by the party (Borrower) granting the power of
attorney; names on power of attorney must match the name(s) of the
person on the affected loan documents.
Is signed by an appropriate “witness” (if required by state law)
Except as required by applicable law, all Powers of Attorney must be
property–specific.
Is in effect on the date of the closing transaction
Is correctly notarized
Is the borrower’s relative, domestic partner, fiancé or fiancée.
Is not an interested party in the transaction such as:
o The lender;
o Any affiliate of the lender;
o Any employee of the lender or any other affiliate of the lender;
o The loan originator;
o The employer of the loan originator, any employee of the loan
originator;
o The title insurance company providing the title policy or any
affiliate of such title company or any employee such title insurance
company or affiliate;
o Any real estate agent with a financial interest in the transaction or
any person affiliate with such real estate agent.
If a Durable Power of Attorney is received and is not property specific, the
Power of Attorney must be reviewed and approved by Ocwen’s Legal
Department.
IMPORTANT:
 Borrower must sign the initial 1003 and all other ‘up-front’ documents,
except for:


A borrower on military service with the United States armed forces
serving outside the United States or deployed aboard a United States
vessel, as long as the power of attorney:
o Expressly states an intention to secure a loan on a specific
property, or
o Complies with the requirements under the VA Lender’s Handbook
relating to powers of attorney for VA-insured mortgage loans, or
o Such use is required by applicable law.
If there is only one borrower involved in the loan transaction utilizing a
power of attorney, the attorney-in-fact must be the borrower’s attorneyat-law or the borrower’s relative.
Continued on next page
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Conventional Lending Guide
Borrower Eligibility,
Borrower
Power of
Attorney
(Cont’d)

Continued
Restrictions on the Use of a Power of Attorney

Except as required by applicable law, a power of attorney may not
be utilized to sign a security instrument or note if either (or both)
of the following applies:
o No other borrower executes such loan document in person in
the presence of a notary public. Exceptions: A power of
attorney may be utilized to sign such loan document for each
borrower:
 As permitted in connection with a refinance transaction
conducted in a recorded, interactive session on the Internet
as described above in Allowable Attorneys-in-Fact or Agents
Under a Power of Attorney; or
 As long as the attorney-in-fact or agent under the power of
attorney is either the borrower’s attorney-at-law or the
borrower’s relative domestic partner, fiancé’ or fiancée.
o The transaction is a cash-out refinance.
Documents executed by the attorney in fact must be signed according to the following
examples (the typed signature lien and actual signature must match exactly on all POA
documents):
State Requirements
Acceptable Signatures
All States Except California
Any of the following examples are permitted:
 Mary Smith by John Smith as her Attorney-inFact
 Mary Smith by John Smith as Attorney-in-Fact
 Mary Smith by John Smith, Attorney-in-Fact
 Mary Smith by John Smith, her Attorney-inFact
California
Only the following signature is acceptable:
 Mary Smith by John Smith as Attorney-in-Fact
NOTE: In all states, documents executed by the attorney in fact must include the
principal’s name, the agent’s name, and the agent’s capacity in the signature.
Additionally, the document should have the same information typed or written.
Conventional Lending Guide
100-34
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Conventional Lending Guide
Credit
Overview
Ocwen Loan Servicing, LLC requires that a borrower’s current and past
credit history be analyzed through the review of a credit bureau report
prepared by an independent licensed credit reporting agency or credit
reporting repository.
Ocwen Loan Servicing, LLC accepts the following four types of credit
reports, depending on the circumstances of the mortgage request.
Age of
Documents

Residential Mortgage Credit Report (RMCR)

In-file and Merged In-file Report

Electronic Credit Reports
All standard income, asset and credit documentation used to determine
the borrower’s eligibility must be no more than stated below unless
otherwise required as applicable with this guideline and/or summaries:

4 months per DU (120 days per LP) at the time of note for all
mortgage loans (existing properties and new construction)
IMPORTANT:

The age of the documents is measured from the date of the
document to the date the note is signed.
NOTE: Ocwen defines the Note Date as the date on the front of the Note.
Which may or may not be the date the note is signed
Continued on next page
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Conventional Lending Guide
Credit,
Continued
Electronic
Credit Reports
Electronically obtained credit bureau reports are permitted from an
automated underwriting system (AUS) as follows:
 Must be ordered from one of the three credit agencies with the
correct, acceptable version:



o
Equifax Beacon 5.0
o
Experian FICO V2
o
Trans Union FICO Risk Score Classic 04
Must be a Three Bureau In-file Merged Report
Credit risk scores are made available to the AUS
Two bureau merged in-file report must reflect that a three-bureau
in-file report was initially ordered
NOTE: A two-bureau merged in-file report is acceptable only if one of the
approved credit repositories is unavailable.
Representative
Credit Score

Obtain a minimum of one credit score for every borrower

If two credit scores are obtained, use the lower score as the
applicable borrower score

If three credit scores are obtained, use the middle score as the
applicable borrower score

When more than one borrower is present on the loan, the lowest
applicable score from all borrowers is the representative score.
Continued on next page
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Credit,
Continued
Tradelines
A tradeline reflects a history of open or paid credit obligations detailing
borrower’s credit reputation.

No minimum tradeline requirement with DU Approve/Eligible or LP
Accept.
 Must include opening date, current balance and payment history.
 For DU/LP, trade lines designated as authorized user are taken into
consideration as part of the risk assessment; however, the
underwriter must review the credit report trade lines to determine
if they are an accurate reflection of the borrower’s credit history.
If the underwriter believes the authorized user trade lines are not
an accurate reflection, then the borrower’s credit history should be
evaluated without the benefit of these trade lines and prudent
judgment when making a final underwriting decision.
NOTE: For scenarios requirement mortgage insurance, confirm tradeline
requirements with the specific MI company. The more restrictive of
guidelines will be required.
Credit Report
Inquiries
Ocwen requires the following for all inquiries dated within 120 days of the
credit report date:

DU Loans – Ocwen will confirm that the borrower has not obtained
any additional credit that is not reflected in the credit report or the
mortgage application. If additional credit was obtained, a verification
of that debt must be provided and the borrower must be qualified with
the monthly payment.

LP Loans – Ocwen must determine whether additional credit was
granted. A letter from the creditor or, if such a letter is unobtainable,
a signed statement from the Borrower may be used to determine
whether additional credit was obtained. If additional credit was
granted, Ocwen must obtain verification of the debt and must consider
the debt when qualifying the Borrower.
Continued on next page
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Conventional Lending Guide
Credit,
Continued
Residential
Mortgage
Credit Report
In-File and
Merged In-File
Reports
Residential Mortgage Credit Report (RMCR) provides current, verified and
details borrower information. The report agency verifies:

Most recent 2-year employment history

Residence history

All debts, including terms, balances, and ratings.

Past due payments

Available legal information through public records, such as judgments,
foreclosures, garnishments and bankruptcies.

Joint or combined report for a married couple must contain all debts of
both parties or separate reports must be provided
An individual “in-file” report provides a borrower’s credit and residence
history that has been reported and is currently “on file” with a particular
credit-reporting repository. There are presently three major credit
reporting repositories: Equifax Information Svc. LLC, Experian Credit
Data and Trans Union.
Ocwen Loan Servicing, LLC also allows the use of in-file reports that have
been “merged” by a credit reporting company. In the merging process,
the credit reporting company pulls two or three in-file reports from
different credit reporting repositories and merges the information to
provide one report that contains the most current reported information.
Through the merge process, duplicate records are eliminated.
Continued on next page
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Credit,
Continued
NonTraditional
Credit Report
Delinquency
and
Derogatory
Credit
Not permitted for agency products.
More weight is placed on installment loan delinquency than on revolving
debt delinquency, with the most weight placed on mortgage payment
history. The most serious types of delinquency include foreclosures,
bankruptcy, judgments, collection accounts and tax liens. Applicants
must provide explanations and supporting documentation to show these
events were an isolated occurrence and are unlikely to happen again.
The following should be considered:





The type of accounts on which the delinquency occurred.
The reason for delinquency.
The severity of the delinquency.
The frequency of delinquent accounts.
How recently the delinquency occurred.
Continued on next page
Ocwen Loan Servicing, LLC Client Select
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Conventional Lending Guide
100-39
Conventional Lending Guide
Credit,
Bankruptcy
Continued
When an applicant has declared bankruptcy under the bankruptcy laws, it does not
mean that the application for the mortgage loan must automatically be declined.
Eligibility
 Discharged fully with re-established credit, as deemed acceptable by the
underwriter, demonstrating the ability to manage his/her financial obligations.

IMPORTANT: Mortgage Debt discharged through a bankruptcy, even if a
foreclosure action is subsequently completed to reclaim the property in satisfaction
of the debt, the borrower is held to the bankruptcy waiting periods and not the
foreclosure waiting period. Lenders must obtain documentation to verify that the
mortgage debt in question was in fact discharged as part of the bankruptcy.
Application to Bankruptcy
 DU will Refer the following scenarios and therefore ineligible to Ocwen:





Chapter 13 discharged within the most recent 24 months, dismissed within the
most recent 48 months or filed but neither discharged nor dismissed within the
most recent 48months (measured to the Credit Report Date per DU;
Application Date per LP).
Non-chapter 13 bankruptcies filed, discharged or dismissed within the most
recent 48 months (measured to the Credit Report Date per DU; Application
Date per LP).
DU/LP will not consider bankruptcies dated more than seven years prior to the
date of the credit report in its analysis.
If there is a trade line account reported with a bankruptcy status or manner of
payment code of “7” and there is a bankruptcy reported in a public record
within seven years of the credit report date, DU/LP will consider the public
record information in its credit analysis.
If there is a trade line account reported with a bankruptcy status code or
manner of payment code of “7” but there is no bankruptcy reported in a public
record within seven years of the credit report date, DU/LP will include the
trade line in its credit analysis and the actual filed and discharged dates will be
required to be verified to determine if the bankruptcy meets DU/LP guidelines.
Borrowers whose credit history includes multiple previous bankruptcies:


Borrowers having more than one bankruptcy reported on their credit are not
permitted.
Two or more borrowers with individual bankruptcies are not cumulative. For
example, if the borrower has one bankruptcy and the co-borrower has one
bankruptcy, this is not considered a multiple bankruptcy. Note that any
presence of bankruptcies or multiple bankruptcies will required additional due
diligence by the Underwriter.
Documentation

Bankruptcy may be documented according to the DU/LP findings.

Satisfactory letter of explanation from the Borrower is required.
Continued on the next page
Conventional Lending Guide
100-40
Ocwen Loan Servicing, LLC Client Select
REV 06/26/2015
Conventional Lending Guide
Credit,
Foreclosure
Continued
When an applicant has a foreclosure listed on the credit report, it does not
mean that the application for the mortgage loan must automatically be
declined.
Eligibility
 Completed with re-established credit, as deemed acceptable by the
underwriter, demonstrating the ability to manage his/her financial obligation.
Borrowers, whose credit history includes a previous foreclosure type tradeline,
must have a re-established credit record for an elapsed time of:

7 years from completion date for foreclosures regardless of DU/LP
(measured to the Credit Report Date per DU; Application Date per LP).
Documentation
Foreclosure may be documented according to the AUS findings.
Satisfactory letter of explanation from the Borrower is required.
IMPORTANT:

Ocwen will NOT refinance properties currently in foreclosure.
Continued on next page
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REV 06/26/2015
Conventional Lending Guide
100-41
Conventional Lending Guide
Credit,
Foreclosure,
(Cont’d)
Continued
NOTE: When DU identifies a foreclosure on a credit report tradeline and
that foreclosure was due to extenuating circumstances, the underwriter
may instruct DU to disregard the foreclosure information on the credit
report in the eligibility assessment. This is done by entering “Confirmed
CR FC EC” in the Explanation field for question c. in the Declarations
section of the online loan application and resubmitting the loan casefile to
DU. When the loan casefile is resubmitted to DU, the foreclosure
information on the credit report tradeline will not be used in the eligibility
assessment.

If the underwriter enters “Confirmed CR FC EC,” the underwriter
must then document that the foreclosure was due to extenuating
circumstances, the foreclosure was completed three or more years
from the disbursement date of the new loan, and the loan complies
with all other requirements specific to a foreclosure due to
extenuating circumstances.
Ocwen will accept the following for underwriting when inaccurate
foreclosure information exists on a DU loan:


When DU identifies a foreclosure on a credit report tradeline and
the foreclosure information on that tradeline is inaccurate, the
underwriter may instruct DU to disregard the foreclosure
information on the credit report in the eligibility assessment. This
is done by entering “Confirmed CR FC Incorrect” in the Explanation
field for question c. in the Declarations section of the online loan
application and resubmitting the loan casefile to DU. When the
loan casefile is resubmitted to DU, the foreclosure information on
the credit report tradeline will not be used in the eligibility
assessment.
If the underwriter enters “Confirmed CR FC Incorrect,” the
underwriter must then document the foreclosure was completed
seven or more years from the disbursement date of the new loan,
or that the account was not subject to foreclosure and the loan
complies with all other applicable requirements.
Continued on next page
Conventional Lending Guide
100-42
Ocwen Loan Servicing, LLC Client Select
REV 06/26/2015
Conventional Lending Guide
Credit,
Foreclosure,
(Cont’d)
Continued
Ocwen will accept the following underwriting when conflicting or
inaccurate foreclosure Information on a DIL or PFS Tradeline exists on a
DU Loan:

When DU identifies a foreclosure on a credit report tradeline that
appears to be one that was subject to a DIL or PFS, the underwriter
may instruct DU to disregard the foreclosure information on the credit
report in the eligibility assessment. This is done by entering
“Confirmed CR DIL” or “Confirmed CR PFS” in the Explanation field for
question c. in the Declarations section of the online loan application
and resubmitting the loan casefile to DU. When the loan casefile is
resubmitted to DU, the foreclosure information on the credit report
tradeline that also has a DIL or PFS Remarks Code will not be used in
the eligibility assessment.

If the underwriter enters “Confirmed CR DIL” or “Confirmed CR PFS,”
the underwriter must then document that the account was subject to a
DIL or PFS and the event was completed four or more years from the
disbursement date of the new loan.
Continued on next page
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Conventional Lending Guide
100-43
Conventional Lending Guide
Credit,
Continued
Deed in Lieu,
PreForeclosure,
Short Sale
When an applicant has a deed in lieu of foreclosure, pre-foreclosure
sale or short sale listed on the credit report, it does not mean that the
application for the mortgage loan must automatically be declined.
Eligibility
 Completed with re-established credit, as deemed acceptable by the
underwriter, demonstrating the ability to manage his/her financial
obligation.

Borrowers, whose credit history includes a previous pre-foreclosure
type tradeline, must have a re-established credit record for an elapsed
time of (measured to the Credit Report Date per DU; Application Date
per LP):


4 years: regardless of LTV (subject to MI Affiliate guidelines if
mortgage insurance is required)
2 years: regardless of LTV if the event was due to extenuating
circumstances. (subject to MI Affiliate guidelines if mortgage
insurance is required).
IMPORTANT:

DU applies the following guidelines to prior DILs:



DU Applies the following guidelines to Preforeclosure Sales or Short
Sales



DU will determine if a mortgage tradeline is a DIL by using specific
Remarks Codes that are present in the credit report data and
associated to the tradeline.
When DU identifies a DIL, the underwriter must confirm the
accuracy of the information. The underwriter must also document
that the event was completed four or more years from the
disbursement date of the new loan, or two or more years from the
disbursement date of the new loan when the underwriter confirms
that the mortgage loan meets the applicable timeframes and
eligibility requirements for a deed-in-lieu of foreclosure due to
extenuating circumstances.
DU will determine if a mortgage tradeline is a PFS by using specific
Remarks Codes that are present in the credit report data and
associated to the tradeline.
When DU identifies a PFS, the underwriter must confirm the
accuracy of the information. The underwriter must also document
that the event was completed four or more years from the
disbursement date of the new loan, or two or more years from the
disbursement date of the new loan when the underwriter confirms
that the mortgage loan meets the applicable timeframes and
eligibility requirements for a pre-foreclosure sale due to
extenuating circumstances.
Ocwen will NOT refinance properties currently in foreclosure.
Continued on next page
Conventional Lending Guide
100-44
Ocwen Loan Servicing, LLC Client Select
REV 06/26/2015
Conventional Lending Guide
Credit,
Continued
Restructured
Loans
Restructured or modified loans for non-subject properties may be
acceptable if:

At the time of underwrite, the borrower(s) has made a minimum of 24
consecutive months of timely mortgage payments (from the date of
restructure).
Subsequent refinance of a restructured loan (on the subject property)
may be acceptable for a Limited Cash Out Refinance transaction if:
 The borrower(s) made a minimum of 24 consecutive months of timely
mortgage payments (from the date of restructure) on the restructured
loan before closing on the refinance mortgage loan.

Cash out refinance transactions are not permitted when the
restructure or modification (as defined below) occurred on the subject
property.

Underwriter must review the loan and modification details and
determine if it meets the definition of a Restructured Mortgage as
defined next. A copy of the modification agreement must be in
the file upon delivery to Ocwen. If the end product of the
modification is any one of the following bullets, it is considered a
Restructured Mortgage and therefore must follow the 24 consecutive
months of timely mortgage payments noted above.
Restructured Mortgage
A mortgage in which the original terms have been changed, including
through the origination of a new mortgage, resulting in any of the
following:
 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.

Note a mortgage that meets the definition of a Restructured
Mortgage continues to be a Restructured Mortgage, regardless of
the seasoning. A Mortgage that is the result of any subsequent
refinance of a Restructured Mortgage is also considered a
Restructured Mortgage.
Continued on next page
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100-45
Conventional Lending Guide
Credit,
Continued
Charge-Off of
Mortgage
Accounts
Collections
and NonMortgage
Charge-offs

When a loan is run through Fannie Mae’s Desktop Underwriter (DU),
Mortgage accounts, including first liens, second liens, home
improvements loans, HELOCs, and manufactured home loans, will be
identified as a charge-off if there is an MOP code of “9” (collection or
charge-off) and there is no information indicating the account may
also be subject to a foreclosure (MOP code “8” or foreclosure Remarks
Code), a bankruptcy (MOP code “7”), a deed-in-lieu of foreclosure
(DIL Remarks Code), or a preforeclosure sale (PFS Remarks Code).

When DU identifies a charge-off on a mortgage tradeline, the lender
must confirm the accuracy of the information. The lender must also
document that the event was completed four or more years from the
disbursement date of the new loan, or two or more years from the
disbursement date of the new loan when the lender confirms that the
mortgage loan meets the applicable timeframes and eligibility
requirements for a charge-off due to extenuating circumstances.
We generally require the borrower to pay off at (or prior to) closing;
however, if the account meets the below thresholds, we will not require
them to be paid off.
 One-unit, owner occupied properties –borrowers are not required
to pay off outstanding collections or charge-offs—regardless of the
amount.
 For 2-4 Unit Primary Residence or Second Homes, if the account is
less than $5,000 per individual item or in aggregate,
 For investment properties, if account is less than $250 per
individual account or $1,000 in aggregate,
NOTE:
 Requirements above are mandated regardless of DU/LP
recommendations, except for Same-Servicer HARP loans which may
follow the AUS recommendations from the findings.

If the collection account(s) total more than the above based on
property type, it is NOT acceptable to pay the account(s) down to
below the maximum amount in order to leave the account(s) open. If
they exceed the above amounts, the accounts must be paid in full.
Continued on next page
Conventional Lending Guide
100-46
Ocwen Loan Servicing, LLC Client Select
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Conventional Lending Guide
Credit,
Continued
Past Due
Accounts
Accounts that reported as past due (not reported as collection accounts)
must be brought current prior to or at closing.
Judgments,
Garnishments
and
Outstanding
Liens

The Borrower must pay off at or prior to closing any delinquent taxes,
judgments, garnishments, tax liens, mechanics’ or materialmen’s liens
or any other outstanding items regardless of DU recommendations.

Documentation of the satisfaction of these liabilities, along with
verification of funds sufficient to satisfy these obligations, is required.
Nebraska
Alimony /
Child Support
Liens
Under the Uniform Interstate Family Support Act, orders for payment of
alimony/child support in Nebraska automatically create liens and could
impact a first lien position on a cash-out refinance transaction. Purchase
and rate/term refinance transactions are not impacted as the lien
automatically takes second position.
For all products and all cash out refinance transactions, if the credit or
title commitment reflects an alimony/child support judgment/lien, the
following is required:


Subject property mortgage must be in first lien position and title
commitment must clearly state that the alimony/child support lien
is in subordinate position to the new mortgage.
A copy of the subordination agreement or court order must be
provided.
Continued on next page
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100-47
Conventional Lending Guide
Credit,
Disputed
Credit
Information
Continued
If DU/LP does not issue the disputed tradeline message, the Underwriter
is not required to further investigate the disputed tradeline on the credit
report or obtain an updated credit report (with the tradeline no longer
disputed.
However, the Underwriter is required to ensure that the payment for the
tradeline, if any, is included in the total expense ratio if the account does
belong to the borrower.
IMPORTANT: When DU does address the disputed tradeline, the finding
will read as below and will be a condition of the loan file. Note, Ocwen
does not manually underwrite files; therefore, FNMA’s offering is not an
available option.
“DU identified the following tradeline(s) as disputed by the borrower and did not
include the tradeline(s) in the credit risk assessment. The lender must verify the
accuracy of the tradeline(s) by determining if it belongs to the borrower and by
confirming the accuracy of the payment history. If the tradeline does not belong
to the borrower, or the reported payment history is inaccurate, no further action is
necessary. If the tradeline does belong to the borrower and the reported payment
history is accurate, it must be taken into consideration in the credit risk
assessment. To ensure it is considered, the lender may obtain a new credit report
with the tradeline no longer reported as disputed and resubmit the loan casefile to
DU, or the lender may manually underwrite the loan. If the tradeline is a
mortgage that was past due by two or more payments in the last 12 months, or a
foreclosure that has been filed within the last 5 years, the loan casefile is ineligible
for delivery to Fannie Mae.”
Consumer
Credit
Counseling
The presence of consumer credit counseling service does not alter the
underwriting recommendation. Whether the borrower has or has not
completed his or her participation in the sessions before closing on the
mortgage transaction is not of relevance since it is the borrower’s credit
history that is of primary importance.
Continued on next page
Conventional Lending Guide
100-48
Ocwen Loan Servicing, LLC Client Select
REV 06/26/2015
Conventional Lending Guide
Credit,
Housing
History
Continued
Evaluated per DU/LP system; however, a mortgage/rental payment
history reflecting any 1x60 late within the most recent 12 months are not
permitted regardless of the recommendations.
NOTE: A VOM or cancelled checks are required if the history is not on
any bureau. Cancelled checks are required if housing payments are made
to or through a private party.
Commercial
Property
Any property disclosed on Schedule E of the Borrower’s tax returns must
include mortgage history verification regardless of whether the debt is in
the borrower’s personal name or in the name of a business and regardless
of whether the income is used to qualify the borrower.
First Time
Homebuyers
In all circumstances, first time homebuyers should have an acceptable
housing history. However, if a housing history does not exist (i.e.
borrowers lived rent free with family), the underwriter may waive the
housing history requirement for permitted programs based on:

Established credit history with credit scores meeting all minimum
requirements.

As approved via DU/LP.
Continued on next page
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100-49
Conventional Lending Guide
Credit,
Departing
Property
Continued
When considering borrower(s) that are in any fashion retaining their
current property, ALL ramifications must be consider prior to approval.
Such topic include the below and can be found in their respective section
within this guideline:






Rental Income
Reserves
Real Estate Debt
Equity of Retained/Converted Property
Housing History
Multiple Mortgages and Maximum Exposure
Additionally:

Conventional Lending Guide
100-50
If the current/retained residence is secured by a mortgage that will
be called due and payable should the borrower no longer reside
there as their primary residence, then they are not eligible to
purchase another primary residence. For example, retained
properties secured by a Reverse Mortgage.
Ocwen Loan Servicing, LLC Client Select
REV 06/26/2015
Conventional Lending Guide
Employment and Income
Overview
The underwriter must carefully evaluate the borrower’s employment and
income history, stability and likelihood of continuance and must document
the last two years of employment income history, using Verification of
Employment forms or most recent pay-stubs dated no earlier than 30
days prior to the initial loan application date including any and all YTD
earnings and W-2 forms for the past two years.
Tax Return
Documentation

When required, personal federal income tax returns must be copies of
the original returns that were filed with the IRS.

All supporting schedules must be included.

The information must be complete and legible.

Each tax return must be signed by the borrower unless the lender has
obtained one of the following signature alternatives:




Documentation confirming that the tax returns were filed
electronically,
a completed IRS Form 4506–T (signed by the borrower) for the
year in question, or
IRS transcripts that validate the tax return.
Alternatively, Ocwen may use IRS-issued transcripts of the borrower’s
individual and business federal income tax returns that were filed with
the IRS for the most recent two years—as long as the information
provided is complete and legible and the transcripts include the
information from all of the applicable schedules.
Continued on next page
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100-51
Conventional Lending Guide
Employment and Income,
Amended Tax
Returns
Continued
Ocwen Loan Servicing, LLC does not permit amended tax returns for the
purposes of qualification; however, in cases where the borrower has filed
amended tax returns for other causes:

Tax return amendment filed PRIOR to the Loan Application Date:


Tax returns filed prior to application are acceptable for
underwriting purposes. The original filed return, the amended
return and a letter of explanation from the borrower (or borrower’s
accountant) are required. If the file was amended 60 days or less
prior to the application, evidence of payment must also be
provided.
Tax return amendment filed AFTER the Loan Application Date are
acceptable when accompanied by ALL of the following:




A letter of explanation regarding the reason for the re-file.
Evidence of filing.
Evidence of Payment or the evidence of the ability to pay the tax.
Borrower does not require use of amended income (if increased)
for qualification.
 If the amended returns supplied show a significant increase in
income, additional conditions may apply.
IMPORTANT: Under no circumstances are amended tax returns
acceptable if the loan has already been reviewed and denied by Ocwen
Loan Servicing, LLC.
Continued on next page
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100-52
Ocwen Loan Servicing, LLC Client Select
REV 06/26/2015
Conventional Lending Guide
Employment and Income,
Taxpayer
Identification
Theft
Continued
Taxpayer identification theft occurs when a taxpayer’s stolen Social
Security number is used to file a forged tax return and attempt to claim a
fraudulent refund.
If the borrower is claiming Taxpayer Identification Theft, the Underwriter
will be required to obtain one of the following prior to the Note Date as
validation for the identity theft:



Proof identification theft was reported to and received by the IRS
(IRS Form 14039)
Copy of the notification from the IRS alerting the taxpayer to
possible identification theft
Policy report or proof of filing a complaint with the Federal Trade
Commission
The Underwriter will also be required to obtain the following secondary
documents (all or some, as applicable to the borrower) to validate the
reported income on the tax returns in question:








W-2 or 1099 transcripts which match the W-2 or 1099 income
shown on the 1040s
1099 Mortgage Interest should match reported interest on
Schedule A or Schedule E
1099G Unemployment should match reported unemployment
1099 Interest/Dividend should match reported dividend and
interest
Verification of the prior tax year income, which must be in line with
the current year.
Business Returns (for self-employed borrowers)
K-1s (For Self-employed borrowers)
Year to Date Profit and Loss (P&L) Statements (for Schedule C
Self-employed borrowers) to verify income is in line with the
previous year.
Continued on next page
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100-53
Conventional Lending Guide
Employment and Income,
Newly
Employed
Continued
For borrowers who have newly obtained employment without any
employment history without a full 2 year history are considered on a
case-by-case basis with all of the following:

Previous education or military career covering a minimum 2 year
period.

All official school transcripts and/or discharge papers must be
documented accordingly; diplomas alone are not acceptable
documentation.

Minimum of 6 months with current employer.

Only W-2 wage earner income may be used to qualify; commission,
bonuses, self-employed, tips, etc. may not be considered.

Borrower must be employed in the same or similar line of work
compared to their completed education.
NOTE: The above scenarios are viable due to a 2 year history being
documented in conjunction with an education/military history.
Continued on next page
Conventional Lending Guide
100-54
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Conventional Lending Guide
Employment and Income,
Extended
Employment
Gaps
Continued
For borrower(s) with an extended job gap/absence and re-entering the
workforce with less than six (6) months current employment may have
their income considered effective and stable if he/she:


Is employed in the current job (no minimum timeframe required), and
Can document a two year work history prior to an absence from
employment using:
 Traditional employment verifications, and/or
 Copies of W-2 forms or pay stubs.
NOTE: An acceptable employment situation includes individuals who
took several years off from employment to raise children, then
returned to the workforce.
IMPORTANT: Situations not meeting the criteria listed above may
only be considered as compensating factors; otherwise, the borrower
must be on the current job for a minimum of six (6) months.
Extended absence is defined as three to six months; gaps/absences
extending more than six (6) months will be carefully reviewed and
may require additional supporting documentation to support the job
loss, prior employment in the same or related field, education or
training supporting new job, etc.
Temporary
Leave of
Absence –
Returning
Before First
Payment
Defined as being employed but taking time off; for example, under Family
Medical Leave Act.
The borrower’s regular pay may only be considered if the borrower will be
returning to work before the first payment. Employment status
confirming the return date and income must be verified prior to the loan
closing.
Following documentation is required if the borrower is using full income to
qualify:


Borrower’s letter of intent to return to work
Employer letter or other communication of the borrower’s right to
return to work, under what terms and the VOE/Verbal VOE return
date to be reflected prior to the first mortgage payment due date.
NOTE: All other standard employment and income eligibility
requirements and documentation must be provided and satisfied
(for the temporary leave income and regular income amounts).
Continued on next page
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Conventional Lending Guide
Employment and Income,
Temporary
Leave of
Absence –
Returning
After First
Payment
Continued
If the borrower is not currently receiving income or receiving a lesser temporary leave
amount, their regular full time pay may not be used to qualify, even if they plan on
returning to work at some future specified time.
If the borrower is receiving disability pay in an amount less than their regular/full time
pay, only lesser income that is likely to continue may be used to qualify. Income from
accumulated vacation and sick time may not be used to qualify because its continuance
cannot be verified; however, the temporary leave income may be supplemented with
available liquid financial reserves.
Instructions/Examples for calculating the supplemental income from liquid assets:

Supplemental income amount will equate to the available liquid reserves
divided by the number of months of supplemental income.

Available liquid reserves: subtract any funds needed to complete the
transaction (down payment, closing costs, other required debt payoff, escrows,
and minimum required reserves) from the total verified liquid asset amount.
IMPORTANT: Available reserves entered into the AUS system must be
reduced by the amount of liquid assets used as income.

Number of months of supplemental income: the number of months from the
first mortgage payment date to the date the borrower will begin receiving his
or her regular employment income, rounded up to the next whole number.
After determining the supplemental income, the Underwriter must calculate
the total qualifying income.

Total qualifying income = supplemental income plus the temporary leave
income.

The total qualifying income that results may not exceed the borrower's regular
employment income.
Example

Regular income amount: $6,000 per month

Temporary leave income: $2,000 per month

Total verified liquid assets: $30,000

Funds needed to complete the transaction: $18,000

Available liquid reserves: $12,000

First payment date: July 1

Date borrower will begin receiving regular employment income: November 1

Supplemental income: $12,000/4 = $3,000

Total qualifying income: $3,000 + $2,000 = $5,000
NOTE: These requirements apply if the Underwriter becomes aware through the
employment and income verification process that the borrower is on temporary leave.
If a borrower is not currently on temporary leave, the Underwriter must not ask if he
or she intends to take leave in the future.
Following documentation is required if the borrower is using short term disability to
qualify:


Borrower’s letter of intent to return to work
Employer letter or other communication of the borrower’s right to return to
work and under what terms
Continued on next page
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Conventional Lending Guide
Employment and Income,
Stability of
Employment /
Income –
Standard
Continued
If a borrower’s employment history includes unemployment gaps or job
changes, the application must reflect at least two years of employment,
therefore covering a longer period of time. If the borrower has less than a
two year history of receiving income, a written analysis justifying the
determination that the income being used for qualification is stable must
be provided.
Consider both the length of the borrower's employment with any one
employer and the stable and reliable flow of income. When evaluating a
borrower who has frequent job changes or unemployment, focus on
whether the changes have affected the borrower’s ability to repay their
obligations. If the borrower provides documentation of a consistent level
and type of income and the ability to pay his or her obligations despite
changes in the source of that income, it can be presumed that the
borrower's income level is stable. Automated underwriting recommends
acceptable levels of documentation, which may not be adequate for every
borrower and every situation (such as long periods of unemployment). In
these cases, additional documentation may be required.
Stability of
Employment /
Income Furlough
Known economic conditions, such as plant closings, furloughs, company
bankruptcies, etc. that may affect the borrower's income, must be taken
into consideration.
Borrowers in a state or working for an employer with an active furlough
policy must qualify with the reduced income. Payments from a third party
(credit union or other source) to supplement unfunded budgets are not
permitted, even if the source is approved by the employer.
Full pay may be used if there is evidence from the employer or third party
documentation that the furlough will end within the next 60 days and
there is no discussion to extend the furlough.
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Conventional Lending Guide
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Conventional Lending Guide
Employment and Income,
Allowable
Age of
Federal Tax
Returns
Continued
For some types of sources of income, copies of federal income tax returns (personal
and, if applicable, business returns) are required to be obtained. The “most recent
year’s” tax return is defined as the last return scheduled to have been filed with the
IRS. For example:
If Today’s Date is…
Then the Most Recent Year’s Tax Return would be…
February 15, 2015
2013
April 15, 2015
2014
December 15, 2015
2014
Application Date
October 151,
[current year
minus 1] to April
142, current year
Disbursement Date
Documentation Required
October 151 [current year
minus 1] to April 142,
current year
The most recent year’s tax return is required. The use of a
Tax Extension (IRS Form 4868) is not permitted.
April 151, current year to
June 30, current year
The previous year’s tax return (the return due in April of the
current year) is recommended, but not required.
The underwriter must ask the borrower whether he or she
has completed and filed his or her return with the IRS for
the previous year. If the answer is yes, the underwriter must
obtain copies of that return. If the answer is no, copies of
tax returns for prior two years must be obtained.
Refer to “Tax Transcripts Requirements Using the
4506-T” below for Ocwen’s Tax Transcript policy.
July 1, current year to
October 142, current year
April 151, current
year to October
142, current year
April 151, current year to
December 31, current
year
January 1, [current year
plus 1] to April 142,
[current year plus 1]
Must obtain:

The most recent year’s tax return OR all of the
following:

A copy of IRS Form 4868 (Application for Automatic
Extension of Time to File U.S. Individual Income Tax
Return) file with the IRS,

The total tax liability reported or IRS form 4868
must be reviewed and compare it with the
borrower’s tax liability from the previous two years
as a measure of income source stability and
continuance. An estimated tax liability that is
inconsistent with previous years may make it
necessary for the lender to require the current
returns in order to proceed.

IRS From 4506-T transcripts confirming “No Record
Found” for the applicable tax year, and

Returns for the previous two years.
The most recent year’s tax return is required. The use of a
Tax Extension (IRS Form 4868) is not permitted.
NOTE: For business tax returns, if the borrower’s business uses a fiscal year (a year ending on the last day of
any month except December), the dates in the above chart may be adjusted to determine what year(s) of
business tax returns are required in relation to the application date/disbursement date of the new mortgage
loan.
1
Or the April/October filing dates for the year in question as published by the IRS.
2
Or the day prior to the April/October filing dates for the year in question as published by the IRS.
Continued on next page
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Employment and Income,
Self-Employed
and Tax
Extensions
Continued
If the 2014 self-employed income has increased from2013, is
being used for qualifying purposes and the borrower has filed an
extension for the 2014 tax returns:
 Obtain the 2013 and 2012 tax returns and an audited 2014 Profit
and Loss statement
If the 2014 self-employed income has decreased from2013, is
being used for qualifying purposes and the borrower has filed an
extension for the 2014 tax returns:
 Obtain the 2013 and 2012 tax returns and a 2014 Profit and Loss
statement (unaudited).
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Conventional Lending Guide
100-59
Conventional Lending Guide
Employment and Income,
Borrowers
who have filed
2014 tax
returns and
the IRS
transcript
indicate “No
Record of
Return Filed”
Continued
If tax returns are required for developing the qualified income (or
provided in the loan file) and if the borrower has filed their 2014 tax
returns, the IRS Transcripts indicate “No Record of Return Filed” AND the
2014 income is used in calculating qualifying income, the follow must be
obtained:

The lender must get a “Stamped” copy of the tax returns from the
IRS, or;
 If the borrower E-filed the tax return, the lender can obtain
evidence from the borrower that the return was “accepted” by the
IRS.
 For loans underwritten (defined as the last run date in DU) before
June 15, 2015, the following must be provided:
 2014 Tax Transcript showing “No record or return filed”; and,
 Copy of the 2013 Tax Return; and,
For Salaried Borrowers: a 2013 tax transcript, current paystub and
2014 W-2;
For Self-Employed Borrowers*: 2012 and 2013 tax transcript and
a 2014 P&L.
See below if borrower filed an extension.
 For loans underwritten (defined as the last run date in DU) on or
after June 15, 2015, the 2014 Tax Return Transcripts must be
provided.
NOTE: The underwriter must apply appropriate due diligence to
determine the borrower’s income is acceptable for the transaction.

Analyze the 2012 and 2013 transcripts and the 2014 tax returns,
for consistent income trends.

If the Underwriter determines any inconsistencies, they may
require the 2014 Tax Transcripts to validate the 2014 Tax Returns.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Tax Transcript
Requirements
using the
4506-T
Continued

Ocwen requires each borrower (regardless of income source) to
complete and sign a separate IRS Form 4506-T at or before closing.
(As noted below, it may be necessary to have the borrower complete
and sign multiple IRS 4506–T forms depending on the transcripts
required to validate the information used in documenting income.)

IRS Form 4506–T can be used to obtain transcripts for up to four
years or tax periods but only one tax form number can be requested
per each IRS Form 4506–T. For example, it is necessary to complete
two IRS Form 4506–Ts for a self-employed borrower whose income
documentation includes both two years of personal tax returns and
two years of business tax returns. One IRS Form 4506–T will be
required to obtain a transcript of the personal 1040 returns and
another will be required for the business returns (Form 1065, Form
1120, Form 1120A, etc.).

Use of IRS Form 4506-T has become the most efficient method for
lenders to obtain electronic transcripts of the borrower's income tax
information. It is also acceptable for lenders to use either IRS Request
for Copy of Tax Return (IRS Form 4506) or IRS Tax Information
Authorization (IRS Form 8821); however, these forms are not
supported electronically by the IRS. In addition, IRS Short Form
Request for Individual Tax Return Transcript (IRS Form 4506T-EZ) is
also acceptable, although it may only be used to obtain transcripts of
IRS Form 1040 (no other tax forms are supported using IRS Form
4506T-EZ).

When federal income tax information is used to document income for
qualifying purposes, Ocwen may obtain transcripts of the applicable
federal income tax documents directly from the IRS (or designee) by
using IRS Form 4506–T. However, in certain instances, copies of the
actual returns, schedules, or forms may be needed because the tax
return transcripts will not provide the detail required to qualify the
borrower. For example, the seller must obtain copies of Schedules B
through F, Schedule K-1, Form 2106, or business returns. These
schedules or forms are not required if:


The income reflected on the applicable schedule transcripts is
positive, and
The income supported by that schedule or form is not being used
for qualifying
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Conventional Lending Guide
Employment and Income,
Tax Transcript
Requirements
using the
4506-T
(Cont’d)

Continued
What to request from the IRS:

Documentation
required during
Underwriting…
The table below shows the documentation that Ocwen will request
when using IRS Form 4506-T based on income documentation
used to determine qualifying income.
The IRS Form 4506-T request must include most recent filing of
…
1040
(4506T-EZ
may also be
used)
1120 or
1065
1099
W-2
YTD Paystub and
One Year W-2
1 year
YTD Paystub and
Two Years W-2s
2 years
YTD Income Information
and
Two years 1099s/1040s
2 years
One Year Personal
Returns
1 year
Two Years Personal
Returns
2 years
Two Years Personal
Returns and
Two Years Business
Returns
2 years
2 years
Continued on next page
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Employment and Income,
Alimony /
Child Support
/ Separate
Maintenance
Continued
In order for alimony or child support to be considered as stable income,
the borrower must have received income for at least 6 months and it
must continue for at least three years after the date of the original
mortgage loan application.
Ocwen will accept as verification of the award of alimony and/or child
support one of the following documents:

Copy of the divorce decree

Formal separation agreement

Court records; any other legal agreement or court decree that
describes the payment terms, or a copy of any applicable state law
that requires alimony, child support or maintenance payments and
specifies the conditions under which the payments must be made.
The document must specify the amount of the award and the period of
time over which it will be received, including the age of the child(ren) for
whom the support is being paid). Acceptable evidence would be deposit
slips, canceled checks, bank statements or Federal income tax returns.
Evidence must be provided to document that the funds have been
received for the most recent 6 months:

When a borrower has been receiving full, regular and timely payments
for the most recent 6 months, the income may be considered stable.

Less than 6 months may only be considered as a compensating factor.
NOTE: Any partial, sporadic, inconsistent, proposed or voluntary
payments may not be considered as stable income.
Alimony is taxable and therefore should not be grossed up; however, child
support is eligible. Documentation for alimony, child support income is not
required if the borrower does not use the income to qualify or as a
compensating factor.
Loan Prospector (LP): if the loan is run via Freddie Mac’s Loan
Prospector (LP) and the income is verified with signed federal income tax
returns, the most recent two (2) years will need to be obtained.
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Conventional Lending Guide
Employment and Income,
Auto
Allowance
Continued
Automobile allowances will be considered stable income for a Borrower
who has been receiving the income for the past two years, provided all
associated business expenditures are included in the calculation of the
Borrower's total Debt-to-Income Ratio.
Either an actual cash flow approach or an income and debt approach may
be used to calculate the income.

Actual Cash Flow Approach



When the Borrower files an IRS form 2106, the actual cash flow
approach should be used. Any funds in excess of the Borrower's
monthly expenses are added to the Borrower's monthly income.
Any expenses in excess of the monthly allowance must be included
in the Borrower’s total monthly obligations. When the Borrower
uses the form 2106 and recognized “actual expenses” instead of
the standard mileage rate, look at the actual expenses section to
identify the Borrower’s actual lease payments, and then make the
appropriate adjustments.
If a Borrower elected to use a standard mileage deduction instead
of taking the actual cash expenditure for auto expenses when he
or she completed their federal income tax return, (1) the
unreimbursed expense is deducted from income. For (2)
depreciation add-back, the business miles driven should be
multiplied by the depreciation factor for the appropriate year. The
applicable deprecation add-backs are as follows:
Tax Year Depreciation Add-Back per Mile

2008 & 2009
$0.21
2010
$0.23
2011
$0.22
2012
$0.23
Income and Debt Approach

When the Borrower does not report the allowance on form 2106,
the income and debt approach should be used. The full amount of
the allowance is added to the Borrower's monthly income. The full
amount of the lease or financing expenditure for the automobile
must be added to the Borrower's total monthly obligations.
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Conventional Lending Guide
Employment and Income,
Calculating
Auto
Depreciation /
Expenses
Boarder
Income
Continued
Any automobile depreciation or lease payments claimed on IRS form 2106
should be netted out, and not included as a reduction to income.

If the borrower claims a “standard mileage” deduction, multiply the
business miles driven by the depreciation factor for the appropriate
year, as published by the IRS, and add that figure back to the
calculation.

If the borrower claims an “actual depreciation expense” deduction, the
amount the borrower claimed should be added back
Rental income from boarders in a one-unit property that is also the
borrower’s principal residence or second home is not generally considered
acceptable stable income with the exception of the following:
 When a borrower with disabilities receives rental income from a live-in
personal assistant, whether or not that individual is a relative of the
borrower, the rental payments can be considered as acceptable stable
income, in an amount up to 30% of the total gross income that is used
to qualify the borrower for the mortgage. Personal assistants typically
are paid by Medicaid Waiver funds and include room and board, from
which rental payments are made to the borrower.

Evidence must be obtained of the boarder’s history of shared
residency with a copy of the driver’s license, bills, bank statements,
W-2 forms showing the boarder’s address as being the same as the
borrowers address.

Copies of cancelled checks documenting the boarder’s rental payments
for the past 12 months must be obtained.
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100-65
Conventional Lending Guide
Employment and Income,
Bonus Income
Continued
In order to use bonus income for qualifying purposes, the Borrower must
have a documented two year history of receiving this type of income and
the bonus earnings must be likely to continue for the next three years.
Projected bonus income is not an acceptable source of income.
Bonus income may be paid monthly, quarterly or annually. If the earnings
are consistent or increasing, an average of the past 24 months should be
used. If earnings have decreased from year to year, a 12 month average
should be used.

DU



A completed Request for Verification of Employment (Form 1005),
or
The most recent paystub and the most recent 2 years W-2 forms
are required.
LP

Written VOE covering two full years and a verbal verification of
employment or all of the following:
o The most recent paystub
o The most recent 2 years W-2 forms
o A verbal verification of employment
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Conventional Lending Guide
Employment and Income,
Overtime
Income
Continued
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 for the next three
years. Year to date overtime earnings must be verified and compared to
the two year average. Projected overtime income is not an acceptable
source of income.
Establish a two year average of overtime. If, however, the overtime
earnings are declining, additional analysis must be conducted to
determine if the income should be used.

DU




A completed Request for Verification of Employment (Form 1005),
or
The most recent paystub and the most recent 2 years W-2 forms
are required.
A verbal verification of employment.
LP

Written VOE covering two full years and a verbal verification of
employment or all of the following:
o The most recent paystub
o The most recent 2 years W-2 forms
o A verbal verification of employment.
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100-67
Conventional Lending Guide
Employment and Income,
Capital Gains
Continued
Generally, Capital Gains are a one-time occurrence and would not be
considered income.
However, if there is a two year history of Capital Gains and there is
verification that the Borrower has remaining assets that can be sold for
future income, the income may be considered with:



Copies of the borrowers filed individual federal tax returns signed,
with all schedules, for the most recent two years.
Schedule D reflects the Capital Gain income.
A two year average must be completed when using Capital Gain
income as qualifying income.
NOTE:


Housing
(Non-Military)
or Parsonage
Allowance
If Capital Losses identified on IRS Form 1040, Schedule D, are
recurring, they do not have to be considered when calculating
income or liabilities.
Due to the nature of this income, current receipt of the income is
not required to comply with the Age of Credit Documents policy;
however, documentation of the asset ownership must be in
compliance.
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.


If the income has been received for at least 12 months and has a
three year continuance, this can be used as qualifying income. You
may not offset the monthly PITI.
A written VOE, a letter from the employer or paystubs reflecting
the amount of the housing or parsonage allowance and the terms
under which it is paid must be obtained along with proof of 12
months receipt of the housing allowance.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Commission
Income
Continued

In order to use commission income for qualifying purposes, the Borrower
generally must have a documented two year history of receiving this type of
income and the commission earnings must be likely to continue for the next
three years. Commission income that has been received for 12 to 24 months
may be considered as acceptable income, as long as the borrower’s loan
application demonstrates that there are positive factors to reasonably offset
the shorter income history and there is a likelihood that the borrower will
continue to receive such income. The borrower must have a minimum of 1
year on the W2 and tax returns and supported by a Year to Date pay stub.

Verification of year-to-date commission earnings is required.

Commission earnings should be level or increasing from one year to the next.

Projected commission income is not an acceptable source of income.

DU


If commission income is less than 25% of the borrower’s total annual
employment income:
o A completed Request for Verification of Employment (Form 1005) and
a verbal verification of employment, or
o The most recent paystub and the most recent 2 years W-2 forms are
required.
o A Verbal verification of employment.

If commission income is equal to or greater than 25% of the borrower’s
total annual employment income:
o A completed Request for Verification of Employment (Form 1005) or
the borrower's recent paystub and IRS W-2 forms covering the most
recent two-year period; and
o Copies of the borrower's signed federal income tax returns covering
the most recent two-year period.
o A verbal verification of employment.
LP

All of the following
o Written VOE covering the most recent two-year period, and
o Complete individual federal tax returns covering the most recent twoyear period and reflecting at least 6 months of commission income,
and
o A verbal verification of employment.

Or, All of the following
o
The most recent paystub and copies of the borrowers filed federal tax
returns signed, with all schedules, for the most recent two years. The
tax returns must reflect at least 6 months of commission income.
o
A verbal verification of employment.
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Conventional Lending Guide
Employment and Income,
Disability
Benefits
Continued
Disability benefit payment should be treated as acceptable stable income
unless the terms of the disability policy specifically limit the stability or
continuity of the benefit payments.

Must not have an established termination or modification date within
three (3) years.


If long term disability is received from Social Security, there is no
expiration date and it acceptable to expect it to continue (i.e.
continuance is not required to be further documented).
Generally, long term disability will not have a defined expiration
date and, in these cases, it acceptable to expect it to continue (i.e.
continuance is not required to be further documented).
Requirements for re-evaluation of benefits are NOT considered a
defined expiration date.

Benefits that will decrease to a lesser amount within the next three
years because of long-term conversion, the lesser amount should be
utilized in qualifying the borrower.

Copy of disability policy or statement is required from the insurance
company, employer, or other qualified disinterested party.

Disability Payments to be verified by obtaining a copy of the award
letter, W-2 or other equivalent documentation showing the type,
source and total amount of income.


Two (2) months bank statement evidencing current receipt must
be documented as well.
May be grossed up 25% provided documentation verifies income as
non-taxable.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Dividends and
Interest
Employed by
Family
Members
Continued
An average of interest and dividend income may be used to qualify if
supported by the Borrower’s assets after settlement. The asset providing
the interest and dividend income may not be liquidated for cash to close
unless that portion used is deducted and the interest and/or dividend
amount is recalculated based on the unused portion of the asset. Interest
and dividend income is eligible only after deducting that portion, listed on
Schedule B of IRS Form 1040, derived from a partnership or S
Corporation.

Most recent two (2) years personal tax returns with all schedules AND

Most recent asset account statement documenting ownership of the
asset.
If employed by a relative, the following documentation is required
regardless of DU recommendations:

The business accountant must verify that the Borrower is not selfemployed by indicating his or her percentage of interest in the
business. The accountant must be a disinterested third party.

Most recent, computer generated pay stub covering 30 days
regardless of DU.

Most recent two year’s tax returns

Most recent two year’s W-2 form
NOTE: The two (2) year income will be analyzed for increases that are
significantly greater than cost of living raises. In such event, the
underwriter may average the income over a 24 month period.
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Conventional Lending Guide
Employment and Income,
Borrowers not
required to file
Tax Returns
with the IRS

There are some instances where a borrower was not required to file a
tax return for the prior year. Acceptable examples may include:





Newly employed borrower who was a full-time student the most
recent tax year.
School transcripts are required for documentation.
Borrower whose income level was below the minimum reporting
standards as required by the IRS. Examples include borrowers
who receive disability, Social Security, or pension income and
indicate that they are not required to file tax returns.
Active duty military that meet all the requirements to be granted
an extension by IRS in accordance with IRS Publication 3 - Armed
Forces' Tax Guide.
In addition to the specific requirements noted above, the file must be
satisfactorily documented to:




Foreign
Income
Continued
Support the income used for qualifying,
Comply with any AUS documentation requirements,
Document the reason a tax transcript is NOT available, and
Include a tax transcript indication “No Record Found” or IRS
Verification of Non-Filing Form
Income that is earned by a U.S. citizen that is employed by a foreign
corporation or a foreign government may use foreign income to qualify if
the following requirements are met:

Most recent paystub(s) and two (2) year’s W-2s

Copies of his or her signed federal income tax returns filed with the
IRS for the past two years that include foreign income.

All income must be translated to U.S. dollars documented from a
viable source.

Borrowers must have a U.S. primary residence property address.
Continued on next page
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Employment and Income,
Foster Care
Income
Continued
Foster Care Income received from a state or county sponsored
organization may be considered acceptable with a two year history and
the likelihood of continuation.
Documentation:
Gratuities and
Tip Income

Letters from the organizations providing the income

Two year tax returns

Copies of deposit slips or bank statements confirming the regular
deposits

Income for children who will reach the age of 19 within three years
will not be considered

Permitted if they are included in two years of taxable income.
Documentation: Most recent paystub, most recent two (2) years W-2s
along with standard verbal VOE.
Continued on next page
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100-73
Conventional Lending Guide
Employment and Income,
Military
Income
Continued
Base military pay, in addition to the following with documentation verify a
future three year window of receipt, are permitted:

Flight or hazard pay

Rations

Clothing allowance

Quarters’ allowance

Proficiency Pay
NOTE: Income paid to military reservists while they are fulfilling their
reserve obligations is also acceptable if it satisfies the same stability and
continuity tests applied to second-job income.
DU
YTD Leave and Earnings Statement (LES) documenting at least 30 days of
income and the most recent W-2 are required.
In lieu of a verbal VOE, a LES dated no more than 30 days prior to the Note
date may be provided or a verification of employment through the Defense
Manpower Data Center dated no more than 30 days prior to the Note Date.
LP
Streamlined Accept Documentation
 Written VOE covering one year and a verbal verification of employment or

Year to date Leave and Earnings Statement (LES) documenting at least 30
days of income, the most recent W-2 are required.
A verbal verification of employment. In lieu of a verbal VOE, an LES dated
no more than 30 days prior to the Note date may be provided or a
verification of employment through the Defense Manpower Data Center
dated no more than 30 days prior to the Note date.
Standard Documentation
 Written VOE covering two years and a verbal verification of employment
or


Year to date Leave and Earnings Statement (LES) documenting at least 30
days of income, the most recent 2 years W-2 forms are required.

A verbal verification of employment. In lieu of a verbal VOE, an LES dated
no more than 30 days prior to the Note date may be provided or a
verification of employment through the Defense Manpower Data Center
dated no more than 30 days prior to the Note date.
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Employment and Income,
Nonreimbursed
Business
Expense
Continued
If tax return are provided in the loan file and a borrower has nonreimbursed business expenses, such as classroom supplies, uniforms,
meals, gasoline, automobile insurance, and/or automobile taxes,
determine the recurring monthly debt obligation for such expenses by
developing a 24-month average of the expenses. Review the Schedule A
and/or IRS form 2106 from one of the following:


Personal income tax returns including all schedules for the number
of years required
Tax transcripts for the number of years required
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. If there is not a full 24-month history, the
underwriter should develop an annualized monthly average.
Calculation
+ Total Expenses (form 2106, line 8, columns A & B)
+ Depreciation (line 28)
Sub-total
(divide) ÷ Sub-total by 24 (divide by 12 if using one year’s tax returns)
Monthly Average Non-reimbursed Business Expense
See Auto Allowances & Expense Account Payments in the Employment
and Income section for treatment of these business expenses, as they
may not be deducted from income; they must be included as recurring
debts in the total debt ratio.
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Conventional Lending Guide
Employment and Income,
Non-Taxable
Income
Continued
Generally, income is taxable unless it is specifically exempted by law.
Nontaxable income may be shown on the borrower's tax return but is not
taxed. Verify and document that the particular source of income is
nontaxable. Documentation that can be used for this verification includes
award letters, policy agreements, account statements, or any other
documents that address the nontaxable status of the income.

If the income is verified as nontaxable, and the income and its taxexempt status are likely to continue, develop an “adjusted gross
income” for the borrower by adding an amount equivalent to 25
percent of the nontaxable income to the borrower’s income.

All disclosed, nontaxable income must be grossed-up even if not being
used for loan qualification.

Filing requirements for most taxpayers can be found on the IRS
website.
NOTE: Loans approved via LP and income is verified through federal
income tax returns, the most recent two (2) years must be obtained.
Mortgage
Credit
Certificate
Not Permitted.
Continued on next page
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Employment and Income,
Mortgage
Differential
Payments
Continued
An employer may subsidize an employee’s mortgage payments by paying
all or part of the interest differential between the employees’ present and
proposed mortgage payments.
When calculating the qualifying ratio, the differential payments should be
added to the borrower’s gross income. The payments may not be used to
directly offset the mortgage payment, even if the employer pays them to
the mortgage lender rather than to the borrower.
Obtain written verification from the borrower’s employer confirming the
subsidy and stating the amount and duration of the payments. Verify that
the income can be expected to continue for a minimum of three years
from the date of the mortgage application.
NOTE: If this income is used on a purchase transaction, current receipt is
not required to be documented except as verified in the employer letter.
For refinance transactions where the income is continuing with the new
loan, the recent receipt must be in compliance with the Age of Credit
Documents.
Note
Receivable
Income

Must evidence continuance for at least 3 years

Copy of the note to establish the amount and length of payment

Must have been received for the last 12 months

Acceptable evidence includes:


Copies of signed federal income tax returns filed with IRS
Copies of bank statements reflecting deposit of funds
NOTE:

Payments on a newly executed note that specifies a minimum duration
of three years may not be used as stable income, but may be used to
justify a higher qualifying ratio.

Loans approved via LP and income is verified with signed federal
income tax returns, the most recent two (2) years must be obtained.
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Conventional Lending Guide
Employment and Income,
Part-Time,
Second or
Multiple
Income
Continued
Borrower must have a two year consecutive history of this type of income
and this job must be likely to continue for the next three years. If the
income is stable or increasing, a 2 year average of this income should be
used for qualifying purposes. If the income is declining, additional
analysis must be conducted to determine if the income should be used.

DU



The most recent paystub and the most recent 2 years W-2 forms
are required.
A verbal verification of employment.
LP



Written VOE covering two full years and a verbal verification of
employment or
The most recent paystub and the most recent 2 years W-2 forms
are required.
A verbal verification of employment.
If the secondary income is sourced from self-employment, then the
income must be included in the AUS evaluation when one of the following
is present:

Primary job is self-employed

2nd job and you are using the income to qualify & is included in the
income used to score the loan

2nd job and there is any loss at all
NOTE: Secondary, self-employed income does not need to be
evaluated when there is positive income and it is not being used to
qualify.
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Conventional Lending Guide
Employment and Income,
Pension /
Retirement
with Actual
Income
Stream
Continued
Income from retirement accounts, such as 401(k), IRA or Keogh, must be
received as monthly distributions and expected to continue for at least
three years to be considered as qualifying income.
If the assets are in the form of stocks, bonds or mutual funds, 70% of the
value must be used to determine the number of distributions remaining.
Document the regular continued receipt of the income using one of the
following:

Letters from the organizations providing the income

Copies of retirement award letters

Copies of signed federal income tax returns that were filed with the
IRS

IRS W-2 or 1099 forms;

Copies of the borrower’s two most recent bank statements

Documentation of asset ownership must be in compliance with the Age
of Credit Documents.
NOTE: Loans approved via LP and income is verified with signed federal
income tax returns, the most recent two (2) years must be obtained.
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Conventional Lending Guide
Employment and Income,
Income
derived from
the Asset
Continued
Three types of scenarios are eligible for Employment-Related Assets to be
considered as a qualifying income stream:

Retirement Assets: Must be verified by the most recent asset account
statement and must document the borrower as the sole owner of the
account. Borrower must be 100% full vested, have immediate access
without penalty*(See Income Calculation Below) and the account
must be an IRS recognized retirement account.

Non-self employed severance packages or non-self employed lump
sum retirement packages: Must be documented with the most recent
three (3) month personal depository or brokerage account statements,
an employer distribution letter and/or check stubs evidencing receipt,
and the type of lump sum distribution funds. Note funds must not
have been subject or currently subject to a penalty*(See Income
Calculation Below). If the funds were deposited into a non-retirement
account, it must be verified that all funds in that non-retirement
account have been derived from eligible retirement assets.

Proceeds from the sale of a business: must be documented with 3
months personal depository or brokerage account statements, fully
executed closing documents evidencing final sale of business to
include the sales price and net proceeds, contract for the sale of the
business, most recent business tax return prior to the sale and If the
funds were deposited into a nonretirement account, it must be verified
that all funds in that non-retirement account have been derived from
the sale of the borrower’s business or eligible retirement assets.
IMPORTANT:

Non-employment related assets (such as stock options, non-vested
restricted stocks, lawsuits, lottery winnings, sale of real estate,
inheritance, divorce proceeds, etc.) are not permitted to be utilized as
a qualifying income stream. Checking and savings accounts are
generally not eligible as employment-related assets, unless the source
of the balance in a checking or savings account was from an eligible
employment-related asset (for example, a severance package or lump
sum retirement distribution).

Documentation of asset ownership must be in compliance with the Age
of Credit Document policy.
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Employment and Income,
Income
derived from
the Asset
(Cont’d)
Continued
All of the following loan parameters must be present in order to utilize
employment related assets as a qualifying income stream:

Maximum 70% LTV/(H)CLTV

Minimum Credit Score of 620

Purchase and Limited Cash-Out Refinances only

1-4 Unit primary residence and second homes
Net Value Determination

Stocks, bonds, and mutual funds: 70% of the value (remaining after
costs for the transaction) may be used to determine the income
stream.

Retirement accounts: 70% of the value (remaining after costs for the
transaction) may be used to determine the income stream.
Net Documented Assets
 The sum of eligible documented assets minus discount (if retirement,
stocks, bonds, mutual funds) minus any funds that will be used for
closing or required for reserves.
Income Calculation

DU:



Income Calculation/Payout Stream = Divide “Net Documented
Assets” by the amortization of the mortgage loan (in months).
*If a penalty applies, to the asset, the asset must be reduced by
the amount of any penalty that could apply upon distribution when
determining this income stream.
LP:


Income Calculation/Payout Stream = Divide “Net Documented
Assets” by 360 months (30 year term must be used regardless of
borrower age or amortization term).
*Account funds must not be subject to a penalty.
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Conventional Lending Guide
Employment and Income,
Public
Assistance
Continued

Received for the past two years

Likely to continue for the next three years, if documentation is
available.

Documented by letters or exhibits from the paying agency stating the
amount, frequency and duration of the benefits payments.
Section 8: The Housing Choice Voucher Program (more commonly
known as Section 8) is also an acceptable source of qualifying income.
There is no requirement for the Section 8 voucher payments to have been
received for any period of time prior to the date of the mortgage
application or for the payments to continue for any period of time from
the date of the mortgage application. Determine from the public agency
that issues the vouchers the monthly payment amount, that it is paid
directly to the borrower and whether the income is nontaxable. If the
income is nontaxable, an adjusted gross income for the borrower may be
calculated and applied.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Rental Income

Rental income is an acceptable source of stable income if it can be
established that the income is likely to continue. If the rental income
is derived from the subject property, the property must be one of the
following:


Rental Income
Ineligible
Properties
Continued
Two to four unit principal residence property in which the borrower
occupies one of the units, or
A one to four unit investment property.

If the income is derived from a property that is not the subject
property, there are no restrictions on the property type. For example,
rental income from a commercial property owned by the borrower is
acceptable if the income otherwise meets all other requirements (it
can be documented in accordance with the requirements below).

Generally, rental income from the borrower’s principal residence (a
one-unit principal residence or the unit the borrower occupies in a
two- to four-unit property) and a Second home cannot be used to
qualify the borrower. However, Ocwen does allow an exception to this
policy for boarder income. See Boarder Income section within this
Lending Guide.
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Conventional Lending Guide
Employment and Income,
DU Loans General
Requirements
for
Documenting
Rental Income

If a borrower has a history of renting the subject or another property,
generally the rental income will be reported on Schedule E of the
borrower’s personal tax returns or an S Corporation form (IRS Form
8825) of a business tax return. If the borrower does not have a
history of renting the subject property, the lender may be justified in
using a current lease agreement. Examples of scenarios that justify
the use of a lease agreement are




Continued
Purchase transactions;
Refinance transactions in which the borrower purchased the rental
property during or subsequent to the last tax return filing; or
Refinance transactions of a property that experienced significant
rental interruptions such that income is not reported on the recent
tax return. (For example, major renovation to a property occurred
in the prior year that affected rental income.)
When the subject property will generate rental income, one of the
following forms must be used to support the income-earning potential
of the property:


For one unit properties: Single-Family Comparable Rent Schedule
(Form 1007) (provided in conjunction with the applicable appraisal
report), or
For two to four unit properties: Small Residential Income Property
Appraisal Report (Form 1025).
Continued on next page
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Employment and Income,
DU Loans Documenting
Rental Income
from Subject
Property

Continued
Documentation must be obtained that is used to calculate the monthly
rental income for qualifying purposes. The documentation may vary
depending on whether the borrower has a history of renting the
property, and whether the prior year tax return includes the income.
NOTE: If the borrower is not using any rental income from the subject
property to qualify, the gross monthly rent must still be documented
for lender reporting purposes.
Borrower history of
receiving rental income
from Subject Property?
Transaction
Type
Yes
Refinance
Required Documents

Form 1007 (1 unit) or 1025 (2-4 Units),
AND either


No
Purchase

Form 1007 or Form 1025, as applicable, and

copies of the current lease agreement(s).

If the property is not currently rented, lease
agreements are not required. Lenders may
use market rent supported by Form 1007 or
Form 1025, as applicable.

No
Refinance
the borrower’s most recent year of
signed federal income tax returns,
including Schedule E, or
copies of the current lease
agreement(s) if the borrower can
document a qualifying exception. (see
Partial or No Rental History on Tax
Returns below)
If there is a lease on the property that is
being transferred to the borrower, it
must be verified that it does not contain
any provisions that could affect the first
lien position on the property.

Form 1007 or Form 1025, as applicable, and

copies of the current lease agreement(s).
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Employment and Income,
Continued
DU Loans Documenting
Rental Income
from Property
OTHER than
the Subject
Property

When the borrower owns property, other than the subject property,
that is rented, the lender must document the monthly gross (and net)
rental income with the borrower’s most recent signed federal income
tax return that includes Schedule E. Copies of the current lease
agreement(s) may be substituted if the borrower can document a
qualifying exception. See Partial or No Rental History on Tax Returns
below.
DU Loans Partial or No
Rental History
on Tax
Returns

In order to determine qualifying rental income, the underwriter must
determine whether or not the rental property was in service for the
entire tax year or only a portion of the year. In some situations, the
underwriter’s analysis may determine that using alternative rental
income calculations or using lease agreements to calculate income are
more appropriate methods for calculating the qualifying income from
rental properties. This policy may be applied to refinances of a subject
rental property or to other rental properties owned by the borrower.

If the borrower is able to document (per the table below) that the
rental property was not in service the previous tax year, or was in
service for only a portion of the previous tax year, the underwriter
may determine qualifying rental income by using:


Schedule E income and expenses, and annualizing the income (or
loss) calculation; or
Fully Executed lease agreement(s) to determine the gross rental
income to be used in the net rental income (or loss) calculation.
IF
THEN
If the property was
acquired during or
subsequent to the most
recent tax filing year,
Confirm the purchase date using the HUD-1 or other documentation.
If the rental property
was out of service for an
extended period,

If acquired during the year, Schedule E (Fair Rental Days) must
confirm a partial year rental income and expenses (depending on
when the unit was in service as a rental).

If acquired after the last tax filing year, Schedule E will not reflect
rental income or expenses for this property.

Schedule E will reflect the costs for renovation or rehabilitation as
repair expenses. Additional documentation may be required to
ensure that the expenses support a significant renovation that
supports the amount of time that the rental property was out of
service.

Schedule E (Fair Rental Days) will confirm the number of days that
the rental unit was in service, which must support the unit being
out of service for all or a portion of the year.
Continued on next page
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Employment and Income,
DU Loans Calculating
Monthly
Qualifying
Rental Income
(or Loss)
Continued

Federal Income Tax Returns / Schedule E. When Schedule E is used to
calculate qualifying rental income, the underwriter must add back any
listed depreciation, interest, taxes, or insurance expenses to the
borrower’s cash flow.

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, the rental income must be averaged
over the number of months that the borrower used the property as
a rental unit.
See Treatment of the Income (or Loss) below for further
instructions.
Lease Agreements. When current lease agreements are used, the
lender must calculate the rental income by multiplying the gross
rent(s) by 75%. The remaining 25% of the gross rent will be absorbed
by vacancy losses and ongoing maintenance expenses.

See Treatment of the Income (or Loss) below for further
instructions.
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Employment and Income,
DU Loans Treatment of
Rental Income
(or Loss)
Continued
The amount of monthly qualifying rental income (or loss) that is
considered as part of the borrower's total monthly income (or loss), and
its treatment in the calculation of the borrower's total debt-to income
ratio, varies depending on whether the borrower occupies the rental
property as his or her principal residence.
If the rental income relates to the borrower’s Primary Residence:

The monthly qualifying rental income (as defined above) must be
added to the borrower’s total monthly income. (The income is not
netted against the PITI of the property.)

The full amount of the mortgage payment (PITI) must be included in
the borrower’s total monthly obligations when calculating the debt-toincome ratio.
If the rental income (or loss) relates to a property other than the
borrower's principal residence:

If the monthly qualifying rental income (as defined above) minus the
full PITI is positive, it must be added to the borrower’s total monthly
income.

If the monthly qualifying rental income minus PITI is negative, the
monthly net rental loss must be added to the borrower’s total monthly
obligations.

The full PITI 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 monthly payment for the borrower's principal residence (full
PITI or monthly rent) must be counted as a monthly obligation.
Continued on next page
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Employment and Income,
DU Loans Offset Monthly
Obligations for
Rental
Property
Reported
through a
Partnership or
an S Corp
Continued
If the borrower is personally obligated on the mortgage debt (as
evidenced by inclusion of the related mortgage(s) on the credit report)
and gross rents and related expenses are reported through a partnership
or S corporation, the business tax returns may be used to offset the
property’s PITIA. The steps described below should be followed:

Obtain the borrower’s business tax returns, including IRS Form 8825
for the most recent year.

Evaluate each property listed on Form 8825, as shown below:



From total gross rents, subtract total expenses. Then add back
insurance, mortgage interest, taxes, homeowners’ association
dues (if applicable), depreciation, and non-recurring property
expenses (if documented accordingly).
Divide by the number of months the property was in service.
Subtract the entire PITIA (proposed for subject property or actual
for real estate owned) to determine the monthly property cash
flow.

If the resulting net cash flow is positive, the lender may exclude the
property PITIA from the borrower’s monthly obligations when
calculating the debt-to-income ratio.

If the resulting net cash flow is negative (that is, the rental income
derived from the investment property is not sufficient to fully offset
the property PITIA), the calculated negative amount must be included
in the borrower’s monthly obligations when calculating the debt-toincome ratio.

In order to include a positive net rental income received through a
partnership or an S corporation in the borrower’s monthly qualifying
income, the seller must evaluate it according to Ocwen’s guidelines for
income received from a partnership or an S corporation.
NOTE: For DU loan casefiles, the term “subject net cash flow” applies
to net rental income from the subject property, and the term “net
rental income” applies to rental income from properties other than the
subject property.
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Employment and Income,
DU Loans Entering Net
Rental Income
Continued
“Net rental income” for DU loan case files does not include rental income
from the subject property. It applies only to rental properties already
owned by the borrower. For rental income on the subject property, refer
to “Entering Subject Net Cash Flow in DU” below.
To submit net rental income to DU, the underwriter can either:

Calculate the total net rental income for all rental properties (except
the subject property) and enter the amount (either positive or
negative) in the Net Rental field in Section V. If REO data has been
entered, DU will ignore a zero value in this field. Therefore, the
Underwriter must enter either a positive or negative amount. In other
words, if the net rental income is a “breakeven” amount, the user
must enter either $0.01 or $−0.01; otherwise, DU will use the value
from Section VI R.

Complete the REO data entered in the Uniform Residential Loan
Application (Form 1003) (or in a loan origination system) for each
rental property (except the subject property). DU will preliminarily
calculate the net rental income using the following formula: (gross
rental income × 75%) – mortgage payment −
insurance/maintenance/taxes/misc. = net rental income. The
Underwriter should override DU’s preliminary calculation, if it is
different from the Underwriter’s calculation, by entering the net rental
income amount directly in the Net Rental field in the Full 1003,
Section VI R.
NOTE: If both methods are used, DU will use the net rental income from
Section V (if it is a value other than zero) and issue a message when
there is a conflict of data.
If the combined total net rental income for all rental properties is positive,
DU adds the net rental income to the qualifying income. If the total is
negative, DU treats the loss as a liability and includes it in the total
expense ratio.
Continued on next page
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Employment and Income,
DU Loans –
Entering Net
Rental Income
for Special
Situations
DU Loans Subject Net
Cash Flow
Calculations
Continued

If the borrower is purchasing a principal residence and is retaining his
or her current residence as a rental property, show the current
principal residence as Rental in the Property Disposition field and
complete the Net Rental field in the Full 1003, Section VI R.

If the borrower’s principal residence is a two to four unit property,
rental income from the principal residence can be used to qualify the
borrower. With the exception of subtracting the borrower’s principal
mortgage payment from the gross rental income, all other calculations
and documentation requirements in this section apply.

To use net rental income from a borrower’s owner occupied two to
four unit property when the borrower is purchasing or refinancing a
second home or investment property, enter the net rental income
from the borrower’s principal residence as Net Rental in Section V.
Two- to four-unit Primary Residence: Calculate the subject net cash flow,
and enter this amount in Section V. It will be included in the total
qualifying income. Do not subtract the PITI from the rental income,
because the PITI is included in the total proposed mortgage payment and
is considered in the qualifying ratio. Do not enter a negative subject net
cash flow value, because the entire PITIA is already included in the
qualifying ratio.
Investment Properties: Calculate the subject net cash flow. If the subject
net cash flow is positive, enter the amount in Section V. It will be included
in the total qualifying income. If the cash flow is negative, enter the
amount in Section V as a negative value. DU will include it in the total
expense ratio calculation as a liability. If income from the subject property
is not included in the qualifying ratios, the lender should enter the entire
proposed PITI as a negative amount in the Subject Net Cash field in
Section V.
DU Loans Entering
Subject Net
Cash Flow
Subject net cash flow applies to 1-4 unit Investment Properties and 2-4
unit Primary Residences secured by the subject property. DU does not
calculate the subject net cash flow. The Underwriter must calculate and
enter the income in Subject Net Cash in Section V of the online loan
application.
NOTE: Although negative subject net cash flow values appear to reduce
the gross monthly income in Section V, DU actually treats the negative
value as a liability and includes it in the total expense ratio.
Continued on next page
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Conventional Lending Guide
Employment and Income,
LP Loans –
Rental Income
General
Continued
If the Borrower owned a rental property during the previous tax years, the
Borrower's individual federal income tax returns for the most recent two (2)
years 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 for the most recent two (2)
years must be obtained; however, Form 998, Operating Income Statement,
may be used to determine rental income. The underwriter 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.
LP Loans –
Rental Income
from the
Subject
property 2-4
Primary
Residence

Rental income from units 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 rental income from the subject 2 to 4 unit Primary Residence
is being used to qualify the Borrower, the following requirements apply:


Must obtain and use Form 998 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 Schedule E must be used to determine the net rental
income. If Form 998 is used to determine rental income, it must be
completed up to the Monthly Operating Income (MOI) reconciliation.
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

The Form 998 is not required if rental income from the subject property is
not considered in qualifying the Borrower. If the borrower is not using any
rental income from the subject property to qualify, the gross monthly rent
must still be documented for lender reporting purposes.

Monthly Operating Income from the Form 998 or net rental income from
Schedule E is entered under "Gross Monthly Income" in Section V of the
Form 65, Uniform Residential Loan Application, and may be considered as
stable monthly income in qualifying the Borrower, provided the Borrower
meets the reserve requirement.

If Monthly Operating Income or net rental income from Schedule E is a
negative number, it must be included as a liability for qualification
purposes.
Continued on next page
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Conventional Lending Guide
Employment and Income,
LP Loans –
Rental Income
from the
Subject
Property 1-4
Investment
Continued

If the Borrower qualifies with the full PITI plus operating expenses for
the subject Investment Property included in the Borrower's monthly
debt-to-income ratio, no further evaluation or calculation of rental
income from the subject property is required and Form 998 is not
required. If the borrower is not using any rental income from the
subject property to qualify, the gross monthly rent must still be
documented for lender reporting purposes.

If rental income from the subject Investment Property is to be
considered in qualifying the Borrower, the following requirements
apply:






Must obtain and use Form 998 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, must use Schedule E to determine
the net rental income. 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
The Borrower must have reserves that are equal to at least six (6)
months payments of PITI
Proof of six (6) months’ rent loss insurance.
The Borrower must demonstrate at least a two (2) year history of
managing 1-4 unit Investment Properties.

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" section of Form 65 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.
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Conventional Lending Guide
Employment and Income,
LP Loans –
Rental Income
from
Investment
Property
Owned other
than the
Subject
Continued

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" in Section VI of Form 65.

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.

If the Borrower's federal income tax returns reflect a two (2) year
history of managing investment properties, 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 (2) 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.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Rental Income
from
Converted
Property
Continued
Conversion of Current Principal Residence to Investment Property
If the borrower is converting a current principal residence to an
investment property, the underwriter must ensure the borrower has
sufficient equity to support both the current PITIA and the new mortgage
being originated. The percent of equity in the current principal residence
must be documented in accordance with the Equity in the Current
Principal Residence requirements. To confirm leasing of the newly
converted property or unit (for a two- to four-unit property), the
underwriter must obtain a copy of the:
Fully executed lease agreement, Security deposit from the tenant, and
Bank statement showing the deposited security funds.
Equity in the Current Principal Residence: Borrower's equity in the
existing principal residence must be documented with at least a Form
2055 appraisal.
The underwriter must calculate net rental income and qualify the
borrower according to the following requirements:

1-Unit property, if documented equity in the
current principal residence is:
Then:
Greater than or equal to 30%
75% of gross rental income may be used as
income
Less than 30%
No rental income will be allowed.
2-4 Unit property, if
documented equity in
the current principal
residence is:
Then, for the unit
previously occupied by
the borrower:
And, for the remaining units, the
Underwriter may either:
Greater than or equal to
30%
The underwriter may
use 75% of
the gross rental income
from
the newly executed
lease
agreement
less than 30%
No rental income may
be counted
Calculate the net rental income (or
loss) from the pages of the
borrower's most recent 2 years
of signed federal income tax returns
and the related
Schedule E. Leases are permitted
only if the property is not listed on
Schedule E because it was acquired
subsequent to filing the tax return.
If the percentage of equity in the
current principal residence is...
Then:
Greater than or equal to 30%
The borrower must be qualified with the new PITI and
75% of the gross rental income may be credited to
offset the current principal residence’s PITI.
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Conventional Lending Guide
Less than 30%
The borrower must be qualified with the new PITI plus
the full amount of the current principal residence’s
PITI.
Greater than or equal to 30% for
a 2-4 unit residence
The borrower must be qualified with the new PITI plus
PITI on the current principal residence minus 75% of
gross rental income from the newly leased unit, plus, if
applicable, any credit from existing leased units.
Less than 30% for a 2-4 unit
residence
The borrower must be qualified with the new PITI plus
PITI on the current residence minus, if applicable, any
credit from existing leased units only.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Royalty
Payments
Continued

Most recent two year tax returns, including Schedule E.

Document minimum 12 month receipt of income

Income to continue for the next three years
Continued on next page
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100-97
Conventional Lending Guide
Employment and Income,
Seasonal
Income
Continued
The Borrower must have a two year history of receiving income from
seasonal employment in the same line of work. Verification is required
that the borrower will be rehired (in the same or similar position) for the
next season and that employment is likely to continue.
 Seasonal Unemployment Compensation


DU






Unemployment Compensation clearly associated with seasonal
layoffs can be used for qualifying purposes with a two year history
of receipt (verified with two years 1040’s) if likely to continue for
next three years.
Most recent YTD pay stub with at least 30 days of income. Paystub
should be dated no earlier than 30 days prior to the application
date, reflecting year to date income. If the borrower is applying
during an off month, the last paystub received should be obtained.
The most recent 2 years W-2 forms, and
Copies of the borrowers filed federal tax returns signed, with all
schedules, for the most recent two years.
A verbal verification of employment as required within this guide is
required. (Verification is required that the borrower will be
rehired, in the same or similar position, for the next season.)
Evidence of current receipt and amount of unemployment
compensation and evidence that it is associated with seasonal
employment
LP

Written VOE covering two full years and a verbal verification of
employment and proof of receipt of unemployment compensation
for two years (if applicable) or all of the following:
o Most recent YTD pay stub with at least 30 days of income.
Paystub should be dated no earlier than 30 days prior to the
application date, reflecting year to- date income. If the
borrower is applying during an off month, the last paystub
received should be obtained.
o The most recent 2 years W-2 forms, and
o Copies of the borrowers filed federal tax returns signed, with all
schedules, for the most recent two years.
o A verbal verification of employment. (Verification is required
that the borrower will be rehired (in the same or similar
position) for the next season)
o Evidence of current receipt and amount of unemployment
compensation and evidence that it is associated with seasonal
employment
Continued on next page
Conventional Lending Guide
100-98
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Conventional Lending Guide
Employment and Income,
Social Security
Continued
Benefits that have a defined expiration date must have a remaining term
of at least three years to be considered. Acceptable verification for Social
Security benefits includes:
 A copy of the Social Security Administration’s award letter; or

Copies of the borrower’s two most recent bank statements to confirm
regular deposit of the payment; or
Signed tax returns with signed Social Security Benefit Statement
(Form SSA-1099) or W-2’s for the most recent two years.
However, if Social Security benefits are being paid as a benefit for a
family member of the benefit owner, that income may be used in
qualifying if documentation that confirms the remaining term is at least
three years from the date of the mortgage application is obtained.
Document regular receipt of payments, as verified by the following,
depending on the type of benefit and the relationship of the beneficiary
(self or other) as shown in the table below.

NOTE: Loans approved via LP and income is verified with signed federal
income tax returns, the most recent two (2) years must be obtained.
DOCUMENTATION REQUIREMENTS
Type of Social
Security Benefit
Retirement
Disability


Survivor Benefits
N/A
Supplement Security
Income (SSI)


Borrower is drawing Social
Security benefits from own
account/work record
Borrower is drawing Social
Security benefits from another
person’s account/work record
Social Security Administrator’s
(SSA) Award Letter, OR
Proof of current receipt



SSA Award Letter, AND
Proof of current receipt
N/A
SSA Award Letter,
Proof of current receipt, AND
3 year future continuance (i.e.
verification of beneficiary’s
age)
Continued on next page
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Conventional Lending Guide
Employment and Income,
Trust Income
Continued
A copy of the Trust Agreement OR trustee’s statement confirming the
amount, frequency, and duration of the payments should be provided.
The income must continue at least 3 years to be considered for qualifying
purposes.
NOTE: Unless this income is received monthly, documentation of current
receipt of the income is not required to comply with the Age of Credit
Documents policy
Unemployment Benefits
Acceptable if common, customary and properly documented:

Unemployment Compensation clearly associate with seasonal layoffs
can be used for qualifying purposes with a two year history of receipt
(verified with two years 1040’s) if likely to continue for next three
years.
NOTE: Unemployment compensation cannot be used to qualify the
borrower unless it is clearly associated with seasonal employment that is
reported on the borrower’s signed federal income tax returns.

Most recent YTD pay stub with at least 30 days of income. Paystub
should be dated no earlier than 30 days prior to the application date,
reflecting year to date income. If the borrower is applying during an
off month, the last paystub received should be obtained.

The most recent 2 years W-2 forms, and

Copies of the borrowers filed federal tax returns signed, with all
schedules, for the most recent two years.

A verbal verification of employment. (Verification is required that the
borrower will be rehired (in the same or similar position) for the next
season)

Evidence of current receipt and amount of unemployment
compensation and evidence that it is associated with seasonal
employment.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Union
Members
Continued
Verbal Verification of Employment from Union confirming:

Borrower is in good standing with Union

Borrower is employed by same employer issuing pay stub and income
used for qualification. If Union cannot provide confirmation, a Verbal
Verification of Employment with present employer is required

W-2 documentation is required.

Union dues shown as an (unreimbursed) expense on the 2106 do need
to be treated as a reduction to total income.
Due to fluctuations in income, income will be averaged over the past 24
months, unless income has declined and then the most recent 12 months
will be averaged.
Continued on next page
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Conventional Lending Guide
Employment and Income,
VA Benefits

Continued
Must be documented by a letter or distribution form from the
Department of Veterans Affairs
NOTE: Education benefits are not acceptable.
Unacceptable
Sources of
Income
Income derived from any of the following may not be used in qualifying
income.
 Income based on Future Earnings
 Draw Income
 Capital withdrawals
 Income from Mortgage Credit Certificates
 Expense/Auto Reimbursement
 VA Education Benefits
 Income not listed on Tax Returns
 Illegal Income
 Any income that cannot be documented and verified
 Tax returns that have been amended solely for the purposes of
qualifying for the loan
 Derived from gambling
 Lump sum lottery earnings
 Income determined to be temporary or one-time in nature.
 Rental income from the borrower’s primary residence or second
home.
 Retained earnings in a company
 Stock options
 Taxable forms of income that are not declared on personal tax
returns
 Trailing co-borrower income
Continued on next page
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Conventional Lending Guide
Employment and Income,
Continued
Declining
Income
Wage Earner: Averaged over the most recent 12 months.
Commission/Self-Employed: Declining income sources should not be
averaged, and an explanation for the decline should be obtained. The
most recent lower income would be used for qualification purposes.
NOTE: Strong, documented compensating factors must exist when
declining income is present.
Salaried
Borrower
A salaried borrower is defined as a wage earner that derives income
through employment at a business where there is little or no ownership
interest (<25%). Compensation may be based on an hourly, weekly,
monthly or semi-monthly basis.
NOTE: Wage earners employed by a family member, working at a family
business or employed by an interested party to the subject transaction
must provide the last 2 years tax returns with all schedules and most
recent pay stub covering 30 days regardless of DU recommendations.
Salaried
Income
History
Ocwen Loan Servicing, LLC requires salaried borrowers to exhibit the
following employment standards:
 A minimum of two years employment history
 Within 5 business days prior to the note date for all borrowers
using non self-employed income, Ocwen Loan Servicing, LLC will
independently verify borrower is still employed via a Verbal VOE.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Salaried
Documentation
Continued

The pay-stub must be dated no earlier than 30 days prior to the initial
loan application date and no more than 4 months (for DU submitted
files) or 120 days (for LP submitted files) old on the date the note is
signed. The Pay-stub must be computer generated (typed) and
clearly identify the borrower as the employee, the employer’ name
and all necessary information to calculate income, including gross
year-to-date earnings, base salary with pay period specified, and must
clearly specify the employer’s name.

If the borrower receives “handwritten” pay stubs, Ocwen will accept
provided the lender obtains the following:




Written Verification of Employment no more than 4 months (for DU
submitted files) or 120 days (for LP submitted files) old on the
date the note is signed.
Most recent two years of computer generated W-2s
Copies of the borrowers filed individual federal tax returns signed,
with all schedules, for the most recent two years.
IRS W-2 forms must be computer generated (typed) and clearly
identify the Borrower, Borrower’s address, social security number and
Employer’s Name.


The “most recent” W-2 is defined as the W-2 for the calendar year
prior to the current calendar year.
NOTE: W2 transcripts received directly from the IRS can be
accepted in lieu of the W2.
All Information must be complete and legible.
Continued on next page
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100-104
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Conventional Lending Guide
Employment and Income,
Salaried
Documentation
(Cont’d)

Continued
Ocwen will accept income calculations for Base Income as follows:
Frequency
Calculation
Hourly
Multiply the hourly gross pay rate by the
average number of hours worked per week
then multiply by 52 weeks and divide by 12
months.
Weekly
Multiply the weekly gross income by 52
weeks and divide by 12 months.
Every two weeks
Multiply the two weeks gross income by 26
pay periods and divide by 12 months.
Twice per month
Multiply the semi-monthly income by 24
pay periods and divide by 12 months.
Monthly
Use the gross monthly income amount
Borrowers who are paid less than 12
months per year. (i.e. Teachers who work
and paid 10 months out of the year)
The lender needs to document how often
and for how long the borrower is paid and
then determine the gross monthly income.
(i.e. if a borrower is paid 10 months out of
the year, multiply the monthly gross salary
by 10 months and divide by 12.
The above calculations must be compared with the documented year to date base earnings
to determine if the income appears to be consistent.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Salaried
Documentation
(Cont’d)

DU




Continued
a completed Request for Verification of Employment (Form 1005)
and a verbal VOE, or
The most recent paystub and the most recent 1 year W-2s.
A verbal verification of employment.
LP
Streamlined Accept Documentation
 Written VOE covering the most recent 1 year and a verbal VOE, or
all of the following:
 The most recent paystub and the most recent 1 year W-2.
 A verbal verification of employment.
Standard Documentation
 Written VOE covering the most recent 2 years and a verbal VOE,
or all of the following:
 The most recent paystub and the previous 2 years W-2s.
 A verbal verification of employment.
Non W-2
Income
An analysis form must be completed and retained in the permanent loan
file, such as FNMA 1084 Cash Flow Analysis, income calculations on the
1008, etc.
Continued on next page
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100-106
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Conventional Lending Guide
Employment and Income,
Self-Employed
Borrowers
Continued
Self-employed borrowers add an additional layer of risk than salaried
borrowers, since the main source of income for self-employed borrowers
is their business.

Individuals who own at least 25% of a business

Individuals whose combined business interest comprise 25% or more
of the total

Borrower relies on investments for income (such as interests,
dividends, capital gains or real estate).

Contract or 1099 Income
Self-employed borrowers income depends on the continuity of the
business. Therefore, specific documentation relating to the business
(such as P&L statements and federal business returns) is required for
borrowers who are self-employed.
Self-Employed
Income
History
Self-employed borrowers must have a history of stable and durable
income for the previous 2 years. A written income analysis should be
prepared and included in the loan file.



A shorter history of self-employment, 12 to 24 months, may be
considered as long as the borrower’s most recent personal tax
returns reflect at least one full year receipt of such income at the
same or greater level in a similar field as the current business or in
an occupation in which the borrower had similar responsibilities as
those taken in connection with their business.
Under no circumstances will a less than 12 month self-employment
period (with the current/same business) be considered.
Prior to closing, Ocwen will independently verify the existence of
the business via a verbal verification of employment through the
CPA (letters must be dated within 30 days of loan closing),
business license or telephone listing.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Self-Employed
Documentation
Continued
Standard sources of proof of employment for a self-employed borrower are:
IMPORTANT: Personal tax returns are required for all self-employed
borrowers even if the income is not being used to qualify. If either the
borrower or co-borrower is self-employed, in addition to the required wage
earner income documentation, the self-employed income/loss must be
entered into DU; two (2) years personal and business* tax returns are
required for DU and LP loans regardless of findings and must be documented
in the loan file.
When AUS specifically permits the below, the business tax returns may be
waived if ALL of the below are present:

Borrower is paying the down payment and closing costs with their
own funds;
 Borrower has been self-employed in the same business with the
same tax identification number for a minimum of five years;
 Borrower’s individual tax returns show an increase with positive
income in self-employment income over the most recent two years.
Sole Proprietorship

Personal 1040s or Schedule “C”
 If tax filing deadline has passed, must obtain an executed extension.
General and Limited Partnership, Limited Liability Corporations
 Personal 1040s, 1065s, K-1s, All associated schedules
“S” Corporations and all other Corporations

Personal 1040s, 1120s, All associated schedules
NOTE:

Handwritten paystubs will NOT be accepted unless supported by
computer generated W-2’s and/or signed 1040’s and Form 4506-T from
the IRS covering the appropriate period.

Ocwen must verbally verify the existence of the business prior to
closing.

If the most recent year’s tax returns have not yet been filed, an
unaudited P&L is required. The unaudited P&L should be completed by
accountant, tax preparer or the borrower. Documentation of filed
extension or other reasoning for delaying filing will be required.
Continued on next page
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Conventional Lending Guide
Employment and Income,
Self-Employed
Verification of
Employment
Continued
Verification of employment or income must be provided by Mortgage
Broker.
 Within 5 business days prior to the note date for all borrowers
using self-employed income, Ocwen Loan Servicing, LLC will
independently verify employment via a verbal verification of
employment.
NOTE: On-line searches and just using tax returns as proof of
self-employment is not sufficient.
The existence of the borrower’s business must be validated through both:
 A third party, such as a CPA (letters must be dated within 30 days of
loan closing), accountant, regulatory agency, or through business
license verification; And
Verifying the phone number listing and address for the borrower’s
business using a telephone book, the Internet (i.e yellowpages.com,
etc.), or directory assistance
If the contact is made verbally, the lender must document the source of
the information obtained and the name and title of the lender’s employee
who obtained the information.

If the borrower is a sole proprietor and does not use a CPA or accountant
and the file contains validation that no business license is required,
verification of the business and source of income is still required.
Alternative verification includes copies of current contracts, invoices or
business references and all of the following:
 Verbal verification to confirm the validity of any documents received

Independent validation of the phone number for the contract, invoice
or business reference prior to confirmation of the validity of the
documents provided; And

Verification of a phone number listing and address for the borrower’s
business using a telephone book, the Internet (i.e.yellowpages.com,
etc.) or directory assistance, or by contacting the applicable licensing
bureau.
If the borrower is a sole proprietor and does not have a business phone
number listing but uses a personal cell phone or home phone number, call
the phone number to ensure it is in service and answered by the borrower
or in the name of the business. Document the call in the loan file.
NOTE: Internet sites such as 411.com, Chamber of Commerce sites and
Manta.com, where they allow the business owner to add their own
information, are NOT acceptable sources of verification.
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Conventional Lending Guide
Employment and Income,
Continued
NonPurchasing
Spouse
Income
If the non-borrowing spouse is self-employed, business losses reported on
the tax return may not negate the entire annual income of the borrowing
spouse.
Carry Over
Losses
The determination to include or omit a borrower’s carried over net
operation losses will be at the discretion of the underwriter based on the
below findings:
Contracts for
Employment
NOTE: i.e. Ocwen will not consider scenarios if the non-purchasing
spouse’s self-employed business losses negates any positive earnings and
results in a negative adjusted gross income.

Detailed description of the loss and the likelihood that a similar loss
could reoccur.

Date and amount of the initial loss.

Breakdown of amount to be carried over year-to-year and length of
time the carry over will be reflected on future tax returns.
Permitted only if the borrower will be employed prior to the loan closing
and all of the following are met:

Copy of the borrower’s executed offer letter or contract for future
employment.

The borrower must have started employment at the new position as
per the terms of the employee contract.

A paystub must be obtained that includes sufficient information to
support the income used for qualifying the borrower.
NOTE: It is not required for the Contract for employment to be nonrevocable; however, it may not restrict the likelihood for a future 3
year continuous or have a specified contract term for less than 3
years.
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Employment and Income,
Partial Year
income
(i.e. Teacher
Income)
Continued
Certain borrowers, such as teachers, may be paid for only part of the
year. For example, teachers may be paid on a partial year - 9-month,
10-month, or 12-month basis (and should not be confused with seasonal
workers). In such cases, a current year-to-date pay stub dated within 30
days of application may not be available. If the borrower is on a pay
schedule of less than 12 months and applying during an off month, a copy
of the borrower’s valid non-expired employment contract with the school
district may be used in lieu of a current pay stub. However, every effort
should be made to obtain a copy of the most recent pay stub.
To determine a partial year paid teachers (or any partial year paid
borrowers) qualifying income, multiply the monthly salary by the number
of months the borrower is paid and divided by 12.
Required Documentation:





Documentation
Requirements
A completed request for Verification of Employment (Form 1005)
and a verbal verification of employment, or
Most recent YTD pay stub with at least 30 days of income. Paystub
should be dated no earlier than 30 days prior to the application
date, reflecting year to- date income. If the borrower is applying
during an off month, the last paystub received should be obtained;
and
Copy of current, unexpired employment contract with the School
District (if applying during an off month); and
Number of years of the most recent W-2s based on the AUS
requirement; and
A verbal verification of employment.
Income from the initial 1003 must be entered into DU/LP as provided.
Income as provided on the initial 1003 must be reasonable and accurate.
IMPORTANT: Ocwen requires the applicant’s information to be entered
into DU/LP exactly as provided on the initial 1003. Blank income and
employment information on the initial 1003 is NOT permitted; however,
assets only need to be completed on the initial 1003 as deemed necessary
to receive a DU Approve/Eligible or LP Accept.
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Assets and Liquidity
Overview
Liquidity or cash reserves describe cash or the ability to convert assets to
cash in a short time. Net worth without liquidity is not enough. A
borrower’s balance sheet should reflect and validate the estimates
concerning his or her prior and current income stream. Higher incomes
should translate into liquidity found on the borrower’s balance sheet.
Eligible Assets
The following types of accounts may be considered eligible liquid assets:
 Stocks/Bonds

Bridge Loan

Certificate of Deposit, reduced by any applicable forfeiture fees.

Checking Account

Gift

Gift of Equity

Money Market Fund

Mutual Fund

Pooled Funds (with relatives, etc.) / Personal Gift

Rent Credit with Option to Purchase

Retirement Fund

Savings Account

Trust Funds
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Assets and Liquidity,
Ineligible
Assets
Continued

Cash on hand

Sweat Equity, Trade Equity or Equity Swapping

Pooled “Community” Funds (within a community in which “family”
relationships are not required)

Stock options (as Reserves)

Realtor’s Commission received from subject property financial
transaction.

Credit card financing or advancements

Unsecured borrowed funds

Signature loans

Custodial Accounts for Children or Others

Salary / bonus advances received against future earnings
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Conventional Lending Guide
Assets and Liquidity,
Earnest Money
Continued

The deposit on the sales contract (earnest money) for the purchase
of the security property is an acceptable source of funds for both the
down payment and the closing costs.

If the deposit is being used as part of the borrower’s minimum
contribution requirement, it must be verified that the funds are from
an acceptable source

Bank statements must evidence that the average balance for the past
two months was large enough to support the amount of the deposit. If
a copy of the cancelled deposit check is used to document the source
of funds, the bank statements must cover the period up to (and
including) the date the check cleared the bank account.

If it cannot be determined that these funds were withdrawn from the
borrower’s account, additional verification of the source and evidence
that the funds have actually changed hands from the borrower to the
seller, the realtor, the escrow agent, or the settlement attorney should
be provided.

Receipt of the deposit must be verified by either a copy of the
borrower’s canceled check or a written statement from the holder of
the deposit.
NOTE: Large earnest money deposits and deposits that exceed the
amount customary for the area should be closely evaluated.
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Assets and Liquidity,
Reserves
Continued
Cash Proceeds Received from the Subject Property Transaction

Cash proceeds from the subject property first and outside second lien
transactions are not permitted for reserves.
For additional Reserve requirement when the Borrower(s) current primary
residence is pending sale or intended to be sold, refer to Real Estate Debt
within the Ratio section of this guideline.
NOTE:
 When a single borrower closes multiple, concurrent transactions
through Ocwen, reserve requirements must be met for each
individual loan. Concurrent transactions reserve requirements are
applicable to Agency products only. Concurrent is defined as
closing within 180 calendar days of each other.
o
o
For example, three investment properties for the same
borrower closing concurrently will require 18 months of
reserves (i.e. 6 months reserves for each investment
property).
Acceptable DU/LP scenarios may follow the reserve
requirements recommended within the findings.
IMPORTANT: All Assets as listed on the initial and final 1003 must be
entered into the DU/LP system as provided and must be verified. Blank
income and employment information on the initial 1003 is NOT permitted;
however, assets only need to be completed on the initial 1003 as deemed
necessary to receive a DU/LP Approve/Eligible.
Continued on next page
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Assets and Liquidity,
Continued
Reserves
(Cont’d)
Reserve
Requirements
Primary Residence
As permitted by the DU/LP findings (subject to MI Partner’s guidelines)
NOTE: 6 months reserves required for 2-4 Unit Primary Residence.
Second Home
As permitted by the DU/LP findings (subject to MI Partner’s guidelines)

Investment
See Multiple Financed Properties and the subject property is a Second
Home or Investment below.
As permitted by the DU/LP findings (subject to MI Partner’s guidelines)

See Multiple Financed Properties and the subject property is a Second
Home or Investment below.

If the borrower’s current primary residence is converted to a second
home or investment property and the 30% equity cannot be
documented, 6 months of PITI for both the retained and subject
property is required to be in reserves in addition to DU/LP
recommendations.

If the borrower’s current primary residence is converted to a second
home or investment property and the 30% equity can be documented,
2 months of PITI for both the retained and subject property is required
to be in reserves regardless of DU/LP recommendations.
Multiple Financed
Properties and the
subject property is
a Second Home or
Investment

If the total number of financed properties is 1 to 4, then 2 months for
each second home or investment property is required (in addition to
those required by DU/LP)

If the total number of financed properties is 5 to 10*, then 6 months for
each second home or investment property is required (in addition to
those required by DU)
Florida Condos,
Second Homes

FL + Condo+ Second Home: 3 months PITI required regardless of DU/LP
findings.
Converted,
Departing Property


IMPORTANT: When a single borrower closes multiple, concurrent transactions through Ocwen,
reserve requirements must be met for each individual loan. Concurrent transaction reserve
requirements are applicable to Agency products only. Concurrent is defined as closing within
180 calendar days of each other.
5 to 10 financed properties are only eligible when the file is run via Fannie Mae’s DU.
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Assets and Liquidity,
Joint Assets
Continued
When a borrower has a joint account with another individual who is NOT a
borrower on the transaction, the following must be documented:

Relationship between borrower and individual on the account AND

Confirmation that the borrower has full access to all funds in the
account
Continued on next page
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Conventional Lending Guide
Assets and Liquidity,
Verification
of Deposits
Continued
To substantiate that a borrower has sufficient cash deposits and other
assets available to complete the mortgage transaction and retain
adequate reserves after closing; loan file must verify the amount in the
borrower's depository accounts (checking accounts, savings accounts,
CDs, money markets and retirement accounts). When there is a
recently opened account, a recently received large deposit, or an
account balance considerably greater than the average balance the
source of funds must be documented. The loan file must also verify the
value of the borrower's other financial investments (stocks, bonds,
mutual funds, etc.) as of the date of the loan application.

Verification Requirements:





If a Request for Verification of Deposit (VOD) is used to verify activity in
the borrower's depository accounts:




Desktop Underwriter Loans - a copy of the Borrower’s bank statement
covering the most recent two month period,
Loan Prospector Loans - a copy of the Borrower’s bank statement covering
the most recent one or two month period base on the LP Findings. Or,
a Written Verification of Deposit (for both DU and LP Loans), or
Third Party Verification of Depository Accounts
If the account was opened within 90 days of verification or account
balances that are considerably greater than the average balance reflected
on the VOD, refer to the Large Deposit section below for additional
requirements.
The Verification of Deposit must be requested directly from the depository
institution, and the complete, signed, and dated document must be sent
directly from the depository institution.
Hand-carried VODs are not permitted.
Ocwen will accept Third-Party Verification of Depository Accounts:

Direct verification by a third-party asset verification vendor is acceptable
provided:
o The borrower provide proper authorization for the lender to use the
verification method,
o The verified information provided must conform with the information
that would be provided on Fannie Mae Form 1006 (VOD) and Freddie
Mac Verification of Deposit (VOD) or on bank statements
o The date of the complete verification is in compliance with the age of
document requirements

The client is responsible for ensuring the accuracy and integrity of the
information provided by the third-party vendor.
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Assets and Liquidity,
Verification of
Deposit
(Cont’d)
Continued
Bank Statements
 Instead of sending a Request for Verification of Deposit to each of the
borrower's depositories or account holders, verify available funds for
closing by obtaining from the borrower a copy of the applicable bank
or investment portfolio statements that cover the timeframe noted
above (or, if account information is reported on a quarterly basis, for
the most recent quarter).
 If the latest bank statement is more than 45 days earlier than the
date of the loan application, a more recent supplemental bankgenerated form that shows the account number, balance and date is
required.

The statements may be computer-generated forms (e.g. on-line
account or portfolio statements) downloaded through the Internet.
Note that it is not acceptable to download statement information (cut
and paste) into a Word or Excel type document.

“FAXED” or documents downloaded from the Internet must clearly
identify the name of the depository or investment institution and the
source of the information (e.g. the information is contained in the
banner that is at the top of the document).

Bank or investment portfolio statements must clearly identify the
borrower as the account holder and include:




The account number;
The time period covered by the statement;
All deposits and withdrawal transactions (for a depository account)
or all purchase and sale transactions (for a financial portfolio
account); and
The ending account balance.
Retirement Accounts

Retirement account statements must identify the borrower's vested
amount and the terms and conditions for loans or the withdrawal of
funds.

Calculate at 60% of the vested amount to account for any applicable
withdrawal penalties or income tax less any outstanding loans secured
by the account.
NOTE: When retirement accounts only allow for withdrawal in connection
with the Borrower’s employment termination, retirement, or death, the
vested funds cannot be considered as reserves.
Continued on next page
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Assets and Liquidity,
Gifts
Continued
Borrowers may use funds received as a personal gift for loans secured by
a principal residence or a second home. Gift funds are not permitted on
investment properties. A gift must be from an acceptable donor.

Gift Donor:


An acceptable donor is a relative, which is defined as borrower’s spouse,
child or other dependent, or by any other individual who is related to the
borrower by blood, marriage, adoption or legal guardianship; or a fiancé,
fiancée or domestic partner. Donor may not be someone who is, or has
any affiliation, with interested parties to the transaction, such as the
builder, developer, or real estate agent.
Minimum Borrower Contributions:

For DU Submitted loans
o
o
o
o

Primary & Second Homes, all units: If the entire down payment is
a gift and the LTV/CLTV is 80% or less, there is no minimum down
payment requirement.
Primary Residence, 1 Unit (Except for High Balance Mortgage
Loans): If the LTV/CLTV is greater than 80%, a minimum
borrower contribution from the borrower’s own funds is not
required. All funds needed to complete the transaction may come
from a gift. Refer to your MI Partner for any applicable overlays.
Primary Residence, 2-4 Units & Second Homes, and All High
Balance Mortgage Loans: If the LVT/CLTV is greater than 80%, a
minimum 5% borrower contribution from their own funds is
required.
NOTE: If the borrower receives a gift from a relative or domestic
partner who has lived with the borrower for the last 12 months, or
from a fiancé or fiancée, the gift is considered the borrower’s own
funds and may be used to satisfy the minimum borrower
contribution requirement as long as both individuals will use the
home being purchased as their principal residence.
After the minimum 5% borrower contribution has been met, gifts
may be used to supplement the down payment, closing costs, and
reserves. Refer to your MI Partner for any applicable overlays.
For LP Submitted Loans:
o Primary & Second Homes, all units: If the LTV/CLTV is greater
than 80%, a minimum 5% borrower contribution from their
own funds is required. After the minimum 5% borrower
contribution has been met, gifts may be used to supplement
the down payment, closing costs, and reserves. Refer to your
MI Partner for any applicable overlays.
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Assets and Liquidity,
Gift
Documentation

It is required that the file contains an acceptable Gift Letter with the
following information:







Donor’s name and relationship to Borrower
Donor’s mailing address and telephone number
Identify the transaction (property address, borrower’s name)
State the amount of the gift
Specifically state that the funds are a gift and it does not need to
be repaid
Letter must be signed by the Donor
For DU Loans, 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:



Continued
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. Examples include but are not limited to a copy
of a driver’s license, a bill, or a bank statement.
Evidence of Receipt:

Ocwen must verify 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 check and the borrower’s deposit slip
o A copy of the donor’s withdrawal slip and the borrower’s
deposit slip
o A copy of the donor’s check to the closing agent, or
o A settlement statement showing receipt of the donor’s check
NOTE: When the funds are not transferred prior to settlement, the lender
must 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.
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Assets and Liquidity,
Gift of Equity
Continued

A gift of equity refers to a gift provided by the seller of a property to
the buyer.

The gift represents a portion of the seller’s equity in the property, and
is transferred to the buyer as a credit in the transaction.

A gift of equity is permitted for principal residence and second home
purchase transactions.

The acceptable donor and minimum borrower contribution
requirements in the “Gift Funds” section above also apply to gifts of
equity.

A signed gift letter and the HUD-1 Settlement Statement listing the
gift of equity is required.
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Assets and Liquidity,
Gifts from
Weddings
Continued
Cash received as wedding gifts is not usually an acceptable source of
funds because it comes in small, varied sums and is difficult to document
the source. However, funds may be used provided the borrower can
provide proper documentation. (Wedding gifts cannot satisfy the
minimum 5% down payment from the borrower's own funds.)
The following documentation must be obtained to verify funds:

A copy of a marriage license;

Deposit slip showing the deposit of the gift funds; and

An itemized list of the amount received along with the name of the
donor and a signed statement from the borrower indicating the funds
were a wedding gift and repayment is not required.

Large financial gifts from close family members can be considered if
properly documented. Substantial cash wedding gifts ($1000 or more)
from one individual must comply with standard gift documentation.
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Assets and Liquidity,
Sources of
Funds for
Closing
Continued
Generally, the borrower must have enough assets to cover the minimum
required down payment that must come from his or her funds. However,
funds received from other acceptable sources can be used to accompany
the minimum down payment from the borrower’s funds to pay the
borrower’s share of the closing costs and prepaid items and to satisfy the
reserve requirement.
Acceptable sources of down payment:

Gift (or Grant)

Rent Credit – lease-purchase funds

Funds held in a checking or savings account

Stocks


A photocopy of the stock certificate, accompanied by a current
dated newspaper stock list.
Government Bonds

The value of government bonds should be based on their purchase
price unless the redemption value can be documented.

Mutual Funds

Trust Accounts


Funds disbursed from a borrower’s trust account are an acceptable
source of the down payment and reserve requirement if the
borrower has immediate access to them. Confirmation from the
trust manager or trustee is to verify the value of the trust account
and prove the conditions under which the borrower has access to
funds.
Retirement Accounts (IRA/Keogh Accounts, 401Ks) as discussed under
the Assets and Liquidity/Verification of Deposit section.
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Assets and Liquidity,
Deposit on
Sales Contract
The deposit on the sales contract is an acceptable source for down
payment and/or closing costs. When the deposit is used to make any
portion of the borrower’s down payment it must come from his/her own
funds.

The source must be verified:

Depository
Accounts
Continued
Bank statements for most recent two months (If check has cleared
account, the statement should cover the period up to and including
the date the check cleared).
Checking and Savings Accounts

Verification Requirements:


Desktop Underwriter Loans - a copy of the Borrower’s bank
statement covering the most recent two month period,
Loan Prospector Loans - a copy of the Borrower’s bank statement
covering the most recent one or two month period base on the LP
Findings.
Certificate of Deposit

When CDs are used for assets/reserve, the above provided
documentation (from Checking and Savings Accounts) must also
include:


Donations
from Entities
Maturity date
Disclosure of any associated penalties for liquidating prior to
maturity date.
An owner-occupant borrower can use funds donated by a church,
municipality, non-profit organization (excluding a credit union), or public
agency as a gift (or grant) to pay part of the closing costs or supplement
his or her financial reserves.
NOTE:
Cannot be used toward down payment requirements.
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Assets and Liquidity,
Disaster Relief
Grant or Loan
Borrowed
Funds Secured
by an Asset
Continued

Borrower may use a lump-sum disaster relief grant or loan to satisfy
down payment requirement

Borrower does not have to make a minimum cash down payment for
his/her own funds for grant or loan to be used

May be used as a source of funds for down payment and closing costs;
not permitted for cash/financial reserves.

Document terms of the secured loan

Calculate monthly payments and consider in debt ratio

Must be from an arms length individual (i.e. may not be from a source
affiliated with the loan transaction).

Funds from a loan secured by personal or real property owned by the
borrower (other than the subject property) may be used as a source
of the down payment. The debt must be included as a liability on the
application.
NOTE: Payments for loans secured by the borrower's personal
financial assets (such as life insurance policies, 401(k) accounts, CDs,
stocks, bonds, etc.), do not have to be included in the debt ratio
calculations if the loan instrument shows the asset as collateral for the
loan. The borrower may not use the same asset to satisfy cash
reserve requirements. However, they may use the portion of the asset
remaining after the value of the asset plus any related fees have been
reduced by the amount of the secured loan.
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Assets and Liquidity,
Cash Value of
Life Insurance

Continued
Net proceeds from a loan against the cash value or surrender of a life
insurance policy are acceptable source of funds for down payment,
closing costs and reserves. Required documentation includes:




Computer generated or typed letter from the insurance company
Identify the insurance company and the policy holder
Show the period covered and ending cash value
Show any outstanding loans

The Underwriter must assess repayment or additional obligation
considerations to determine the impact on borrower qualification or
reserves.

If penalties for failure to repay the loan are limited to the surrender of
the policy, payments on a loan secured by the cash value of a
borrower’s life insurance policy do not have to be considered in the
total debt-to-income ratio.

If additional obligations are indicated, the obligation amount must be
factored into the total debt- to income ratio, or subtracted from the
borrower’s financial reserves.

If the funds are needed for the down payment or closing costs,
lenders must document the borrower’s receipt of the funds from the
insurance company by obtaining either a copy of the check from the
insurer or a copy of the payout statement issued by the insurer. If the
cash-value of the life insurance is being used for reserves, the cashvalue must be documented but does not need to be liquidated and
received by the borrower.
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Assets and Liquidity,
Trade Equity

DU Loans

Trade equity is an acceptable source of funds to supplement the
borrower’s minimum borrower contribution provided the following
requirements are met:
o
o
The seller’s equity contribution for the traded property must be a truevalue consideration supported by a current appraisal.
The borrower must make the minimum required contribution from his
or her own funds unless:
 The LTV or CLTV ratio is less than or equal to 80%; or
 The borrower is purchasing a one-unit principal residence and
meets the requirements to use gifts, donated grant funds, or
funds received from an employer to pay for some or all of the
borrower's minimum contribution.

These requirements apply to all transactions that involve property
trades, including those that are evidenced by two separate
contracts that have the buyer and the seller on one contract
reversing roles on the second contract.

Calculating the Equity Contribution
o

The equity contribution is determined by subtracting the outstanding
mortgage balance of the property being traded, plus any transfer
costs, from the lesser of either the property’s appraised value or the
trade-in value agreed to by both parties.
Documentation Requirements
o
o

Continued
For real property, the transfer deed must be recorded.
In addition, lenders must obtain the following:
 A search of the land records to verify the ownership of the
property and to determine whether there are any existing liens on
the property.
 Proof of title transfer and satisfaction of any existing mortgage
liens for which the borrower was liable.
LP Loans

The net proceeds of the trade-in of the Borrower's previously
owned residence, documented by an appraisal of the Borrower's
previously owned residence and a copy of the trade-in contract.
The Borrower's equity in the previously owned residence is
determined by subtracting any outstanding liens on the previously
owned residence, plus any transfer costs, from the lesser of the
appraised value of the previously owned residence or its trade-in
price as shown in the trade-in contract
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Conventional Lending Guide
Assets and Liquidity,
Loan
Repayment
Proceeds

In order to be considered eligible as a cash asset, funds received by
the borrower from the repayment of a personal loan extended,
requires the following:



Rent Credit
for Options to
Purchase

Continued
A copy of the written agreement between the borrower and the
recipient of the loan.
Verification that the borrower had the ability to lend the funds
(cancelled check or bank statement showing withdrawal of funds).
Verification that repayment was made (evidence of funds
withdrawn from the recipient’s account) and proceeds deposited
into the borrower’s account prior to scheduling the closed.
The property seller may give the purchaser/borrower credit toward the
down payment for a portion of previous rent payments the purchaser
made under a documented rental purchase agreement that had a
minimum original term of at least 12 months – in an amount up to the
difference between the market rent and the actual rent that was paid.
(The property appraiser must determine “market” rent.) The
purchaser does not have to make a minimum cash down payment
from his or her own funds in order for the rental payments to be
credited toward the down payment.




A copy of the rental/purchase agreement, verifying monthly rent
and the specific terms of the lease is required:
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 most
recent 12 months are required to document rent payments.
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Conventional Lending Guide
Assets and Liquidity,
Real Estate
Proceeds

Continued
In order to use proceeds from the sale of a currently owned otherreal-estate property for closing-fund requirements and post-closing
liquidity/cash reserve ratio calculations, use the following guidelines:


The closing of the other real estate transaction must take place
prior to or simultaneous with the subject closing; and
The net proceeds to the borrower must be verified via
o HUD-1 statement
o Closing statement
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Assets and Liquidity,
Bridge Loan
Continued
Bridge (or swing) loans are a form of second trust that is collateralized by
the borrower’s present home, which is usually for sale. By using funds
from a bridge loan, the borrower can close on a new house before selling
his/her existing house.
This type of financing is acceptable if:
 The purchaser has the ability to carry the payment on:




The
The
The
The
new home
payment on the other obligations
payment on the current home
payment on the bridge loan

Verification of the terms of the loan must be included in the credit
package, including a copy of the executed note.

The bridge loan must be included as a liability on the application.

If the bridge loan calls for payments of principal and/or interest, the
payment must be included in the long-term debt calculation.

If the repayment schedule for the bridge loan is not monthly, it must
be converted to a monthly amount for qualifying purposes based on
the contractual interest rate. If a rate is not available, then use the
30-year, fixed market rate.

The bridge loan cannot be cross-collateralized.

May not be used for reserve requirements.
Exclusion of a debt for the present home and for a bridge loan is allowed if:
 Copy of the executed sales contract for the present home.

Copy of the lender’s commitment to the buyer of the present
residence (if the contract contains a financing contingency).

Evidence of 6 months reserves covering the PITI of the previous
residence in addition to the first mortgage reserve requirements.
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Conventional Lending Guide
Assets and Liquidity,
Trust Account
Funds
Sale of Stocks
or Bonds
Continued
In order to use trust account funds for closing funds and post-closing
liquidity/cash reserve ratio calculations, the following is required:
 Borrower must have access to the trust account funds and be
identified as the beneficiary

Identify the trustee

Trustee must verify the amount that the borrower can withdraw
The existence and value of the stock or bonds must be verified. The value
of stocks may be verified with a current statement from the stockbroker.
A copy of the stock certificate and dated newspaper stock price list must
verify the value and existence of stock not held by a financial institution.
NOTE:
 Verification of sale is required only if the specific funds are needed
for closing.
 Reserves to be calculated at 70% of the current market value
unless the redeemable value can be determined and verified.
Stock Options
To use stock options (the right to purchase stock at a set price, the “strike
price”) as closing funds:
 Options should be exercised and only the net proceeds should be used

Verification of deposit

Proof of options per brokerage statements
NOTE: Not eligible for reserves or to for use as an income stream.
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Assets and Liquidity,
Sale of Other
Assets
Continued
If funds are derived from the sale of assets other than real estate, they
must be verified by the following documentation:

Proof of ownership

Support for the value of the asset (appraisal)

Evidence of the transfer of ownership (e.g., a copy of the bill of sale)

Bill of sale must reflect the date of sale, asset to be sold, sales
price and the buyer’s and seller’s signatures if the proceeds are to
be used toward down payment, closing costs and/or reserves.

Evidence of receipt of the purchase proceeds (e.g., deposit slip or
bank statement)

Evidence that a party to the property sale or the mortgage financing
transaction did not purchase the asset
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Conventional Lending Guide
Assets and Liquidity,
Employer
Assistance
Programs

Continued
An owner-occupant Borrower can use funds provided by his or her employer
to pay part of the closing costs, however, the Borrower must use his or her
own funds to meet the minimum required down payment and any necessary
reserve requirement. Assistance from the Borrower's employer must come
directly from the employer.
NOTE: It cannot be provided by a company-affiliated credit union.




The employer's financial assistance for either closing costs or the down
payment may be in the form of a grant, a direct, fully repayable second
mortgage or unsecured Loan, a forgivable second mortgage or unsecured
Loan, a deferred payment second mortgage or unsecured Loan or
mortgage payment assistance. When the assistance is a secured second
mortgage, the transaction must satisfy standard Secondary Financing
guidelines.
The program must be an established company program, not just an
accommodation developed for an individual employee. There must be
documentation that describes the terms of any Loan agreement and other
employee assistance being offered to the Borrower (such as relocation
benefits), including the employer's written verification of the dollar
amount of the assistance. When the assistance is funded before
settlement, there must be confirmation of receipt of the funds.
If the employer financing does not require regular payments of either
principal and interest or interest only, the lender does not need to
calculate an equivalent payment for consideration as part of the
borrower's monthly debt. If payments are deferred until 5 years after the
first mortgage note date, or repayment is only due upon sale or default
the amount of the payment may be excluded from the debt ratio
calculations; otherwise it must be included. If regular payments are
required, the payments must be included in the debt ratios.
If the borrower is responsible for repayment, the terms of the subordinate
financing must permit the Borrower to continue making payments on the
loan if the borrower no longer works for the employer. The subordinate
financing may not require full repayment unless the borrower terminates
his/her employment or the employer terminates the borrower's
employment for any reason except disability, the elimination of the
position or reduction in work force before the maturity date of the
subordinate financing.
Required Documentation




Copy of the established and ongoing employer benefit program reflecting
the amount of the benefit and the terms.
Evidence that the employer is not an interested party and that the funds
were not obtained from an interested party, directly or through a third
party.
Benefit program agreement from the employer showing the amount of the
benefit and the terms.
Proof of receipt of the benefit.
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Assets and Liquidity,
Third Party
Contributions
Continued
Certain parties (seller, builder, Realtor, etc.) may choose to pay a portion
of the closing costs (which are normally paid by the borrower) on the
borrower’s behalf.
Any portion of the fees and services or any other items related to the
transaction that are not paid by the borrowers are considered
contributions. Because excessive contributions can negatively impact the
transaction, the below maximum contributions are enforced based on the
LTV/CLTV. These fees and services may include but are not limited to
(follow FNMA guidelines):
Appraisal and Survey fees
Attorney fees
Buy downs
Commitment fees
Discount fees
Origination fees
Pre-paid settlement costs
Real Estate Tax Service
Recording fees
Stamps
Lender Policy (Title Insurance)
Transfer fees
Once the contribution limits are exceeded, the amount that exceeds the
limits must be deducted from the sales price, and the loan amount and
LTV must be adjusted accordingly.
Unless otherwise noted in a specific product summary, the
maximum allowable contributions from interested parties, which depend
on the loan-to-value ratio (or combined loan-to-value ratio, if subordinate
financing is involved) and the occupancy type, are limited to:
Third Party Contributions
Occupancy
LTV/CLTV Range
Maximum Contribution
Primary Residence
Second Home
>90.00
3%
75.01 – 90.00
6%
≤75.00
9%
All
2%
Investment Property
NOTE: A downward adjustment to the sales price of the property to reflect the amount of any
contributions that exceed our limitations is required. In addition, the cost/value of any
contributions that are in the form of personal property (such as furniture, decorator items,
automobiles, club memberships or other “giveaways”) always must be deducted from the sales
price of the property. The maximum loan-to-value ratio (or combined loan-to-value ratio) must
then be calculated based on the lesser of the reduced sales price or the appraised value.

Independent, disinterested third party required to provide value estimates of applicable
personal property.
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Conventional Lending Guide
Assets and Liquidity,
Third Party
Contributions
(Cont’d)
Continued
IMPORTANT:

Properties within declining markets and/or subject to mortgage
insurance may be subject to MI Partner’s additional overlays.

Contributions may only be applied to closing costs and pre-paids. If the
contribution exceeds actual cost, the remainder may not be applied to the
principal balance (including unpaid principal balance).

Reimbursement to the borrower for payment of short sale negotiation or
processing fees (also known as short sale facilitation fees, buyer discount fees
or short sale buyer fees) must be considered and treated as a sales
concession.
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Conventional Lending Guide
Assets and Liquidity,
Payment
Abatements

Not Permitted.
NOTE:


Undisclosed
Seller
Contributions
Continued
Defined as an incentive provided to the borrower by an interested
party, in which the interested party provides funds to pay (or
reimburse) a certain number of monthly payments on the
borrower’s behalf. The monthly payments may cover, in whole or
in part, principal, interest, taxes and insurance (PITI) as well as
the payment of condominium or PUD fees. Payment abatements
are ineligible, regardless of whether they are disclosed on the
HUD-1.
The payment of up to 12 months of HOA fees are not considered
an abatement, but HOA fees in excess of 12 months are
considered an abatement.
Undisclosed contributions tend to reduce the effective sales price of a
property; therefore, they may compromise the LTV ratio for a mortgage
and are not permitted.
NOTE: Ocwen Loan Servicing, LLC will provide a thorough review of all
HUD-1 uniform settlement statements to detect undisclosed contributions.
Allowable
Uses of
Interested
Party
Contributions
Interested Parties, including third parties and non-profit organizations,
may not contribute or supplement the borrower’s down payment,
minimum contribution requirements or reserve requirements.
Appraisal
Review with
an Interested
Party
Contributions
Appraisers must be notified and comment on the effects of any
transaction in which a financing and/or sales concessions by an interested
party is in existence.
NOTE: Positive adjustments for sales or financing concessions are not
acceptable.
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Conventional Lending Guide
Assets and Liquidity,
Document
Reconciliation
Involving
Interested
Party
Contributions

Ocwen Loan Servicing, LLC will closely review all loan documents and
sales contracts when an Interest Party Contribution (IPC) is involved
with the transaction; subject, but not limited, to the following
concerns:




Continued
IPC must be detailed on the sales contract.
Appraiser must be notified and comment on applicable IPCs.
HUD-1 must reflect final fees and costs, and may not differ
substantially from the sales contract, GFE and 1003 Application.
If the above documents reveal inconsistencies in fees, the differences
should be closely reviewed and explanations documented; subject, but
not limited, to the following concerns:










Interested Party Contributions greater than permitted and/or
greater than specified on the sales contract.
Unacceptable cash back on a purchase transaction.
References to sales contract addendums that have not been made
available.
Appraiser makes no reference to IPCs.
Payment of Condominium or PUD fees paid by an interested party.
Undisclosed contributions or subordinate financing.
Excessive marketing and/or commission fees.
Commission fees that are not percentage based from the sales
price.
Guaranteed rental income.
Below market interest rates when no buydown subsidy is reflected
on the HUD-1.
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Conventional Lending Guide
Assets and Liquidity,
Borrower Paid
Seller Closing
Cost
If the borrowers are paying any portion of the lien or typical seller closing
costs, the following applies:






Retirement
Continued
Transaction must be the result of a short sale, deed-in-lieu type
transaction.
Borrower’s funds must be verified to cover the additional costs, which
must also be included in DU calculations.
Current servicer must acknowledge and accept that additional
payments are being covered by the purchaser (our borrower).
Sales contract must clearly specify and identify this agreement.
HUD-1 must include all fees and payments as outlined and agreed.
Transaction may not be a Non-arm’s length transaction.
Retirement accounts (IRAs, Keogh accounts, 401(k) accounts, etc.) are
subject to withdrawal penalties and tax surcharges if withdrawn prior to
normal distributions.
Because of these restrictions, the following guidelines apply to the use of
retirement accounts for closing-fund requirements:
 Unless specified by an automated underwriting system, 60% of IRAs,
Keogh Accounts, 401(k) Accounts, and the cash value of annuities can
be used to determine funds available for withdrawal, less any loans.

Borrower must provide evidence of the receipt of sufficient funds for
closing.

Documenting the asset may be done in accordance with DU/LP
recommendations.
NOTE: When retirement accounts only allow for withdrawal in
connection with the Borrower’s employment termination, retirement or
death, the vested funds should not be considered as reserves.
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Conventional Lending Guide
Assets and Liquidity,
Large Deposit

When bank statements are used to verify assets, the lender must
evaluate large deposits, which are defined as a single deposit that
exceeds 50% of the total monthly qualifying income for the loan.
Requirements for evaluating large deposits vary based on the
transaction type, as shown in the table below.
Transaction
Type
Refinance
transactions
Purchase
transactions
Continued
Evaluation Requirements

Documentation or explanation for large deposits is not required; however, the lender remains
responsible for ensuring that any borrowed funds, including any related liability, are
considered.

If funds from a large deposit are needed to complete the purchase transaction (that is, are
used for the down payment, closing costs, or financial reserves), the lender must document
that those funds are from an acceptable source. Occasionally, a borrower may not have all of
the documentation required to confirm the source of a deposit. In those instances, the lender
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 lender must
place in the loan file written documentation of the rationale for using the funds.

Verified funds must be reduced by the amount (or portion) of the undocumented large
deposit (as defined above), and the lender must confirm that the remaining funds are
sufficient for the down payment, closing costs, and financial reserves. When the lender uses a
reduced asset amount, net of the unsourced amount of a large deposit, that reduced amount
must be used for underwriting purposes
NOTE: When a deposit has both sourced and unsourced portions, only the unsourced portion
must be used to calculate whether or not it must be considered a large deposit.
Examples


Scenario 1: Borrower has monthly income of $4,000 and an account at ABC Bank with a
balance of $20,000. A deposit of $3,000 is identified, but $2,500 of that deposit is
documented as coming from the borrower's federal income tax refund.
Only the unsourced $500 [the deposit of $3,000 minus the documented $2,500] must be
considered in calculating whether it meets the large deposit definition.
The unsourced $500 is 12.5% of the borrower’s $4,000 monthly income, falling short of
the 50% definition of a large deposit.
Therefore, it is not considered a large deposit and the entire $20,000 balance in the ABC
Bank account can be used for underwriting purposes.
Scenario 2: Using the same borrower example, a deposit of $3,000 is identified, but
only $500 is documented as coming from the borrower’s federal income tax refund,
leaving $2,500 unsourced.
In this instance, the unsourced $2,500 is 63% of the borrower’s $4,000 monthly income,
which does meet the definition of a large deposit.
Therefore, the unsourced $2,500 must be subtracted from the account balance of
$20,000 and only the remaining $17,500 may be used for underwriting purposes.
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Assets and Liquidity,
Large
Deposit
(Cont’d)
Continued
NOTE: If the source of a large deposit is readily identifiable on the
account statement(s), such as a direct deposit from an employer
(payroll), the Social Security Administration, or IRS or state income tax
refund, or a transfer of funds between verified accounts, and the source
of the deposit is printed on the statement, the lender does not need to
obtain further explanation or documentation. 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 to validate the funds have not been
borrowed.

When a Verification of Deposit (VOD) is used and depository activity is
not included, the lender must verify the source of funds for:


Accounts opened within the last 90 days of the application date,
and
Account balances that are considerably greater than the average
balance reflected on the VOD.
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Conventional Lending Guide
Assets and Liquidity,
1031
Exchange
Continued

Definition: Proceeds from the sale of the borrower’s previously sold
property (relinquished property) is transferred to an intermediary and
held by the intermediary until the borrower finds a replacement
property (i.e., the subject property).

Subject property must be an investment property. Primary residences
and second homes are not eligible.

The relinquished property sale must close before or simultaneously
with the replacement (subject) property acquired.

Statement of borrower’s equity is calculated as the lower of:




Sales price from the sales contract
Gross trade value from the sales contract less the sum of the
transfer fees and all lien balances on the currently owned property
and transfer fees on the new property
Appraised value of the borrower’s currently owned property plus
any new transfer fees on the new property.
The following documentation is required:




Sales contract for both the sale of the previous property and the
purchase of the subject property.
1031 Exchange Agreement identifying intermediary, all parties,
conditions of transfer, require repairs if applicable, etc. and title
transfer.
HUD-1 settlement statement for both properties.
Verification of receipt of funds from the intermediary/exchange
holder.
NOTE: The loan closing must be handled by a qualified intermediary
(typically, an escrow company or licensed exchange company) who enters
into a written agreement with the borrower. The qualified intermediary
cannot be an agent, investment banker, broker, employee of the
borrower, or related family member.
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Assets and Liquidity,
Foreign Assets

Continued
If borrower’s source of funds for the down payment, reserves and/or
closing costs are from accounts located in a foreign county, additional
due diligence is required to ensure compliance with all related OFAC
restrictions, confirmation of exchange rates, seasoning requirements,
and any additional conditions deemed responsible by the Underwriter.




Foreign assets being used for down payment, closing costs and
reserves must be held in a U.S. account prior to closing.
Proof the transferred funds belonged to the borrower(s) prior to
transfer.
Large deposits as defined within this lending guide must be
documented accordingly.
If the assets are derived from a sale of a foreign asset or from
assets held in a foreign bank account, the assets must be
converted into United States currency by an independent third
party and placed in a United States banking institution. The sale of
the foreign asset and conversion of foreign currency must be fully
documented and verified.
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Conventional Lending Guide
Assets and Liquidity,
Business
Funds
Continued

Business Assets may be acceptable for the down payment, closing
costs, Pre-paids/Escrow and financial reserves when a borrower is
self-employed and the individual federal income tax returns have been
evaluated by the lender, including, if applicable, the business federal
income tax returns for that particular business (non-Schedule C).
Because the Borrower’s withdrawal of assets from a sole
proprietorship, a partnership, or a corporation may have a negative
impact on the business’ ability to continue operating, the impact of
withdrawal must be considered in the underwriter’s analysis of the
Borrower’s self-employed income and the file must contain the
Underwriter’s written cash flow analysis and conclusion that
withdrawal of the business funds will not affect the operation of the
business.

The borrower must be listed as an owner of the account and the
account must be verified in accordance with the Verification of
Deposits and Depository Accounts sections listed above.
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Assets and Liquidity,
Pooled Funds
Continued

Funds from a community savings account or any other type of pooled
savings may be used for the down payment if the borrower can
document regular contributions to the fund.

Acceptable documentation includes written confirmation from the
party managing the pooled savings fund and documentation of regular
borrower contributions.

The borrower’s obligation to continue making contributions to the fund
must be considered as part of the borrower’s debt when calculating
the total debt-to-income ratio.
Community savings systems account statements must:







Identify the issuing institution or administrator
Identify the account owner(s)
Identify the account number
Show all transactions
Show the period covered and ending balance
Show any outstanding loans
If community funds are held in a securities account, then identify
and document the stocks/securities and provide proof of
liquidation.
Pooled funds on deposits from related persons who reside with the
borrower are acceptable if, in addition to the account documentation, the
following is provided:


Proof the Borrower and related person have resided together at
least one year.
Letter stating that they will continue to reside together in the new
residence and are pooling their funds to buy the new residence.
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Assets and Liquidity,
Individual
Development
Accounts
Continued
Funds that the borrower deposited into an IDA may be used for down
payment, and depending on the repayment terms of the IDA program,
the borrower may or may not be required to meet the minimum down
payment requirements from his or her own funds:

If the non-profit agency requires repayment of the “matching” funds,
agrees to defer or forgive repayment provided certain conditions are
met, or files a lien against the property, then the borrower may use
the “matching” funds to supplement the down payment, provided the
borrower has met the minimum down payment requirements from his
or her own funds.


Funds with recapture provisions are permitted up to a maximum of
3-to-1 match by an agency fund.
If the non-profit agency does not require repayment of the “matching”
funds and does not file a lien against the property, then the borrower
may use the “matching” funds for some or all of the down payment
without first being required to meet the minimum down payment
requirement from his or her own funds.

Funds with no recapture provision are permitted up to a maximum
of 4-to-1 match by an agency fund.
Documentation must be provided that describes the non-profit agency’s
individual development account program in order to rate at which the
agency “matches” the borrower’s deposits into the account and determine
that the borrower has satisfied any vesting requirements.
Appropriate documentation must reflect that the borrower made regular
payments into the account and that the agency made regular deposits of
the matching funds into the account.
NOTE:


The terms of an IDA program and any provisions related to second
mortgages must be in compliance with Agency guidelines, then
cross-referenced with Ocwen parameters.
May not be used as funds for debt payoff or to meet reserve
requirements.
IMPORTANT: May require prior approval by Credit Policy Manager (or
designee).
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Assets and Liquidity,
Credit Card
for POC Items

Continued
The borrower’s credit card may be used to pay fees outside of closing.
Credit card financing must not be used to meet minimum down
payment requirements. Costs that can be financed are:



Appraisal
Lock-in fees
Credit Report
Requirements:
 The total charged amount may not exceed the lesser of $1,000 or 1%
of the loan amount.

HUD-1 must reflect a POC credit to the borrower for the amount
charged.

Verification of one of the following is required:




The borrower has sufficient liquid funds to cover the entire cost of
the fees plus any other fees required for closing costs and down
payment, or
Updated credit supplement from a credit reporting agency
verifying the new balance and the required payments per the
creditor. The new balance must be included in the qualifying ratio
calculation, or
5% of the total balance (previous verified balance plus new
charges) must be used as the new payment. The updated payment
as recalculated must be included in the qualifying ratio calculation.
o EXAMPLE: The balance reported on the credit report is $1,000
and there is evidence to indicate the payment is $25 per
month. After the credit report date, the borrower uses the
credit card to pay for an appraisal, increasing the balance on
the card to $1,350. The payment will be based on 5% of the
entire new balance $1,350, for a new payment of $67.50.
Collection of fees must be in compliance with all MDIA, RESPA, and
TILA requirements.
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Properties
Eligible
Property
Types

Single Family Residences – Attached and Detached

2-4 Units

Modular Homes/Factory Built (SFR, 1-unit only)

Condominiums FNMA Type P, Q, S, T

PUDs

Mixed Use Properties

“Live-work” type loft-style condominiums are those usually used for
artist’ studio, workshops, factories or galleries – must meet mixed use
property requirements

Legal Non-Conforming use of land; see details below.

Hobby Farms; see details below.
NOTE: A critical analysis of properties with 400 to 800 square feet
will be performed by the underwriter to determine value, including
common and customary to the current market. Properties smaller
than 400 square feet, including condos, are not permitted.
Legal NonConforming
All property types, including condos, are permitted with the below:

Zoning must be legal permissible use of the land; and

Proof of zoning regulations reflecting permission to rebuild the
improvements to current density in the event of partial or full
destruction; and

Property must continue to represent the “highest and best use” for the
site; and

City zoning authority letter or an appraisers’ addendum with analysis
reflecting any adverse effect that the non-conforming use has on the
value and marketability of the property; and

Appraiser must confirm property can be rebuilt “as is”.
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Properties,
Agricultural
Zoning
Uniquely
Designed
Homes
Continued
If a property is zoned agricultural, it is only eligible when all of the
following exist:

Subject property must be used as a residence and is typical for the
neighborhood or market area.

The appraiser must adequately demonstrate that the subject
neighborhood is residential in nature.

Residential use is permissible under the zoning and land use
regulations.

Property must adhere to the maximum acreage standards by
program.

Property may not include agricultural property tax exemptions.

When appraising unique properties, (dome home, earth berms, log
cabins) if the appraiser cannot locate recent comparable sales of the
same design and appeal, but is able to determine sound adjustments
for the differences between the comparables that are available and the
subject property and demonstrate the marketability of the property
based on:




Older comparable sales,
Comparable sales in competing neighborhoods,
The existence of similar properties in the market area,
Any other reliable market data
NOTE: Comparables should be of similar size to the subject property to
support the general acceptability of a particular property type. Refer to
specific product guidelines for further clarification.
NOTE: If the appraiser is not able to find any evidence of market
acceptance, and the characteristics of the property are so significantly
different that he or she cannot establish a reliable opinion of market
value, the property will not be acceptable.
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Properties,
Hobby Farms
Continued
Defined as small farm characteristics and/or activities without the
expectation or actual receipt of moderate income; Hobby Farms may be
acceptable property types with the following:

If applicable, Schedule F tax returns must be provided regardless of
AUS recommendations to confirm incidental farm income.

If there is any indication through tax returns, tax transcripts or other
validation tools that the subject property is hobby farm, a full
appraisal is required regardless of AUS recommendations.

Subject property may not include a hobby farm in conjunction with
any mixed-use business related to farming, agriculture, machinery
type equipment, etc.

Property must be residential in nature with acceptable comparables
and typical for the area.

Property may not be subject to agricultural tax exemptions.

Outbuildings, barns and stables must adhere to agency requirements:




Must be typical of other residential properties in the subject area,
Appraiser must demonstrate such presence are typical of
properties for which an active, viable residential market exists
supported by comparable sales,
Consist of little or no contributory value, and
Any large or multiple buildings do not indicate that the property is
agricultural in nature
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Properties,
Continued
Ineligible
Property
Types

“To Be Determined” property addresses (i.e. all submissions must contain an actual
property address)

Manufactured Homes (refer to HARP product summaries for certain allowances)

Timeshare/segmented ownership

Houseboats

Mobile Homes

Working farms, ranches, orchards, commercial operations or those with agriculture tax
exemptions regardless of income producing status.

Unimproved Land

CONDOS: Condo Project Manager (CPM) Review, Type R and U, Multi-dwelling
condominiums, Condotels and Non-Warrantable condominiums.

Properties with deed restrictions that limit transferability of title, re-sale restrictions or
contain a “first right of refusal” provision.


Subdivisions (PUDs) with any unacceptable deed restriction regardless of being
applicable to the subject property
Condo properties with Full Reviews may permit certain first right of refusal
provisions; refer to Condo section for full requirements.

Properties allowing for the Right of Redemption.

Cooperatives

Properties with assignments of purchase (assigning the purchase contract to another
party)

Condotels

Subsidized Condos also known as Limited Equity Condos

Properties permitting divestiture of interest

Certain states have enacted legislation that makes private transfer fee covenants void
and unenforceable. Properties with transfer fees that are identified as exceptions on the
title commitment are not acceptable.

Property with problem drywall (a.k.a. Chinese drywall), as noted by the appraiser.
Chinese drywall is known to produce foul odors; causes metal to corrode more quickly
than normal; leaves black corrosion on wiring or copper; and causes appliances and
electronics with copper wiring to fail due to corroded copper wiring.

Community Land Trust and Illinois Land Trust

Properties located on land that does not allow access for mortgage servicing purposes
such as foreclosure (i.e. Tribal Land).

Boarded Up Properties

Hawaii Lava Zone 1 or Lava Zone 2

Lease agreements that include a Tenant Lease Option to Purchase make the loan
ineligible.

Bed and Breakfast properties

Boarding Houses
Continued on next page
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Properties,
Private
Transfer
Fees
Continued
Mortgages on properties encumbered by private transfer fee covenants
prohibited by C.F.R. Part 1228 in the Federal Register, are ineligible if
those covenants were created on or after February 8, 2011. Fees that do
not directly benefit the property are subject to C.F.R. Part 1228 and are
therefore ineligible. Private transfer fees are eligible for loans in which the
covenants were created prior to 2/8/2011. However, if the creation date
is not known, the loan is not eligible.
Private transfer fees paid to the following to benefit the property are
eligible:



Homeowner associations
Condominium
Certain tax-exempt organizations that use private transfer fee
proceeds to benefit the property
A private transfer is a transfer fee, including a charge or payment,
imposed by a covenant, restriction, or other similar document and
required to be paid in connection with or as a result of a transfer of title to
real estate, and payable on a continuing basis each time a property is
transferred (except for transfers specifically excepted) for a period of time
or indefinitely.
A private transfer fee does not include fees, charges, payments, or other
obligations (1) imposed by or payable to the Federal government or a
State or local government; or (2) that defray actual costs of the transfer
of the property, including transfer of membership in the relevant covered
association.
Direct benefit means that the proceeds of a private transfer fee are used
exclusively to support maintenance and improvements to encumbered
properties, and acquisition, improvement, administration, and
maintenance of property owned by the covered association of which the
owners of the burdened property are members and used primarily for
their benefit.
Direct benefit also includes cultural, educational, charitable, recreational,
environmental, conservation or other similar activities that (1) are
conducted in or protect the burdened community or adjacent or
contiguous property, or (2) are conducted on other property that is used
primarily by residents of the burdened community.
Transfer fees will appear on Schedule B of the title commitment
(exceptions to coverage), which is the same place as HOA dues, etc.
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Properties,
Manufactured
Homes on Site
Continued
Habitable manufactured homes located on the subject property site are
not permitted, regardless of omitting value. The restriction includes
manufactured homes that are and are not permanently affixed to the
property.
NOTE: Habitable is defined as connected water, electricity, sewer, etc.
Borrower
Acknowledgment for
Value
When the subject property sales price is greater than the appraised value,
a borrower(s) signed, written acknowledgment is required confirming
their understanding that they are purchasing the property for an amount
greater than the appraised value.
Well, Septic
and Pest
Inspection
Well, Septic and Termite Certifications are required as noted on the
appraisal.


If certain property inspections are only required per the Sales
Contract, then Ocwen Loan Servicing, LLC will require a letter from
the Borrower(s) confirming such inspections were performed and
no structural, health or habitable issues were reported. If the
Borrower’s letter confirms no issues reported, then it is not
necessary to provide copies of the actual inspection reports.
Massachusetts: Title V Certification, Septic System Inspection
Regulation, is required.
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Properties,
Continued
Age of
Appraisals

Properties must be appraised within the 12 months that precede the
date of the note and mortgage.

When an appraisal report will be more than four months old (for DU
files) and 120 days (for LP submitted files) on the date of the note and
mortgage, regardless of whether the property was appraised as
proposed or existing construction, the appraiser must inspect the
exterior of the property and review current market data to determine
whether the property has declined in value since the date of the
original appraisal. This inspection and results of the analysis must be
reported on the Appraisal Update and/or Completion Report (Form
1004D for DU files) and 442 (for LP submitted files). When obtaining
a 1004D for an appraisal update and/or completion, at a minimum, a
photograph of the front of the subject property must be included.


If the appraiser indicates on the Form 1004D (for DU files) and
442 (for LP submitted files) that the property value has declined,
then the lender must obtain a new appraisal for the property.
If the appraiser indicates on the Form 1004D (for DU files) and
442 (for LP submitted files) that the property value has not
declined, then the lender may proceed with the loan in process
without requiring any additional fieldwork.
NOTE: The appraisal update must occur within the four months (for DU
files) 120 days (for LP submitted files) that precede the date of the note
and mortgage.

The original appraiser should complete the appraisal update; however,
a substitute appraiser may be used. When updates are completed by
substitute appraisers, the substitute appraiser must review the
original appraisal and express an opinion about whether the original
appraiser’s opinion of market value was reasonable on the date of the
original appraisal report. The underwriter must note in the file why the
original appraiser was not used.
NOTE: Ocwen defines the Note Date as the date on the front of the Note.
This may or may not be the date the note is signed.
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Properties,
Continued
Age and
Adjustments
of
Comparables

Comparable sales that have closed within the last 12 months
should be used in the appraisal; however, the best and most
appropriate comparable sales may not always be the most recent
sales. For example, it may be appropriate for the appraiser to use
a nine month old sale with a time adjustment rather than a one
month old sale that requires multiple adjustments. An older sale
may be more appropriate in situations when market conditions
have impacted the availability of recent sales as long as the
appraisal reflects the changing market conditions.

Additionally, older comparable sales that are the best indicator of
value for the subject property can be used if appropriate. For
example, if the subject property is located in a rural area that has
minimal sales activity, the appraiser may not be able to locate 3
truly comparable sales that sold in the last 12 months. In this
case, the appraiser may use older comparable sales as long as he
or she explains why they are being used.
Appraisers are expected to analyze the market for competitive
properties and demonstrate competence and accuracy in
appropriate market based adjustments without regard to arbitrary
limits on the size of the adjustment.




Appraisal
Validation
The appraiser’s adjustments must reflect the market’s
reactions (that is, market based adjustments) to the difference
in the properties.
It is required that the Seller review all adjustments on the grid,
make certain there are no calculation errors, that each specific
comp sale is a valid comp and that any substantial adjustments
are addressed in the appraisal.
Proximity of Comps to Subject Property Location:
o The description of the proximity of the comp sale to the
subject property must be specific (for example “two blocks
south”).
Whenever possible, comp sales in the same
neighborhood as the subject should be used. Sales prices
of comp properties in the neighborhood should reflect the
same positive and negative locational characteristics.
Ocwen Loan Servicing, LLC will assess all properties and appraisals to
confirm values are well supported. It will be at the Underwriter’s
discretion to utilize any additional validation tools at their disposal to
escalate value concerns.
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Properties,
Reuse of
Appraisals
Continued
Ocwen will allow the use of an origination appraisal for a subsequent
transaction if the following requirements are met:

The subsequent transaction may only be a Limited Cash-Out
Refinance.

The appraisal report must not be more than 12 months old on the
note date of the subsequent transaction. If the appraisal report is
greater than 4 months old on the date of the note and mortgage, then
an appraisal update is required. See Age of Appraisal and Appraisal
Update Requirements, for requirements for completing an appraisal
update.

The lender must ensure that the property has not undergone any
significant remodeling, renovation, or deterioration to the extent that
the improvement or deterioration of the property would materially
affect the market value of the subject property.

The borrower and the lender/client must be the same on the original
and subsequent transaction.
NOTE: The only exception is in the event of a divorce or legal
separation. The Borrower for the new transaction must be one of the
Borrowers on the prior transaction, and the file must document that
the Borrower for the new transaction obtained the property through a
divorce or legal separation.

Transferred
Appraisals
The appraisal must comply with all other requirements in the
Underwriting Property section of the Selling Guide.
Not permitted on ANY appraisal type.
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Properties,
Continued
Address
Validation
Property address validation requires the house number and street
address to coincide with the title commitment and the zip code to
coincide with www.USPS.com

NOTE: If the title commitment address differs from the appraisal, the
appraiser must comment on the addresses being one in the same.
Distance of
Comparables
Land to Value
Ratios

Urban area; typically comparables within 1 mile of the subject
property are acceptable.

Suburban area; a 1 to 2 mile radius is acceptable; however, in the
case of a PUD, the subject must be compared to properties in the
same subdivision as that of the subject.

Rural properties often have large lot sizes and rural locations can be
relatively undeveloped. For this reason, there may be a shortage or
absence of recent truly comparable sales in the immediate vicinity of a
subject property. Comparable sales located a considerable distance
from the subject property can be used if they represent the best
indicator of value for the subject property.

The property’s land to value ratio must be consistent with other
properties in the area.

The appraisal must include the actual size of the site and not a
hypothetical portion of the site; the appraised value must reflect the
entire parcel. The appraiser must consider all acres of the subject
property and comparable must be of similar size to establish
marketability.
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Properties,
Continued
Location
Types
Mortgages secured by residential properties in urban, suburban, or
rural areas are eligible for financing within Ocwen Loan Servicing,
LLC’s and agency guidelines.




An urban location relates to a city,
A suburban location relates to the area adjacent to a city, and
A rural location relates to the country or anything beyond the
suburban area.
NOTE:


If a location is not designated in the appraisal as rural, Ocwen
Loan Servicing, LLC may deem the property as rural if the lot size
exceeds typical urban or suburban lot size, or if the location is
remote from a metropolitan area.
If there is a shortage of recent comparable sales in the immediate
vicinity of a suburban or urban area, the appraiser may extend the
area with full documentation and justification for extending the
immediate area.
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Properties,
Continued
Age Restricted
Communities
Properties that are subject to Deed Restrictions on the basis of Age
are eligible. No other deed restrictions may be associated with the
property.

IMPORTANT: The Development/Association/Community must sign OcwenAffidavit for Age Restricted Communities to confirm the housing development
complied with the Fair Housing Act.



Reasonable local, state or federal restrictions on the maximum number of
occupants permitted to occupy a dwelling unit are acceptable as long as
such limitations are applied to all occupants and do not operate to
discriminate on the basis of race, color, religion, sex, national origin,
handicap or familial status. If any other restrictions are noted in the
purchase contract, appraisal, and title commitment or in the project
covenants/restrictions, the loan will not be eligible. If a housing
development has an age restriction, it must comply with one of the
following Fair Housing Act exemptions:

Government Housing Programs: The prohibitions against discrimination on
the basis of age of familial status do not apply with respect to dwellings
provided under any State or Federal Program specifically designed and
operated to assist the elderly or to house elderly persons. The Secretary
of HUD must determine that the development meets this exemption

Age Restrictions – 62 years of age or older: The prohibitions against
discrimination on the basis of age or familial status do not apply with
respect to dwellings intended for, and solely occupied by persons 62 years
of age or older.

Age Restrictions – Any age restriction: The prohibitions against
discrimination on the basis of age or familial status do not apply with
respect to dwellings intended and operated for occupancy by person 55
years of age or older provided that all of the following apply:

At least 80% of the occupied units are occupied by persons 55 years of
age or older.

The housing facility or community publishes and adheres to policies and
procedures that demonstrate the intent to provide housing to persons 55
years of age of older

The housing facility or community can provide documentation for
verification of occupancy, by means of:
o Provide for verification by reliable surveys and affidavits; and
o Include examples of published written policies and procedures for
determination of compliance with Fair Housing Act.
Age Restrictions that survive foreclosure: These restrictions may place
restrictions on the borrower as to any future sales and these restrictions
would also apply to the lender in the event of foreclosure.
Age Restrictions that do not survive foreclosure: These restrictions may
place restrictions on the borrower as to any future sales and these restrictions
DO NOT apply to the lender in the event of foreclosure.
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Properties,
Continued
Age Restricted
Communities,
(Cont’d)

3-4 Units

Second Homes and Investment properties
Ineligible for:
Additional Requirements:

Lender may not be required to send notice of default or foreclosure to
any third party.

Copy of the Restrictive Covenant must be provided.

ALTA-9 title endorsement is required.
Appraisal Requirements:

Age Restrictions that Survive Foreclosure: In cases where the
resale restriction survives foreclosure or deed-in-lieu of foreclosure,
the appraisal must reflect the impact the restriction has on the value
and be supported by comparables with similar restrictions. The
underwriter must ensure that the appraiser and the borrower are
aware of the existence of the resale restrictions and comment on any
impact the resale restrictions may have on the property’s value and
marketability. The appraisal must include 3 comparable sales of units
with similar deed restrictions. For new projects or subdivisions, at
least 2 of the sales must be from outside the project or subdivision.

Age Restrictions that Do NOT Survive Foreclosure: In cases
where the resale restrictions terminate automatically upon foreclosure,
the appraisal should reflect the market value of the property without
resale restrictions and should advise the appraiser that he or she must
include the following statement in the appraisal report:
“This appraisal is made on the basis of a hypothetical condition that the property rights
being appraised are without resale and other restrictions that are terminated automatically
upon the latter of foreclosure or the expiration of any applicable redemption period, or upon
recordation of a deed-in-lieu of foreclosure.”
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Properties,
Continued
Multiple
Parcels
Properties with multiple parcels are permitted subject to:






Each parcel must be conveyed in its entirety.
Parcels must be adjoined to the other, unless they comply with the
following exception. Parcels that otherwise would be adjoined, but
are divided by a road, are acceptable if the parcel without a
residence is a non-buildable lot (for example, waterfront properties
where the parcel without the residence provides access to the
water). Evidence that the lot is non-buildable must be included in
the loan file.
Each parcel must have the same basic zoning (for example,
residential, agricultural).
The entire property may contain only one dwelling unit. Limited
additional non-residential improvements, such as a garage, are
acceptable. For example, the adjoining parcel may not have an
additional dwelling unit. An improvement that has been built
across lot lines is acceptable. For example, a home built across
both parcels where the lot line runs under the home is acceptable.
The mortgage must be a valid first lien that covers each parcel.
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Properties,
Land Contracts
Continued
A land contract, also known as an installment land contract or a contract
for deed, is a real estate agreement between a buyer and seller, whereby
the buyer may use and occupy the property. However, the deed from the
property seller to the buyer may not be recorded until all or a specified
part of the sales price has been paid. The buyer does not obtain the
transfer of title until the land contract is paid; however, if the land contract
is recorded, it should be reflected in the chain of title in the title report.
Purchase versus Refinance
Credit
Purchase
Refinance
LTV
The lesser of current appraised value
or total acquisition cost.
For A Limited Cash Out Refinance,
the LTV is based on current appraised
value.
NOTE: If the land contract is not
recorded, use the date signed by all
parties as the executed/effective
date.
NOTE: If the land contract was
executed less than 12 months prior
to the date of the application, it must
be considered a purchase.
Acquisition Cost
Total acquisition cost is calculated as: Purchase price as indicated in the
original land contract plus, any fully documented costs for rehabilitation,
renovation, refurbishment or energy conservation.
No Cash Out
No loan proceeds may be disbursed to the borrower unless they are for
documented costs for completed rehabilitation, renovation, refurbishment or
energy conservation.
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Properties,
Continued
Land Contracts
(Cont’d)
Criteria
Purchase
Land Contract
A copy of the land contract is required. The land contract does not have to be
recorded.
Payment
History

Third party verification must show the borrower has been making the
payments in accordance with the terms of the contract for the most
recent 12 months.

12 month cancelled checks are required

A VOM is acceptable with institutional lender.

Non-Arm’s length requires cancelled checks
Completion of
Improvements
Short Sale
Refinance
If the appraisal is made subject to the completion of any improvements, a
442 is required.

When the subject property is the result of a Short Sale, Foreclosure,
or Deed-in-Lieu of Foreclosure, the following terms are required:







The transaction is arms length involving a realtor and a formal
sales contract.
There is no relationship or identity of interest between the buyer
and seller.
Short sale approval letter from all existing mortgage lien holders
accepting the discounted sales price on the subject property must
be documented and retain in the loan file.
All liens are extinguished with the sales proceeds.
Bailouts and flips are not permitted
Property value must be confirmed with a full interior/exterior
appraisal regardless of AUS recommendations.
The borrower(s) may not be involved in negotiations with the lien
holders(s) to facilitate the short sale.
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Properties,
Continued
UAD Condition
and Quality
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 AND

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




Ocwen will originate loans where the appraisal is completed “as is”
with the property’s conditions rating C1 – C5 and the quality of
construction rating Q1-Q5.
If the appraiser has identified the Condition Rating as C6 and
Quality of Construction rating as Q6, the property must be
appraised subject to completion of the specific repairs or
alterations. In these instances, the property condition and quality
ratings must reflect the condition and quality of the property based
on the hypothetical condition that the repairs or alterations have
been completed.
If the appraiser is not qualified to evaluate the alterations or
repairs needed, the appraisal must identify and describe the
deficiencies and the property must be appraised subject to a
satisfactory inspection by a qualified professional. The appraisal
may have to be revised based upon the results of the inspection. If
so, the report must indicate the impact, if any, on the final opinion
of value. The lender must review the revised appraisal report to
confirm that no physical deficiencies or conditions that would affect
the safety, soundness, or structural integrity of the property are
indicated. A certification of completion is required to confirm the
necessary alterations or repairs have been completed prior to
delivery of the loan.
A Mortgage secured by a property that had an original condition
rating of C6 and quality of construction rating of Q6 is eligible only
if all issues that caused the property to be rated C6 and/or Q6 are
cured prior to closing.
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Properties,
Continued
Condition and
Quality
Adjustments
The appraiser must make appropriate adjustments for differences in
condition and quality between the subject property and each comparable
property to reflect the value, if any, of the differences in the market
place. If the appraiser makes an adjustment for differences in quality and
condition between the subject property and a comparable property that
have the same UAD quality or condition rating, or does not make an
adjustment for properties that receive different quality and condition
ratings, the appraiser is expected to provide a sufficient explanation for
the basis and rationale for all adjustments.
Property
Conditions
All subject properties must be habitable and all mechanicals (plumbing,
electrical, etc.) must be functional and in good working condition.
IMPORTANT: Any maintenance items which affect the safety,
soundness, or structural integrity of the property must be corrected prior
to closing or the subject will be deemed unacceptable.
Roof Life
Remaining Economic Life does not need to considered as related to the
mortgage term, however, related property deficiencies must be discussed
in the sections of the appraisal report that address the improvements
analysis and comments on the condition of the property.
If the appraiser classifies the roof to be at the end of or less than 2 years
remains of its economic life, then a roof inspection/certification should be
performed.
 If the roof inspector confirms the remaining economic life to be
under 2 years, then a new roof should be installed.
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Properties,
Environmental
Hazards
Continued
Properties may not violate any environmental law, rule or regulation with
respect to the subject property, and may not contain toxic materials or
other environmental hazards on, in or that could affect the subject
property.




Appraiser must disclose any known or suspected environmental
hazards on or near the subject property, e.g., landfills, toxic waste
dumps, or junk yards; including any hazardous conditions
observed during the inspection of the subject property or
information that he or she became aware of through the normal
research involved in performing an appraisal.
If an environmental hazard is located on or near the subject
property, the appraiser must comment on any influence that the
hazard has on the property’s value and marketability and make
appropriate adjustment in the overall analysis of the property’s
value.
If any environmental hazard is suspected, an environmental study
of the subject property is required prior to loan approval. In such
cases, a nationally recognized and reputable environmental
engineering firm must perform the written report. The report must
include an analysis and detailed list of clean-up costs, if any.
Ocwen Loan Servicing, LLC will not approve a loan without
acceptable evidence confirming any known or suspected
environmental hazards will not have an adverse effect upon the
marketability, livability, or appraised value of the subject property.
This confirmation must be evidenced by either acceptable or
documented clean-up efforts or by verification of comparable
market data confirming no buyer resistance to the hazard.
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Properties,
Non-Structural
Hazards
Continued
Non-structural Hazards

The appraiser must adequately identify and describe the property in
terms of conditions, features, and upgrades. The property
improvements must be in at least average condition and the condition
of the property must not negatively affect either the habitability or
marketability of the property. Property should be free and clear of
health and safety issues.


Security Bars
Example of this would be a swimming pool that is not complete
(should not be included in the value) or work in progress. A fence
should be around the work area or the pool should be covered.
If security bars are placed on the windows, at least one window
per room must have a release latch.

Non-structural hazards include (but are not limited to) airport noise,
railroad tracks and other high noise sources, flood zones, lead base
paint, radon, overhead high voltage transmission towers and lines,
operating and abandoned oil and gas wells, tanks, and pressure lines,
insulation materials, mold, lava zones, avalanche, decks or balconies
that are not completed, buried oil tanks that are leaking, staircases
without hand-railing, excessive debris on the property, and electrical
or plumbing that is outdated or incomplete.

The appraiser must comment and follow state and local requirements
with respect to the use of security or “burglar” bars.

There must be an emergency release latch for at least one window in
each room where the security bars are located, unless local or
municipal codes state otherwise.
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Properties,
Continued
Swimming
Pools

Empty swimming pools are not acceptable due to associated safety
hazards. If pools are empty at time of appraisal, recertification with
photos is required reflecting water-filled OR reflecting a correctly
installed pool cover.

Visible green or moss covered pool water is not acceptable.

Non-operable swimming pool systems may be acceptable with:




Correctly installed pool cover
Value may not be assigned to the pool
Comparables should not include properties with swimming pools
Appraiser to provide estimate of damage and approximate repair cost.
Extensive cost to repair will be at the Underwriter’s discretion for
approval.
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Properties,
Continued
Heating and
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.
Utilities

Utilities must meet community standards and be accepted in the
market areas.

If public sewer and/or water facilities, those that are supplied and
regulated by the local government, are not available, community or
private well and septic facilities must be available and utilized by the
subject property. The owners of the subject property must have the
right to access those facilities, which must be viable on an ongoing
basis. Private well or septic facilities must be located on the subject
site, unless the subject property has the right to access off-site private
facilities and there is an adequate, legally binding agreement for
access and maintenance.

If there is market resistance to an area because of environmental
hazards or any other conditions that affect well, septic, or public water
facilities, the appraisal must address the effect of the hazards on the
value and marketability of the subject property

In addition, the comparable sales should have utilities similar to the
subject property. When differences in utilities 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 in the comments area or on an attached
addendum. In addition, the appraisal must evaluate the effect these
differences have on the subject property's value or marketability
NOTE: If the appraiser specifically comments to utilities being “off”,
not in good working order, or requires the installation of any appliance
as a condition of the appraised value, then a 1004D must be
completed with utilities on, repaired or appliance installed prior to
closing.
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Properties,
Continued
Deferred
Maintenance
If the appraiser reports the existence of minor conditions or deferred
maintenance items that do not affect the safety, soundness, or
structural integrity of the property, the appraiser may complete the
appraisal “as is” and these items must be reflected in the appraiser’s
opinion of value. Minor conditions and deferred maintenance items
include, but are not limited to, worn floor finishes or carpet, minor
plumbing leaks, holes in window screens, or cracked window glass and
are typically due to normal wear and tear. It is not required to ensure
that the borrower has had this work completed prior funding.

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Accessory Unit

An accessory dwelling unit is typically an additional living area
independent of the primary dwelling unit, and includes a fully
functioning kitchen and bathroom. Some examples may include a
living area over a garage and basement units. Whether a property is a
one-unit property with an accessory unit or a two-unit property will be
based on the characteristics of the property, which may include, but
are not limited to, the existence of separate utilities, a unique postal
address, and whether the unit is rented. 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.

If the Single family residence contains an accessory unit, the property
is eligible under the following conditions:




If it is determined that the property contains an accessory dwelling
unit that does not comply with zoning, the property is eligible under
the following additional conditions:





The property is one-unit.
The appraisal report demonstrates that the improvements are
typical for the market through an analysis of at least one
comparable property with the same use.
The borrower qualifies for the mortgage without considering any
rental income from the accessory unit.
It is confirmed that the existence will not jeopardize any future
property insurance claim that might need to be filed for the
property.
The use conforms to the subject neighborhood and to the market.
The property is appraised based upon its current use.
The appraisal must report that the improvements represent a use
that does not comply with zoning.
The appraisal report must demonstrate that the improvements are
typical for the market through an analysis of at least three comparable
properties that have the same non-compliant zoning use.
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Properties,
Continued
Non-Permitted
Additions

If the appraiser identifies an addition(s) that does not have the
required permit, the appraiser must comment on the quality and
appearance of the work and its impact, if any, on the market value of
the subject property.
Declining /
Soft Markets
Declining/Soft Markets
A Declining/Soft Market is designated by the following:

An appraiser indicates “declining” on the appraisal report, aged
comparables, etc.


The transaction being evaluated must be closely reviewed within
the appraisal to insure that the appraiser is specific with regard to
the impact of the market decline.
Treat any area considered a declining/soft market area
conservatively with regards to the appraiser’s determination
and/or comments.
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Properties,
Declining /
Soft Markets,
(Cont’d)
Continued
The underwriter is responsible for the following verification:

Ensure the appraiser analyzes listings and contract sales, if available,
along with the most recent closed/settled sales.

If the underwriter determines the appraisal does not accurately reflect
the current market conditions, the underwriter is expected to request
additional clarification or justification from the appraiser to make an
informed decision about the property value.

The underwriter must take appropriate steps to assess market
conditions and determine if the appraisal accurately reflects current
market conditions and value.


The underwriter may rely on a market condition tracking service to
assist in this analysis.
If the underwriter determines that the property is located within a
declining market, the underwriter must ensure the current market
conditions are identified in the appraisal report and analyzed as
part of their valuation process.
When declining/soft market conditions are indicated through any
methodology, the below restrictions apply:

Maximum LTV/CLTV/HCLTV may be reduced at the discretion of the
underwriter or as required by the MI Partner, if applicable.

The appraiser must comment on the reason for the decline

Appraisals should not contain comparables greater than six months
old at time of underwriting review; if comparables do not have a
closing date within the last six months, an additional listing or pending
sale comparable must be included to reflect current market conditions.

If two of the comparables sales are not within the most recent 90
days, a detailed explanation from the appraisal is required.

Photocopy of the original appraisal must be included in the loan file

Non Arms length Transactions should be closely reviewed
NOTE: Applies to ALL Agency Programs.
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Continued
Supervisory
Appraisers
Appraiser must be qualified to perform appraisals without oversight or
supervision by a “supervisory” or “review” appraiser.
Sales Contract
to Appraiser
The appraiser must be provided with the sales contract and all addenda,
therefore, ensuring that the appraiser has been given the opportunity to
consider financing and sales concessions in the transaction and their
effect on the subject property value.
Appraisal
Forms
The following is a listing of appraisal forms to be utilized for all property
types eligible for financing. The most recent revision of the listed
appraisal form must be used.
Appraisal Forms
FNMA 1004/ FHLMC 70
Used for single-family properties, both attached & detached including
PUD and site-detached condominiums.
FNMA 1004MC / FHMLC 71
Market Conditions Addendum to the appraisal report.
NOTE: When completing the “Total Number of Comparable Active
Listings”, the appraiser should use the total listings as of the most
recent applicable date, not a cumulative total for the entire period
covered.
FNMA 1073/FHLMC 465
Used for condominium properties.
FNMA 1025/FHLMC 72
Used in the appraisal of two-to-four unit properties (A duplex, triplex or
four-plex); interior and exterior report.
FNMA 1004D
Used for appraisal updates and/or completion reports for all 1-4 Unit
appraisal reports.
When obtaining a 1004D for an appraisal update and /or completion, at
a minimum, a photograph of the front of the subject property must be
included.
FNMA 2000
Used for appraisal field reviews for one-unit properties.
FNMA 2000A
Used for appraisal field reviews for two-to-four unit properties.
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Properties,
Photo
Requirements
Continued
For Form 1004, 1073 and 1025, the following photos are required (clear
and descriptive) showing:



Bedroom
Count
Kitchen, All Bathrooms and the Main Living Area.
Examples of physical deterioration, if present.
Examples of recent updates, such as restoration, remodeling,
renovation, if present.
Bedroom count must be captured on all 1-4 unit investment properties
and all owner occupied 2-4 unit properties regardless of the AUS,
appraisal type, and regardless of whether the borrower uses rental
income to qualify.

Bedroom count information can be obtained from one or more of the
following sources:






Lease agreements
Tax returns
Operating income statement (Form 216)
Single Family Comparable Rent Schedule (Form 1007)
Appraisal
Public record data that does not provide current property
valuation.
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Properties,
Investment
Appraisal Forms
Continued
In addition to the appraisal forms specified, the following forms are
required for investment properties:
Investment Appraisal Forms
FNMA 216/FHLMC 998 One-to-Four Unit
Investment Property Operating Income
Statement
Form required for one-to-four owner occupied
and non-owner occupied rental properties.
FNMA 1007/FHLMC 1000 Single Family
Comparable Rent Schedule
Form required for non-owner single-family
properties.
NOTE: When rental income is not used to qualify, refer to the Qualifying without Rental
Income section within this guide for additional details.
Streamline
Appraisal
Forms
No longer permitted.
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Properties,
Continued
Property
Inspection
Waivers
The Desktop Underwriter (DU) Property Inspection Waiver Service
(PIW) enables subscribers to exercise the option to waive the
fieldwork and the property condition representations and warranties
associated with certain DU Property Inspection Report
recommendations.





Waiver offer may not be more than 4 months old
Not permitted if the purchase transaction is the result of the sale
of a REO property, short sale or the last transaction on the subject
property was a foreclosure. In such cases, a full interior/exterior
appraisal is required.
Year built must be listed on the 1003 application.
If applicable, market rent must be listed on the 1008; ranges are
not acceptable.
NOTE: Utilization of appraisal waivers requires the borrower to
sign an appropriate disclaimer/disclosure indicating their
acknowledgment of waiving an appraisal (i.e. Notice About
Appraisal of Your Property). The form must be signed by the
borrower and included in the loan file. The Property Inspection
Waiver (PIW) must be included on the DU findings report.

The following transaction and property types are not eligible to receive
a recommendation for a PIW:






LP Home
Value
Explorer
(HVE)

High Balance Loan Amounts
Construction-permanent
Construction
Homes requiring significant repair
Non-Arm’s length transaction
See additional comments on the next page.
Not permitted on Non-HARP transactions.
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Properties,
Appraisal
Upgrades
Appraisal
Requirements
Continued
A full appraisal must be obtained if any of the following conditions exists:

The appraiser is unable to adequately view the subject property from
the street, or

The appraiser observes any factor that may have an adverse effect on
the marketability of the subject property, or

The quality or condition of the property appears unacceptable to the
typical purchaser in the area in which the subject property is located,
or

The Condition and Marketability Factors section of the form indicates
an upgrade is required, or

Apparent adverse physical deficiencies or conditions, or

Apparent adverse environmental conditions, or

The subject property does not conform to the neighborhood.
All appraisal practices utilized by Ocwen Loan Servicing, LLC (a) conforms
to the requirements of FNMA, (b) complies with Appraiser Independence
Requirements (AIR) issued by the Federal Housing Finance Agency, and
(c) meets the minimum standards established under FIRREA and the
USPAP.
More information may be obtained at the below links

USPAP:


FIRREA:


http://uspap.org/#/28
http://www.fdic.gov/regulations/laws/rules/8000-3100.html
FNMA Appraiser Independence:

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/app
code/pdf/air.pdf
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Properties,
Continued
Private Road
Maintenance
If the property is on a privately owned and maintained street, there
should be an adequate, legally enforceable agreement for
maintenance of the street. The agreement or covenant should include
the following details and be properly recorded:





Responsibility for payment of repairs, including each party’s
representative share.
Default remedies in the event a party to the agreement fails to
comply with their obligations.
The effective term of the agreement, which in more cases should
be perpetual and binding on future owners.
If the property is located within a state that has statutory
provisions that define the responsibilities of property owners for
the maintenance and repair of a private road, no separate
agreement or covenant is required.
NOTE: Not required on condominium property in which the HOA is
responsible for street maintenance.
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Properties,
Continued
Mixed Use
Properties

Mixed Use property is defined as any commercial usage WITHIN the
square footage and/or deed that secures the subject property.
Examples of mixed use properties include a day care, beauty shop,
specialty store, doctor’s office located WITHIN the square footage
and/or deed of the subject property.

Acceptability of mixed-use properties is limited as follows:







Property must be a one-family property that the borrower occupies
as his or her principal residence.
Property must represent a legal, permissible use of the property
under the local zoning requirements.
Subject Property must not contain any environmental hazards (i.e.
paint, oil, excess debris) and the business may not be industrial,
manufacturing, or agricultural.
Borrower must be both the owner and the operator of the business
Property must be primarily residential in nature. Generally,
commercial use should not exceed 33% of total gross living area.
Market value of the property must be primarily a function of its
residential characteristics rather than the business use or any
special business-use modifications that were made.
Full interior/exterior appraisal is required.

If the property has been modified to accommodate a mixed-use, the
appraiser should address whether the modifications affect the
property’s marketability as a residence and whether the cost to
restore the property to a solely residential use will affect its value. An
appraisal must be obtained for the mixed-use property. Property
inspections and waivers are not permitted.

A home office in a condominium unit is acceptable, if there are no
employees. The mixed use must not be restricted by the
condominium project.
NOTE: An unacceptable mixed use property would be a grocery store
located within the square footage of the property or a Bed and Breakfast
which is classified as commercial regardless of residential nature.
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Continued
Carbon
Monoxide
Detectors
For California properties, evidence that a carbon monoxide detector
has been installed is required:



Mineral Rights

On purchase transactions when installation is required per sales
contract or appraisal report or when the appraisal indicates
detectors have not been installed.
On refinance transactions when installation is required per the
appraisal or when the appraisal indicates detectors have not been
installed.
Outstanding oil, water, gas or mineral (including, but not limited to,
Coal) rights that are customarily waived are permitted, as long as they
do not materially alter the contour of the property or impair its value
or usefulness for its intended purposes.


The file must include documentation that the exercise of such
rights will not result in damage to the subject property or impair
its use or marketability for residential purposes AND there is not
right of surface or subsurface entry within 200 feet of the
residential structure; OR
Document comprehensive endorsement to the title insurance
policy that affirmatively insures Ocwen Loan Servicing, LLC against
damage or loss due to the exercise of such rights.
IMPORTANT: If there is an executed or active lease on the property, the
appraiser must comment as to the impact of the lease (or sold rights) on
the marketability of the subject property. If the lease or sold rights have
any negative impact on the marketability of the subject property, the loan
is not eligible.
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Leasehold Estates
Overview

Leasehold estates are acceptable in areas where they are common
and customary.

The lease must permit the following:



Assignments of the leasehold estate without the lessor’s consent
Release of an assigning lessee or sublessee
Constitute real property, be subject to a mortgage lien, and be
insurable by an acceptable lender’s title insurance policy.
 For condo or PUD projects, the homeowners 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.
 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.
NOTE: Leasehold agreements involving tribal counsels and/or native
American Indian land typically do not meet assignment without prior
consent requirements and therefore would not be eligible.
Documentation

Completed FNMA Ground Lease Analysis (Form 461)

Copy of the lease documentation reflecting that it is recorded in the
appropriate public land records and in full force and effect.


May not be subject to any prior lien or encumbrance by which the
leasehold could be terminated or subjected to any charge or
penalty.
Title insured by an ALTA Leasehold loan policy (ALTA 13.01-06)

For California, a CLTA 107.5 endorsement, or its equivalent, is also
required. The endorsement must state the property improvements
are insured in the same manner as the land.

Leasehold Rider to the Security Instrument

Attorney Opinion Letter highlighting the details of the leasehold
agreement thus providing the necessary reassurances that the
leasehold meets Agency requirements.
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Leasehold Estates,
Term of Lease
Continued

The term of the leasehold estate must run for at least five years
beyond the maturity date of the mortgage, unless fee simple title will
vest at an earlier date in the borrower

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.

When applicable, the leasehold must provide for the lessee to retain
voting rights in an HOA.

Lease must provide for the borrower to pay all taxes, insurance and
HOA dues related to the land.

Lease must be valid, in good standing, and in full force and effect in all
respects.

Contain provisions to protect lender’s 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.

The lease must provide for the leasehold mortgagee’s right to exercise
any renewal options that may exist.

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 lienholder has executed and recorded a Non-disturbance 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.
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Leasehold Estates,
Ineligible
Lease Terms

The lease must NOT:


Default
Provisions

Continued
Contain default provisions allowing forfeiture or termination of the
lease except for non-payment of the lease rents.
Prohibit the leasehold mortgagee from exercising renewal options.
The lease documentation must contain the following default
provisions:





At least a 30 day written notice of default by the lessor to the
leasehold mortgagee as a condition of the validity of the notice of
default.
The right of the leasehold mortgagee to cure a default for the
lesee’s account within the time permitted to the lessee, plus
reasonable additional time.
A stipulation indicating a new lease of the same priority will be
given to the leasehold mortgagee if the lease terminates because
of default not curable by the leasehold mortgagee.
No termination for non-durable default, as long as no default in
rent exists.
The lease provides for the leasehold mortgagee’s right to acquire
the lease in their own name, or in the name of a nominee, upon
foreclosure or assignment in lieu of foreclosure.
NOTE: The borrower must not be in default under any other provision of
the lease nor may such a default have been claimed by the lessor.
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Leasehold Estates,
Leasehold
Appraisal
Requirements

Continued
Appraisers must develop a thorough, clear, and detailed narrative that
identifies the terms, restrictions, and conditions regarding lease
agreements or ground leases:




Appraisers must include this information as an addendum to the
appraisal report.
If applicable, Appraisers must discuss the effect the lease
agreement or ground lease has on the value and marketability of
the subject property.
The appraiser’s sales comparison approach to value must use
comparable property sales that have similar leasehold interests.
When there are sufficient numbers of closed comparable property
sales with similar leasehold interests available, the appraiser
should:
o Use the property sales in the analysis of market value of the
leasehold estate for the subject property, and
o Report the property sales in the “sales comparison analysis”
grid on the applicable appraisal report form.

If comparable sales with the same lease terms and restrictions are not
available, appraisers may use sales of similar properties with different
lease terms or, if necessary, sales of similar properties that were
appraised as fee simple estates.

Appraisers must explain why the use of these sales is appropriate, and
make appropriate adjustments on the “sales comparison analysis” grid
to reflect the market reaction to the different lease terms or property
rights appraised.
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Leasehold Estates,
Purchase Price
Calculation
Continued
The table below provides the requirements for establishing the purchase
price of the land:
Status of Property Improvements
Purchase Price of Land
Already constructed at the time the
lease is executed.
The initial purchase price should be established
as the appraised value of the land on the date
the lease is executed.
Already constructed at the time the
lease is executed, and the lease is tied
to an external index such as the
Consumer Price Index (CPI).
The initial land rent should be established as a
percentage of the appraised value of the land
on the date that the lease is executed.
The purchase price may be adjusted annually
during the term of the lease to reflect the
percentage increase or decrease in the index
from the preceding year.
Leases may be offered with or without a
limitation on increases or decreases in the rent
payments.
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, and there can be no time limit within which the option
must be exercised.
If the option to purchase the fee title is exercised, the mortgage
must become a lien on the fee title with the same degree of
priority that it had on the leasehold.
Both the lease and the option to purchase must be assignable.
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Leasehold Estates,
Lease
Payments
Sublease
Continued

An increase in lease or sublease payments during the term of the
mortgage, is permitted if the increase is a certain amount at a specific
time period, or the increase is based on an index or reappraisal, and
the increase has a stated limitation.

Increases must be subject to maximum limitations, and the sublease
payments cannot be due less frequently than the lease payments.

Any potential increase in rent payments must be taken into
consideration when calculating the borrower’s housing payments and
debt ratios.

If the leasehold is a sublease, it must provide for sublease payments
at least equal to the lease payments (or proportionate share thereof)
and due no less frequently than the lease payments.

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 Non-disturbance and Attornment
Agreement, by which the fee simple lienholder 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 leasehold estate and the mortgage must not be impaired by a title
merger between the lessor and lessee, or by a sublessor’s default. In
the event the mortgage is secured by a sublease of a leasehold estate,
the documents must provide that a default under the leasehold estate
will not by such default result in the termination of the sublease.
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Insurance
Hazard
Insurance
Overview

Acceptable
Insurance
Ratings

Hazard insurance to protect the property against loss or damage from
fire and other hazards if required for all property types.
NOTE: The information provided in this guide is subject to state law
requirements.
Each hazard insurance underwriter must have an acceptable rating as
indicated below. Lloyd’s of London Insurance Group and various
states’ Fair Access to Insurance Requirement Plans (FAIR Plans) are
acceptable insurers, although they are not rated.
Rating Agent
A.M. Best Co.
(www.ambest.com)
Rating
B/III, A/III or better rating by A.M. Best Company,
Inc.
Demotech, Inc.
(www.demotech.com)
An “A” or better rating in Demotech’s P&C financial
stability ratings.
Standard & Poor’s, Inc.
(www.standardandpoors.com)
A minimum rating of “BBB” as reported in
Insurer Solvency Review – Property/Casualty
Edition
Evidence of
Insurance
Evidence of insurance in the form of a Declarations page, Certificate of
Insurance, Evidence of Insurance or Binder is acceptable as long as all of
the following information is clearly stated:

Underwriting company’s name

Mailing address (if applicable)

Agent’s information (name,
address & phone number)

Amount of coverage

Dates of coverage

Signature of agent (if
applicable)

Deductible amount

Loan number

Premium amount with paid
receipt or invoice

Mortgagor’s name(s)

Mortgagee Clause

Property address
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Insurance,
Continued
Insurance
Coverage
Terms

Binders must be effective for at least 60 days and reference the
annual renewal dates of the pending policy. Binders with an inception
date and expiration date are acceptable as long as the actual policy
effective dates are also provided.

An Application for coverage is not acceptable unless the application
explicitly states that coverage is bound under the terms of the policy if
signed by the insurance agent and must meet all requirements listed
above.
NOTE: Non-critical Insurance Agent information – such as agent
address, phone or fax number, may be handwritten onto the typed
binder.

The following information must be provided on the evidence of
insurance:


All borrower names that appear on the security instrument must
appear as insured on policy.
Complete and accurate property address:
o Property address (to include street address, unit number –if
applicable, city, state, and zip code) must be consistent with
file.
NOTE: If file indicates a different mailing address (i.e. P.O.
Box, RR Box #), both addresses should appear on the
binder/policy.

Policy number or binder number present (not applicable if application
received).

Agent’s name, address and phone number.

Loan number

Length of Coverage:




The effective dates (beginning and expiration date) of the policy
coverage must be clearly stated.
Purchases: Must extend a minimum of 12 months from date of
funding.
Refinance: Existing coverage must extend a minimum of 60 days
beyond the date of funding. Sufficient impounds must be collected
to renew the coverage on the due date (if applicable). If the
policy expires within 60 days of the date of funding, evidence of
renewal for one year must be provided OR must be paid at closing
and appear on HUD-1.
Annual premium amount.
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Insurance,
Continued
Insurance
Coverage
Terms,
(Cont’d)

Deductible amount must not exceed 5% of the policy amount (subject
to applicable state law restrictions).

Coverage Requirements: Subject to applicable state law requirements
the amount of dwelling coverage must equal:

Examples of
Insurable
Value

100% of the insurable value, which is the replacement value. (as
established by the property insurer) or the unpaid principal
balance of the mortgage as long as it equals the minimum amount
(80% of the insurable value of the improvements) required to
compensate for damage or loss on a replacement cost basis.
If the amount of coverage is not sufficient, you must either increase
the dwelling coverage or obtain one of the endorsements below:


Guaranteed Replacement Cost endorsement OR
Replacement Cost endorsement with a percentage exceeding
100% of the coverage amount
NOTE: If the endorsement option is utilized, the insurance must reflect
evidence of the additional endorsements. If the Replacement Cost is
utilized, the evidence of insurance must indicate the percentage.
Evidence of
Payment
Insurance
Exclusions

Declarations page or binder with a paid receipt with policy number.

Declarations page or binder reflecting premium amount and the
statement “Paid in Full”

Declarations page or binder agent along with invoice for premium to be
collected at closing and listed as paid on the final HUD-1 Statement.
Coverage must not exclude or limit windstorm, hurricane, hail or other
damages that are included in the standard extended coverage. If the
policy contains such exclusions or limitations, a supplemental policy or
endorsement must be provided.
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Insurance,
Flood
Insurance
Continued
If a loan is in an identified Special Flood Hazard Area (SFHA), Ocwen
requires flood insurance. If a property is located in a community that
does not participate in the National Flood Insurance Program (NFIP),
Ocwen will not purchase the loan.
Flood insurance is required if any part of the principal structure is located
within an SFHA. If a non-residential detached structure attached to the
land on a property securing the mortgage loan has any part located in a
SFHA, then flood insurance is not required on the non-residential
detached structure. If a residential detached structure on a property
securing the mortgage loan has any part located in a SFHA, then flood
insurance is required on the residential detached structure.
Flood insurance policies should be in the form of a standard policy issued
under the NFIP or by a private insurer. The terms and conditions of the
flood insurance coverage must be at least equivalent to the terms and
conditions of coverage provided under the standard policy of the NFIP for
the appropriate property type. The Declaration page of the policy is
acceptable evidence of coverage.
The minimum amount of flood insurance for 1-4 unit properties, individual
PUD units and certain condo units (Detached Condos) is the lower of:



100% of the replacement cost of the insurable value of the
improvements;
The maximum insurance available from the NFIP, which is currently
$250,000 per dwelling; or
The unpaid principal balance of the mortgage
If a PUD Project maintains a Master Policy, the amount of flood insurance
coverage for a PUD project should be at least equal to the lessor of 100%
of the replacement cost of the facilities or the maximum coverage
available under the NFIP.
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Insurance,
Attached
Condo
Projects
Continued
Stand-alone flood insurance dwelling policies for an attached individual
condo unit are not acceptable. A master condo flood insurance policy
must be maintained by the homeowners’ association, subject to the
coverage requirements below. The homeowners’ association must obtain
a Residential Condominium Building Association Policy or equivalent
private flood insurance coverage for each building that is located in an
SFHA. The policy must cover all of the common elements and property
(including machinery and equipment that are part of the building), as well
as each of the individual units in the building.
There must be a master flood insurance policy in effect that is at least
equal to or lower of:
 80% of the replacement cost, or
 The maximum insurance available from the National Flood
Insurance Program (NFIP) per unit (which is currently $250,000).
NOTE: If the condo project master policy meets the minimum coverage
requirements above but does not meet the 1 – 4 unit coverage
requirements described above, a supplemental policy may be maintained
by the unit owner for the difference.
The contents coverage should equal 100% of the insurable value of all
contents (including machinery and equipment that are not part of the
building), owned in common by association members.
If the condo project has no master flood insurance policy or if the master
flood insurance policy does not meet the requirements above, mortgages
securing units in that project are not eligible for delivery toOcwen.
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Insurance,
Continued
Acceptable
Flood
Coverage
Acceptable flood coverage for 1-4 unit properties; subject to applicable
state law requirements, the amount of flood insurance coverage must be
the lowest of the following:




Evidence of
Payment
Optional
Insurance
Coverage
100% of the replacement cost of the dwelling.
NOTE: To validate this amount, review the Total Estimated Cost
New on appraisal. If not available – subtract the site value from
the appraised value;
Loan Amount or sum of combined liens (unpaid principal balance)
regardless of lien holder – which must be equal to a minimum of
80% of the insurable value; OR
Maximum amount of NFIP flood insurance coverage available –
currently $250,000

Declarations page or binder and paid receipt with policy number.

Declarations page or binder reflecting premium amount and the
statement “Paid in Full”

Declarations page or binder along with invoice for premium to be
collected at closing and listed as paid on the final HUD-1 Statement.

At the borrowers requests optional insurance coverage, such as
Earthquake coverage, may be included in the impound account
whether or not the account is a requirement of the loan. However,
Ocwen Loan Servicing, LLC will not set up an impound account for
personal property, auto or any other type of insurance polices not
directly associated with insuring the structure of the home.

If the borrower chooses to waive the impound account, in accordance
with the terms of the loan, all impound items must be waived. There
may be additional fees for waiving the impound account. Refer to
your local representation for full details.

If an impound account is required as part of the loan, the borrower must
impound for all impound items with the exception to the above optional
insurance items.
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Condo and PUD Projects
Project
Documentation

The documentation needed to complete a project review may
differ depending on the project and review type. Clients are
responsible for determining the documentation needed to
ensure that the project meets all of Ocwen’s eligibility
requirements. Project documentation may include, but is not
limited to, the following:
 Legal and recorded documents including the covenants,
conditions and restrictions, declaration of condominium,
or other similar documents that establish the legal
structure of the project;
 Project budgets, financial statements, and reserve
studies;
 Homeowners’ association (HOA) certification;
 Project construction plans;
 Architects’ or engineers’ reports;
 Completion reports;
 Project marketing plans;
 Environmental hazard reports;
 Attorney opinions;
 Appraisal reports; and
 Evidence of insurance policies and related documentation.

Sources for project information include, but are not limited
to, appraisers, HOA’s, management companies, real estate
brokers, insurance professionals, and project developers.
Clients are responsible for the accuracy of any information
obtained from these sources.
The characteristics that define each project type are described in
the following table.
Project Type
Identification Criteria
Established
Condo Project
A project for which all of the following are true:
 At least 90% of the total units in the project have been conveyed
to the unit purchasers; the project is 100% complete, including
all units and common elements; the project is not subject to
additional phasing or annexation; and control of the HOA has
been turned over to the unit owner.
New Condo
Project
A project for which one or more of the following is true:
 Fewer than 90% of the total units in the project have been
conveyed to the unit purchasers;
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
The project is not fully completed, such as proposed construction,
new construction, or the proposed or incomplete conversion of an
existing building to a condo; the project is newly converted; or
the project is subject to additional phasing or annexation.
Two- to Fourunit Condo
Project
A project comprised of two, three, or four residential units in which
each unit is evidenced by its own title and deed. A two- to four-unit
condo project may be either a new or an established project and may
be comprised of attached and/or detached units.
Manufactured
Home Project
A project consisting partially or solely of manufactured homes.
Detached condominium project cannot include Manufactured homes
(LP Scored Loans).
Planned Unit
Development
(PUD) Project
A project or subdivision that consists of common property and
improvements that are owned and maintained by an HOA for the
benefit and use of the individual PUD unit owners.
See Eligibility Requirements for Units in PUD Projects, for additional
detail used in determining whether a project is subject to Fannie
Mae’s PUD eligibility requirements.
Continued on next page
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Condo and PUD Projects,
Project
Review
Methods

Continued
Ocwen securitizes mortgage loans secured by units in condo
and PUD projects that meet Fannie Mae's or Freddie Mac’s
eligibility requirements. To determine whether the project
meets these requirements, a number of project review
methods are available. Whether a project review method is
allowable or required depends on




The
The
The
The
unit type (attached or detached);
project type (condo, or PUD);
project status (new or established); and
mortgage transaction.
The characteristics that dictate which method to use are shown
in the following table.
Unit and Project Type
Attached condo unit in a new
or newly converted project,
including an attached unit in a
condo project that includes a
mixture of attached and
detached units
Attached condo unit in an
established project,
including an attached unit in a
condo project that includes a
mixture of attached and
detached units
Conventional Lending Guide
100-196
Project Review Methods



Full Review (completed with or without using Condo
Project Manager™ (CPM™)), or
Fannie Mae Review through the Project Eligibility
Review Service (PERS)
Limited/Streamline Review only for a unit that is a
- Principal residence with an LTV ratio < 80% not
located in Florida.
- Second home with an LTV ratio < 75%.

Full Review (with or without CPM).
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Detached condo unit in a new
or established project,
including a detached unit in a
condo project that includes a
mixture of attached and
detached units
Attached or detached unit in a
new or established two- to
four-unit condo project
Limited/Streamline Review
NOTE: There are no LTV ratio or occupancy
restrictions for Limited Review eligibility for detached
condo units unless specified.
Based on the mortgage transaction and project
characteristics, two- to four-unit condo projects may be
reviewed using either:
 Limited Review/Streamline, or
 Full Review (with or without CPM)
Condo or Co-Op project that
contains manufactured homes
 PUD project that contains
single-wide manufactured
homes
 Newly-converted non-gut
rehabilitation project
(projects with attached
units only) that contain
more than four residential
unitsNew or newly
converted condo project
consisting of attached units
located in Florida
Fannie Mae Review through PERS
Unit in a condo project
approved by the FHA and that
secures an FHA mortgage
FHA Project Approval
Continued on next page
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Condo and PUD Projects,
Ineligible
Projects
Continued
A mortgage secured by a unit in a project that fails to meet
any of the following requirements is not eligible for delivery
to Ocwen.


Requirements specific to the project review method used
to determine that project’s eligibility,
Appraisal requirements (described in Condo Appraisal
Requirements), or insurance requirements insurance
requirements (described in Insurance, including all
provisions applicable).
Ocwen will not securitize mortgage loans that are secured by
units in certain condo or PUD projects if those projects have
characteristics that make the project ineligible. Such
characteristics are described in the table below, with
additional details provided in the sections that follow. All
eligible projects must be created and remain in full
compliance with state law and all other applicable laws and
regulations of the jurisdiction in which the project is located.
NOTE: If a lender determines that a project does not meet
all of Fannie Mae’s project eligibility requirements but
believes that the project has merit and warrants additional
consideration, the lender may request an exception
(see Projects with Special Considerations and Project
Eligibility Waivers, for additional information).
Ineligible Project Characteristics
Applicable Project Type
Condo
Attached Units
in PUD
Investment securities (i.e., projects that have
documents on file with the Securities and Exchange
Commission (SEC) or projects where unit ownership
is characterized or promoted as an investment
opportunity).
Timeshare, fractional or segmented ownership
projects.
New projects where the seller is offering sale or
financing structures in excess of Fannie Mae’s
eligibility policies for individual mortgage loans.
These excessive structures include, but are not
limited to, builder/developer contributions, sales
concessions, HOA assessments, or principal and
interest payment abatements, and/or contributions
not disclosed on the HUD-1 Settlement Statement.
✓
✓
✓
✓
✓
✓
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Projects with mandatory upfront or periodic
membership fees for the use of recreational
amenities, such as country club facilities and golf
courses, owned by an outside party (including the
developer or builder). Membership fees paid for the
use of recreational amenities owned exclusively by
the HOA or master association are acceptable (For
DU Loans)
Projects that are managed and operated as a hotel
or motel, even though the units are individually
owned. (See section below for additional detail.)
Projects with covenants, conditions, and restrictions
that split ownership of the property or curtail an
individual borrower’s ability to utilize the property.
(See section below for additional detail.)
Projects with property that is not real estate, such
as houseboat projects. (See section below for
additional detail.)
Any project that is owned or operated as a
continuing care facility. (See section below for
additional detail.)
Projects with non-incidental business operations
owned or operated by the HOA including, but not
limited to, a restaurant, spa, or health club. (See
section below for additional detail and exceptions to
this policy.)
Projects that do not meet the requirements for livework projects. (See section below for additional
detail.)
Projects in which the HOA is named as a party to
pending litigation, or for which the project sponsor
or developer is named as a party to pending
litigation that relates to the safety, structural
soundness, habitability, or functional use of the
project. (See section below for additional detail.)
Any project that permits a priority lien for unpaid
common expenses in excess of Agency’s priority lien
limitations. (See section below for additional detail.)
NOTE: This restriction applies to all PUD projects,
whether the units are attached or detached.
Projects in which a single entity (the same
individual, investor group, partnership, or
corporation) owns more than the following total
number of units in the project:
 Projects with 2 to 4 units – 1 unit
 Projects with 5 to 20 units – 2 units
 Projects with 21 or more units – 10%
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Units currently subject to any lease arrangement
must be included in the calculation. This includes
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lease arrangements containing provisions for the
future purchase of the units such as lease-purchase
and lease-to-own arrangements.
Units are not included in the calculation if they are
owned by the developer/sponsor and are vacant and
being actively marketed for sale.
Multi-dwelling unit projects that permit an owner to
hold title (or stock ownership and the accompanying
occupancy rights) to more than one dwelling unit,
with ownership of all of his or her owned units (or
shares) evidenced by a single deed and financed by
a single mortgage (or share loan). (See section
below for additional detail.)
The total space that is used for nonresidential or
commercial purposes may not exceed:
 25% for condo projects
(See section below for additional detail.)
Projects containing manufactured housing that has
not been approved by Fannie Mae through the PERS
process, as required.
Newly converted non-gut rehabilitation projects with
more than four attached units that have not been
approved by Fannie Mae through the PERS process,
as required.
New or newly converted projects in Florida with
attached units that have not been approved by
Fannie Mae through the PERS process, as required.
Projects that represent a legal, but non-conforming,
use of the land, if zoning regulations prohibit
rebuilding the improvements to current density in
the event of their partial or full destruction. (See
Site Section of the Appraisal Report.)
✓
✓
✓
✓
✓
✓
✓
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Condo and PUD Projects,
Projects that
Operate as
Hotels or
Motels
Continued
Projects with one or more of the following characteristics may be
operating as a hotel or motel and are therefore ineligible:
 Hotel or motel conversions (or conversions of other similar
transient properties), unless the project is an established project,
meets all requirements for gut rehabilitation projects, and all units
are residential dwelling units;
 Projects that include registration services and offer rentals of units
on a daily basis;
 Projects that restrict the owner’s ability to occupy the unit; and
 Projects with mandatory rental pooling agreements that require
unit owners to either rent their units or give a management firm
control over the occupancy of the units.
o These formal agreements between the developer,
homeowners’ association, and/or the individual unit owners,
obligate the unit owner to rent the property on a seasonal,
monthly, weekly, or daily basis. In many cases, the
agreements include blackout dates, continuous occupancy
limitations, and other such use restrictions. In return, the
unit owner receives a share of the revenue generated from
the rental of the unit.
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Condo and PUD Projects,
Sources of
Information
for
Researching
Hotel or Motel
Operations
Continued
The lender must perform an analysis of the project to determine whether
it is operating as a hotel or motel. There are several sources of
information on which to rely, including but not limited to:




Project legal and recorded documents and exhibits,
The appraisal,
The contract for sale, and
The Internet.
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Condo and PUD Projects,
Sources of
Information
for
Researching
Hotel or Motel
Operations
(Cont’d)


Continued
Project characteristics that may indicate the project is operating as a
hotel or motel include, but are not limited to:
 Central telephone system,
 Room service,
 Units that do not contain full-sized kitchen appliances,
 Daily cleaning service,
 Advertising of rental rates,
 Registration service,
 Restrictions on interior decorating,
 Franchise agreements,
 Central key systems,
 Location of the project in a resort area,
 Owner-occupancy density — the project may have few or even no
owner-occupants,
 Projects converted from a hotel or motel,
 Units that are less than 400 square feet,
 Projects with a name that includes the word “hotel” or “motel,” or
interior doors that adjoin other units.
Lenders must thoroughly examine the appraisal, contract for sale, and
other documents to determine if there are guaranteed rent-backs,
references to mandatory rental pooling or management agreements,
and SEC filing references and prospectus documents.The Internet has
become a useful tool for obtaining project and unit-specific
information. The project’s website may contain information on the
project type, amenities, and the availability of units for rent. Internet
searches may identify unit owners offering their unit for short term
rentals within the subject property’s project. As long as the project is
not being operated as a hotel or motel and the units are not subject to
mandatory rentals or to optional leasing programs to a hotel or motel,
then the advertising of a unit for short term rental by the unit owner
does not, alone, constitute the project as a hotel or motel. The lender
is responsible for fully evaluating the project to understand if the
practice of offering short-term rentals by unit owners is organized in
such a way that the project’s predominant use is to operate as a hotel
or motel.
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Condo and PUD Projects,
Projects
Subject to
Split
Ownership
Arrangements


Projects that
Contain MultiDwelling Unit
Condos
Continued
Projects with covenants, conditions, and restrictions that split
ownership of the property or curtail an individual borrower’s ability to
utilize the property are not eligible for delivery to Ocwen. These types
of properties include, but are not limited to, the following:
 “Common interest” apartments or community apartment projects
that are projects or buildings owned by several owners as tenantsin-common or by an association in which individuals have an
undivided interest in a residential apartment building and land, and
have the right of exclusive occupancy of a specific apartment in
the building;
 Projects that restrict the owner’s ability to occupy the unit, even if
the project is not being operated as a motel or hotel; and
 Projects with mandatory rental pooling agreements that require
unit owners to either rent their units or give a management firm
control over the occupancy of the units.
These are formal agreements between the developer, association,
and/or the individual unit owners that obligate the unit owner to rent
the property on a seasonal, monthly, weekly, or daily basis. In many
cases, the agreements include blackout dates, continuous occupancy
limitations, and other such use restrictions. In return, the unit owner
receives a share of the revenue generated from the rental of the unit.
Projects that contain multi-dwelling units are not permitted. These
projects allow an owner to hold title (or share ownership and the
accompanying occupancy rights) to a single legal unit that is sub-divided
into multiple residential dwellings within the single legal unit, with
ownership of the unit (or shares) evidenced by a single deed and financed
by a single mortgage (or share loan). The sub-divided units are not
separate legal units. This restriction applies regardless if the unit owner
maintains one or more of the sub-divided units as rental units or uses one
or more of the sub-divided units as accessory or lock-out units.
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Conventional Lending Guide
Condo and PUD Projects,
Projects that
Contain MultiDwelling Unit
Condos
(Cont’d)
Continued
This provision does not apply to condo projects that allow an individual to
buy two or more individual legal units with the intent of structurally and
legally combining the units for occupancy as a single-unit dwelling.
Mortgages secured by units in these types of projects are eligible for
purchase by Ocwen provided all of the following requirements are met:
 The unit securing the mortgage represents a single legal unit
under a single deed.
 Any construction or renovation to structurally combine units has no
material impact on the structural or mechanical integrity of the
project’s buildings or the subject property unit.
 The individual units must be fully described in the legal description
in the mortgage and under a single deed.
 The project’s legal documents must have been amended to
reclassify the combined units as a single unit in the project.
 All structural renovation to physically combine the units must be
completed.
 A condo unit with an accessory unit may be eligible on a case-bycase basis with a Fannie Mae PERS Project Approval or a loan-level
Project Eligibility Waiver. See Projects with Special Considerations
and Project Eligibility Waivers, for additional information on
submitting an exception request.
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Conventional Lending Guide
Condo and PUD Projects,
Projects with
Property that
is not Real
Estate
Continued
Ocwen acquires mortgage loans secured by real estate. Houseboats, boat
slips, cabanas, timeshares, and other forms of property that are not real
estate are not eligible to Ocwen. The marketability and value of individual
units in a project may be adversely impacted by the inclusion of non-real
estate property such as houseboats, timeshares, and other forms and
structures that are not real estate. As such, projects containing these
other non-real estate forms of property are not eligible.
Boat slips, cabanas, and other amenities are permitted when owned in
common by the unit owners as part of the HOA.
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Condo and PUD Projects,
Projects that
Operate as a
Continuing
Care
Community
or Facility
Continued
Mortgages secured by units in a project that operates, either wholly or
partially, as a continuing care community are ineligible toOcwen. These
communities or facilities are residential projects designed to meet
specialized health and housing needs and typically require residents to
enter into a lifetime contract with the facility to meet all future health,
housing, or care needs. These communities may also be known by other
names such as life-care facilities.
Projects that make continuing care services available to residents are
eligible only if the continuing care facilities or services are not owned or
operated by the HOA and residential unit owners are not obligated to
purchase or utilize the services through a mandatory membership, contract,
or other arrangement.
Continuing care communities are not the same as age-restricted projects.
Age-restricted projects that restrict the age of residents but do not require
residents to enter into a long-term or lifetime contract for healthcare and
housing as the resident’s age are eligible.
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Condo and PUD Projects,
NonIncidental
Business
Arrangements
Continued
A project is ineligible if the HOA is receiving more than 10% of its
budgeted income from non-incidental business arrangements related to
the active ownership and/or operation of amenities or services available
to unit owners and the general public. This includes, but is not limited to,
businesses such as a restaurant or other food- and beverage-related
services, health clubs, and spa services.
Non-incidental income from the following sources is permitted provided
the income does not exceed 15% of the project’s budgeted income:



Income from the use of recreational amenities or services owned
by the HOA for the exclusive use by unit owners in the project or
leased to another project according to a shared amenities
agreement (as noted below);
Income from agreements between the HOA and telephone, cable,
and Internet companies for the purpose of providing
communication or media services (for example, income related to
a cell tower located on the roof of the project); or
Income from the leasing of units in the project acquired by the
HOA through foreclosure.
NOTE: The single-entity ownership limits (described in the Ineligible
Project Characteristics table above) will apply to the number of units
owned and rented by the HOA
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Condo and PUD Projects,
Commercial
Space and
Mixed-Use
Allocation
Continued
Scored loans require that no more than 25% of a condo project or 25% of
the building in which the condo project is located be commercial space or
allocated to mixed-use. This includes commercial space that is above and
below grade.
Any commercial space in the project or in the building in which the
residential project is located must be compatible with the overall
residential nature of the project.
NOTE: Rental apartments and hotels located within the project must be
classified as commercial space even though these may be considered
“residential” in nature.
Calculation of Commercial Space Commercial space allocation is
calculated by dividing the total non-residential square footage by the total
square footage of the project or building. Lenders are responsible for
determining the total square footage of the project, the square footage of
the non-residential space, and the residential space square footage. This
calculation includes the total square footage of commercial space even if
the residential and commercial owners are represented by separate
associations.
Non-residential square footage includes:



Retail and commercial space,
Parking space that is separate from parking allocated to residential
unit owners, and
Space that is non-residential in nature and owned by a private
individual or entity outside of the HOA structure.
Examples include, but are not limited to:





Public parking facilities (fee-based or free),
Rental apartments,
Hotels,
Restaurants, and
Private membership-based fitness facilities.
Non-residential square footage excludes amenities that are:



Residential in nature;
Designated for the exclusive use of the residential unit owners
(such as, but not limited to, a fitness facility, pool, community
room, and laundry facility); and
Owned by the unit owners or the HOA.
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Condo and PUD Projects,
Calculation
of
Commercial
Space
(Cont’d)
Continued
The following table shows which commercial or mixed-use space
must be included in the calculation of the percentage of
commercial space.
If the commercial or mixed-use space is…
Then its square footage is
included in the calculation
of commercial space
percentage
Owned, controlled, or operated by the subject property’s HOA that is unrelated
to the project-specific amenities offered for the exclusive use and enjoyment by
the HOA members
Owned by the subject property’s HOA but controlled or operated by a separate
private entity
Yes
Yes
Example: Office space owned by the HOA but leased to a private business.
Owned and controlled by a project HOA other than the subject property’s HOA
that shares the same master HOA with the subject property’s HOA AND the
commercial space is co-located in the project’s building(s) that Space is colocated in the project’s-W building(s) that contain(s) the residential units
Owned, controlled, or operated by a private entity that is co-located in the
building(s) that contain(s) the project’s residential units
Yes
Yes
Example:

Floors 1 to 4 consist of hotel and retail,

Floors 5 to 7 consist of privately-owned and -managed rental
apartments, and

The remaining floors consist of the condo project units.
Owned, controlled, or operated by a private entity that is NOT co-located in the
building(s) or common elements as declared in the project legal documents that
contain(s) the project’s residential units
Owned and controlled by a project HOA other than the subject
property’s HOA that shares the same master HOA with the
subject property’s HOA BUT the commercial space is located in
a building that is separate from the building(s) containing the
project’s residential units
No
No
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Condo and PUD Projects,
Live-Work
Projects

Continued
Live-work projects are projects that permit individual residential unit
owners to operate and run a small business from their residential unit.
Units in projects that permit live-work arrangements are eligible for
sale to Ocwen provided the following additional requirements are met:







The loan is evaluated via Fannie Mae’s DU.
The overall character of the project is residential.
Live-work units must be limited to residential units that are
occupied as primary residences in which the unit owner is the
owner and operator of the small business.
The live-work unit must be primarily residential in character with
minimal space designated to or modifications made to
accommodate the unit owner’s commercial activity.
The commercial use must be consistent with the residential nature
of the project.
The project documents must permit commercial use and state
what types of commercial use are acceptable.
The project must conform to any applicable local ordinances
governing the structure and operation of live-work projects
including limitations on the number of live-work units or the
percentage of live-work unit space permitted.
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Condo and PUD Projects,
Litigation
Continued

Projects in which the HOA is named as a party to pending litigation, or
for which the project sponsor or developer is named as a party to
pending litigation that relates to the safety, structural soundness,
habitability, or functional use of the project are ineligible for sale to
Ocwen.

If the lender determines that pending litigation involves minor matters
with no impact on the safety, structural soundness, habitability, or
functional use of the project, the project is eligible provided the
litigation is limited to one of the following categories:





Non-monetary litigation involving neighbor disputes or rights of
quiet enjoyment;
Litigation for which the claimed amount is known, the insurance
carrier has agreed to provide the defense, and the amount is
covered by the HOA's or
The HOA is named as the plaintiff in a foreclosure action, or as a
plaintiff in an action for past due HOA assessments.
The lender must obtain documentation to support its analysis that
the litigation meets the criteria for minor litigation as described
above.
If the lender is aware of pending litigation and is unable to
determine whether the litigation may be deemed a minor matter,
the lender may contact Fannie Mae's Project Standards team to
determine whether Fannie Mae will accept delivery of mortgages
secured by units in the project.
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Condo and PUD Projects,
Priority of
Common
Expense
Assessments

For DU run loans, Fannie Mae allows a limited amount of regular
common expense assessments (typically known as HOA fees) to have
priority over Fannie Mae's mortgage lien for mortgage loans secured
by units in a condo or PUD project. This applies if the condo or PUD
project is located in a jurisdiction that has enacted




Continued
The Uniform Condominium Act,
The Uniform Common Interest Ownership Act, or
A similar statute that provides for unpaid assessments to have
priority over first mortgage liens.
The table below describes the permitted priority of common expense
assessments for purposes of determining the eligibility of a mortgage
loan secured by a unit in a condo or PUD project for purchase by
Fannie Mae.
The table below describes the permitted priority of common expense
assessments for purposes of determining the eligibility of a mortgage
loan secured by a unit in a condo or PUD project for purchase by Fannie
Mae.
If the condo or PUD project ...
Then...
Is located in a jurisdiction that enacted a
law on or before January 14, 2014, that
provides that regular common expense
assessments will have priority over Fannie
Mae's mortgage lien for a maximum
amount greater than six months,
The maximum number of months of regular common
expense assessments permitted under the applicable
jurisdiction’s law as of January 14, 2014, may have
priority over Fannie Mae’s mortgage lien, provided that
if the applicable jurisdiction’s law as of that date
referenced an exception for Fannie Mae’s requirements,
then no more than six months of regular common
expense assessments may have priority over Fannie
Mae’s mortgage lien.
Is located in any other jurisdiction,
No more than six months of regular common expense
assessments may have priority over Fannie Mae’s
mortgage lien, even if applicable law provides for a
longer priority period.

Notwithstanding any provisions to the contrary in the Guide,
which does not require the client to represent or warrant
compliance with Agency project legal document requirements,
the condo or PUD project legal documents must evidence
compliance with the above priority of common expense
assessment requirements.
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Condo and PUD Projects,
Required
Property
Insurance
Coverage for
Condo or PUD
Projects
Continued

This section covers property insurance requirements for insurance policies
covering the common elements of condo and PUD projects—the project’s
blanket or master policy.

Acceptable policies must provide coverage for either an individual project or
multiple affiliated projects. The insurance policy must at a minimum protect
against fire and all other hazards that are normally covered by the standard
extended coverage endorsement, and all other perils customarily covered for
similar types of projects, including those covered by the standard “all risk” or
“special form” endorsement. If the policy does not include an “all risk” or
“special form” endorsement, Fannie Mae will accept a policy that includes the
“broad form” covered causes of loss. The applicable requirements are:


PUD Requirements — the HOA must maintain a property insurance
policy, with premiums being paid as a common expense. The policy must
cover all of the common elements except for those that are normally
excluded from coverage, such as land, foundation, and excavations.
Fixtures and building service equipment that are considered part of the
common elements, as well as common personal property and supplies,
should be covered.
o Individual insurance policies are also required for each unit mortgage
that Ocwen purchases in a PUD project. If the project’s legal
documents allow for blanket insurance policies to cover both the
individual units and the common elements, Fannie Mae will accept the
blanket policies in satisfaction of its insurance requirements for the
units.
Condo Requirements — the lender must review the entire condo project
insurance policy to ensure the HOA maintains a master or blanket type of
insurance policy, with premiums being paid as a common expense. The
insurance requirements vary based on the type of HOA master or blanket
insurance policy as follows:
o
“Single Entity” policy: The policy must cover all of the general and
limited common elements that are normally included in coverage.
These include fixtures, building service equipment, and common
personal property and supplies belonging to the HOA. The policy also
must cover fixtures, equipment, and replacement of improvements
and betterments that have been made inside the individual unit being
financed. The amount of coverage must be sufficient to restore the
condo unit to its condition prior to a loss claim event. If the unit
interior improvements are not included under the terms of this policy
type, the borrower is required to have an HO-6 policy with coverage,
as determined by the insurer, which is sufficient to repair the condo
unit to its condition prior to a loss claim event.
Continued on next page
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Condo and PUD Projects,
Required
Property
Insurance
Coverage for
Condo or PUD
Projects
(Cont’d)
Continued
o
“All-In” (sometimes known as an “all-inclusive”) policy: The
policy must cover all of the general and limited common
elements that are normally included in coverage. These
include fixtures, building service equipment, and common
personal property and supplies belonging to the HOA. The
policy also must cover fixtures, equipment, and
replacement of improvements and betterments that have
been made inside the individual unit being financed. If the
unit interior improvements are not included under the
terms of this policy type, the borrower is required to have
an HO-6 policy with coverage, as determined by the
insurer, which is sufficient to repair the condo unit to its
condition prior to a loss claim event.
o
“Bare Walls” policy: This policy typically provides no
coverage for the unit interior, which includes fixtures,
equipment, and replacement of interior improvements and
betterments. As a result, the borrower must obtain an
individual HO-6 policy that provides coverage sufficient to
repair the condo unit to its condition prior to a loss claim
event, as determined by the insurer.
NOTE: If escrows are collected, full or partial; HO-6 must be
escrowed also.
Amount of
Coverage

Insurance must cover 100% of the insurable replacement cost of the
project improvements, including the individual units in the project. An
insurance policy that includes any of the following coverage, either in
the policy language or in a specific endorsement to the policy, is
acceptable:

Guaranteed Replacement Cost–the insurer agrees to replace the
insurable property regardless of the cost,

Extended Replacement Cost–the insurer agrees to pay more than
the property’s insurable replacement cost, or

Replacement Cost–the insurer agrees to pay up to 100% of the
property’s insurable replacement cost.
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Condo and PUD Projects,
Continued
Policies with Coinsurance
Policies with coinsurance provisions can create additional risk for an HOA
in the event of a loss if the amount of insurance coverage is less than the
full insurable value. Master property policies that provide coverage at
100% of the insurable replacement cost of the project improvements,
including the individual units, alleviate the risk of a coinsurance penalty
being applied in the event of a loss.
If the policy has a coinsurance clause, inclusion of an Agreed Amount
Endorsement or selection of the Agreed Value Option (which waives the
requirement for coinsurance) is considered acceptable evidence that the
100% insurable replacement cost requirement has been met. If an Agreed
Amount/Agreed Value provision is used, the Agreed Amount must be no
less than the estimated replacement cost.
If the policy includes a coinsurance clause, but the coinsurance provision
is not waived, the policy is still eligible if evidence acceptable to the
lender confirms that the amount of coverage is at least equal to 100% of
the insurable replacement cost of the project improvements. This
evidence (documentation) must be maintained by the lender.
Maximum
Deductible
Amounts
For policies covering the common elements in a PUD project and for
policies covering condo or co-op projects, the maximum deductible
amount must be no greater than 5% of the face amount of the policy.
For losses related to individual units in a co-op project or for individual
PUD units that are covered by the blanket policy for the project, the
maximum deductible amount related to the individual unit should be no
greater than 5% of the replacement cost of the unit. If, however, the
policy provides for a wind-loss deductible (either in the policy itself or in a
separate endorsement), that deductible must be no greater than 5% of
the face amount of the policy.
For blanket insurance policies that cover both the individual units and the
common elements, the maximum deductible amount related to the
individual unit should be no greater than 5% of the replacement cost of
the unit.
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Condo and PUD Projects,
Special
Endorsements
Requirements
for Condo
Projects
Continued
The requirements for endorsements for condo and PUD projects are as
follows:


Inflation Guard Endorsement, when it can be obtained;

Building Ordinance or Law Endorsement, if the enforcement of any
building, zoning, or land-use law would result in loss or damage,
increased cost of repairs or reconstruction, or additional demolition
and removal costs to rebuild after a covered loss event occurs. The
endorsement must provide for contingent liability from the
operation of building laws, demolition costs, and increased costs of
reconstruction. The endorsement is not required if it is not
applicable or the coverage is not obtainable in the insurance
market available to the association; and

Boiler and Machinery/Equipment Breakdown Endorsement, if the
project has central heating or cooling. This endorsement should
provide for the insurer’s minimum liability per accident to at least
equal the lesser of $2 million or the insurable value of the
building(s) housing the boiler or machinery. In lieu of obtaining
this as an endorsement to the commercial package policy, the
project may purchase separate standalone boiler and machinery
coverage.
Additional insurance policy requirements for condo projects are as
follows:

Any Insurance Trust Agreement is recognized.

The right of subrogation against unit owners is waived.

The insurance is not prejudiced by any acts or omissions of
individual unit owners that are not under the control of HOA.

The policy must be primary, even if a unit owner has other
insurance that covers the same loss.
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Condo and PUD Projects,
Named
Insured
The table below provides the requirements regarding the name of the
insured entity:
Coverage
Type
Condo
Projects
PUD
Common
Areas
Requirement for Named Insured
The policy must show the HOA as the named insured. If the condo’s legal
documents permit it, the policy can specify an authorized representative of the
HOA, including its insurance trustee, as the named insured. The “loss payable”
clause should show the HOA or the insurance trustee as a trustee for each unit
owner and the holder of each unit’s mortgage loan.
The policy must show the HOA as the named insured.
Notices of
Changes or
Cancellation
The table below provides the notification requirements for notices of
policy changes or cancellations.
Project Type
Condo
Continued
Requirement
The policy must require the insurer to notify in writing the HOA (or
insurance trustee) and first mortgage loan holder named in the
mortgagee clause at least 10 days before it cancels or substantially
changes a condo project’s coverage.
Fidelity /
Crime
Insurance
Projects Requiring Fidelity/Crime Insurance
Fidelity/crime insurance is required for all condo with the following
exceptions that do not require fidelity/crime insurance:

Condo project reviewed under the Limited Review method,

Condo projects consisting of 20 units or less or,

Condo project that would need fidelity/crime insurance coverage of
$5,000 or less (for DU scored loans based on the calculation
described in the Amount of Coverage below).
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Condo and PUD Projects,
Requirements
for Who Must
Be Covered
Continued
The HOA must have blanket fidelity/crime insurance coverage for anyone
who either handles or is responsible for funds that it holds or administers,
whether or not that individual receives compensation for services,
including coverage for a management agent. The insurance policy must
name the HOA as the insured and the premiums should be paid as a
common expense by the association.
A management agent that handles funds for the HOA should additionally
be covered by its own fidelity/crime insurance policy, which should
provide the same coverage required of the HOA .
Amount of
Coverage
The HOA policy must cover the maximum funds that are in the ctody of
the HOA or its management agent at any time while the policy is in force.
Fidelity/Crime insurance is not required if the maximum estimated funds
are less than or equal to $5,000.
A lesser amount of coverage is acceptable if the project’s legal documents
require, or another source acceptable to the lender verifies, that the HOA
and any management company adheres to one or more of the following
financial controls:
Separate bank accounts are maintained for the working account and the
reserve account, each with appropriate access controls, and the bank in
which funds are deposited sends copies of the monthly bank statements
directly to the HOA.
The management company maintains separate records and bank accounts
for each HOA that uses its services, and the management company does
not have the authority to draw checks on, or transfer funds from, the
reserve account of the HOA.
Two members of the Board of Directors must sign any checks written on
the reserve account.
Even then, the fidelity/crime insurance coverage must equal at least the
sum of three months of assessments on all units in the project, unless
this calculated amount is less than or equal to $5,000, in which case
fidelity/crime insurance is not required.
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Condo and PUD Projects,
Cancellation
Modification
Requirements

Limited /
Streamline
Review
Process
Unit and
Project
Types
Eligible for
Limited /
Streamline
Review
Continued
The fidelity/crime insurance policy for a condo project must include a
provision that calls for at least ten days’ written notice to the HOA or
insurance trustee before the policy can be canceled or substantially
modified for any reason. This same notice also must be given to each
servicer that services Agency project.

Limited Review is for loans run via Fannie Mae’s DU,

Streamline Review is for loans run via Freddie Mac’s LP
Lenders conduct the Limited/Streamline Review. To be eligible for a
Limited/Streamline Review, the unit securing the mortgage must be located in
one of the following project types and meet the other criteria described below:


Eligible
Transactions
for Limited /
Streamline
Review of
Attached Units
in Established
Condo
Projects

An attached unit in an established condo project, or
A detached unit in a new or established condo project (including those
projects with a mixture of attached and detached units).
An attached unit in an established condo project, including a
two- to four-unit condo project, is eligible for a Limited Review
if it meets the transaction requirements in the following table:
Eligible Transactions
For Limited Review/Streamline Attached Units in Established Condo Projects
Including 2– to 4–unit Condo Projects
NOT located in Florida
Occupancy Type
Maximum LTV, CLTV, and HCLTV Ratios
Principal residence
≤ 80%
Second home
≤ 75%
Investment property
Ineligible for Limited/Streamline Review
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Condo and PUD Projects,
Continued
Attached units in established projects located in Florida are subject to more restrictive LTV
ratio requirements under the Limited Review process.
Eligible Transactions
For Limited Review/Streamline Attached Units in Established Condo Project
Including 2– to 4–unit Condo Projects
Located in Florida
Occupancy Type
Maximum LTV, CLTV, and HCLTV Ratios
Principal residence
≤ 75% for loans scored through DU and LP
Second home
≤ 65%
Investment property
Ineligible for Limited/Streamline Review
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Condo and PUD Projects,
Limited /
Streamline
Review
Eligibility
Requirements
✓
Continued
In completing a Limited/Streamline Review, the client must
ensure that the project and subject unit meet all of the eligibility
requirements described in the following table.
Limited/Streamline Review Eligibility Requirements
The project is not an ineligible project. (See, Ineligible Projects.)
The project does not consist of manufactured homes.
NOTE: Manufactured housing projects require a Fannie Mae PERS review.
If the subject unit is a detached unit, the unit securing the mortgage must be 100%
complete.
The appraisal of the subject unit meets all applicable appraisal requirements,
The unit securing the mortgage satisfies all insurance requirements.
Provided the project and loan transaction are eligible for and meet all of the eligibility
requirements of the Limited Review process, the lender is not required to validate that the
project also meets the eligibility requirements of another project review type. However, in
the event the lender becomes aware of a circumstance that would cause the project or
transaction to be ineligible under a Limited Review, the lender must use one of the other
project review methods to determine project eligibility and the project must meet all of the
eligibility requirements of that selected alternate project review type.
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Condo and PUD Projects,
Full Review
Process
Continued
Overview
The Full Review process is another method for the review of new and
established condo projects. Lenders performing a Full Review must ensure
that the project meets all applicable eligibility requirements.
Unit and
Project Types
Requiring Full
Review
The Full Review is required when the unit securing the mortgage is an
attached unit located in one of the following project types:


An established condo project, or
A new or newly converted condo project.
Detached condo units located in projects containing a mixture of attached
and detached units are eligible for review using the Limited Review
process (see Limited/Streamline Review Process).
Two- to four-unit condo projects reviewed using the Full Review process
must comply with all requirements of the Full Review, unless specifically
stated otherwise.
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Condo and PUD Projects,
Full Review
Eligibility
Requirements for
Attached
Units in
Condo
Projects
✓
Continued
When determining the eligibility of a condo project on the
basis of a Full Review, lenders must ensure the condo project
meets the eligibility requirements described in the following
table:
Full Review Eligibility Requirements
For Attached Units in New, Established, or Two- to Four-Unit Condo Projects
The project must not be an ineligible project. (See Ineligible Projects.)
The project must not be a manufactured housing project.
The unit securing the mortgage satisfies all insurance requirements including all
provisions applicable to condo projects in Additional Project Insurance.
The appraisal of the subject unit must meet all applicable appraisal requirements.
No more than 15% of the total units in a project may be 60 days or more past due on
their common expense assessments (also known as HOA dues). For example, a 100–
unit project may not have more than 15 units that are 60 days or more past due.
NOTE: Scored loans In a two- to four-unit project, no unit owners may be 60 or more
days past due on their HOA common expense assessments.
This ratio is calculated by dividing the number of units with common expense
assessments that are past due by 60 or more days by the total number of units in the
project.
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Condo and PUD Projects,
Continued
✓ Full Review Eligibility Require-ments for Attached Units in Condo Projects.
Lenders must review the HOA
 Is adequate (i.e., it includes allocations for line items pertinent to the type of
condo project), and
 Provides for the funding of replacement reserves for capital expenditures and
deferred maintenance that is at least 10% of the budget.
To determine whether the association has a minimum annual budgeted replacement
reserve allocation of 10%, the lender must divide the annual budgeted replacement
reserve allocation by the association’s annual budgeted assessment income (which
includes regular common expense fees).
The following types of income may be excluded from the reserve calculation:



Incidental income on which the project does not rely for ongoing operations,
maintenance, or capital improvements
Income collected for utilities that would typically be paid by individual unit
owners, such as cable TV or Internet access;
Income allocated to reserve accounts; and special assessment income.
The lender may use a reserve study in lieu of calculating the replacement reserve of
10% provided the following conditions are met:




The lender obtains a copy of an acceptable reserve study and retains the study
and the lender’s analysis of the study in the project approval file,
The study demonstrates that the project has adequate funded reserves that
provide financial protection for the project equivalent to Fannie Mae’s standard
reserve requirements,
The study demonstrates that the project’s funded reserves meet or exceed the
recommendations included in the reserve study, and
The study meets Fannie Mae’s requirements for replacement reserve studies
listed at the end of this section.
NOTE: These requirements for a budget review, replacement reserves, and reserve
study are not applicable to two- to four-unit projects.
For projects in which the units are not separately metered for utilities, the lender must:

Determine that having multiple units on a single meter is common and
customary in the local market where the project is located, Confirm that the
project budget includes adequate funding for utility payments.
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NOTE: These requirements are not applicable to two- to four-unit projects.
The project must be located on contiguous parcels of land. It is acceptable for a project
to be divided by public or private streets.
The structures within the project must be within a reasonable distance from each other.
Common elements and facilities, such as recreational facilities and parking, must be
consistent with the nature of the project and competitive in the marketplace.
Unit owners in the project must have the sole ownership interest in, and rights to the
use of the project’s facilities, common elements, and limited common elements, except
as noted below.
Shared amenities are permitted only when two or more HOAs share amenities for the
exclusive use of the unit owners. The associations must have an agreement in place
governing the arrangement for shared amenities that includes the following:




A description of the shared amenities subject to the arrangement;
A description of the terms under which unit owners in the project may use the
shared amenities;
Provisions for the funding, management, and upkeep of the shared amenities;
and
Provisions to resolve conflicts between the associations over the amenities.
Examples of shared amenities include, but are not limited to, clubhouses, recreational or
fitness facilities, and swimming pools.
The developer may not retain any ownership interest in any of the facilities related to
the project. The amenities and facilities—including parking and recreational facilities—
may not be subject to a lease between the unit owners or the HOA and another party.
Parking amenities provided under commercial leases or parking permit arrangements
with parties unrelated to the developer are acceptable.
Fannie Mae permits the financing of a single or multiple parking space(s) with the
mortgage provided that the parking space(s) and residential unit are included on one
deed as evidenced on the legal description in the mortgage. In such cases, the LTV,
CLTV, and HCLTV ratios are based on the combined value of the residential unit and the
parking space(s).
Phase I and II environmental hazard assessments are not required for condo projects
unless the lender identifies an environmental problem through the performance of its
project underwriting or due diligence.
In the event that environmental problems are identified, the problems must be
acceptable, as described in r Phase I Environmental Hazard Assessments.
For investment property transactions on attached units in established projects (including
two- to four-unit projects), at least 50% of the total units in the project must be
conveyed to principal residence or second home purchasers. This requirement does not
apply if the subject mortgage is for a principal residence or second home.
Financial institution-owned REO units that are for sale (not rented) are considered
owner-occupied when calculating the 50% owner-occupancy ratio requirement.
When the project does not meet the owner-occupied ratio of 50%, an investment
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property transaction will only be eligible if the lender submits the project to Fannie Mae
 For review under PERS and the project is approved (see Project Eligibility Review
Service (PERS), for additional information), or
 For a single-loan project eligibility waiver and the waiver is approved
(see Projects with Special Considerations and Project Eligibility Waivers, for
additional information).
If the project was a gut rehabilitation project, all rehabilitation work involved in a condo
conversion must have been completed in a professional manner.
“Gut rehabilitation” refers to the renovation of a property down to the shell of the
structure, including the replacement of all HVAC and electrical components (unless the
HVAC and electrical components are up to current code).
For a conversion that was legally created during the past three years, the architect’s or
engineer’s report (or functional equivalent), that was originally obtained for the
conversion must comment favorably on the structural integrity of the project and the
condition and remaining useful life of the major project components, such as the
heating and cooling systems, plumbing, electrical systems, elevators, boilers, roof, etc.
NOTE: If the project is a newly converted non-gut rehabilitation project with more than
four residential units, lenders must submit the project to Fannie Mae for review and
approval. See , Project Eligibility Review Service (PERS), for additional information.
For newly converted two- to four-unit non-gut rehabilitation projects, the following
requirements apply:




All rehabilitation work involved in a condo conversion must have been completed
in a professional manner.
A current reserve study prepared by a qualified, independent professional
company, accompanied by an engineer's report, or functional equivalent, must
comment favorably on the structural integrity of the project and the remaining
useful life of the major project components.
The project budget must contain line items for the following:
o Reserves that adequately support the costs identified in the reserve
study, even if the study recommends budgeting reserves greater than
10% of the project’s income;
o Funds to cover the total cost of any items identified in the reserve study
or engineer's report that need to be replaced within 5 years from the date
of the study must be deposited in the HOA's reserve account, in addition
to the amount stated immediately above; and
o A utility contingency of at least 10% of the previous year's utility costs if
the utilities are not separately metered.
NOTE: Newly converted gut rehabilitation projects must follow the standard gut
rehabilitation requirements listed under the eligibility requirements above.
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Condo and PUD Projects,
Replacement
Reserve
Studies
Continued
Reserve studies may be used to determine the appropriate level of
reserves the HOA must maintain to ensure the project’s long-term
success. Reserve studies will also provide useful information regarding
the adequacy of the HOA’s current reserve funds and offer
recommendations to meet funding goals in the event the HOA has
under-reserved for its needs in the past. The lender may review the
most current reserve study or a reserve study update provided it has
been completed within three years of the date on which the lender
approves the project.
Reserve studies must be prepared by an independent third party that
has specific expertise in completing reserve studies. This expertise
may include any of the following




A reserve study professional with reserve study credentials,
A construction engineer,
A certified public accountant who specializes in reserve studies, or
Any professional with demonstrated knowledge of and experience
in completing reserve studies.
While Fannie Mae does not require that a standard format be used for
the reserve study, the following items must be addressed:






All major components and elements of the project’s common areas
for which repair, maintenance, or replacement is expected;
The condition and remaining useful life of each major component;
An estimate of the cost of repair, replacement, restoration, or
maintenance of major components;
An estimate of the total annual contributions required to defray
costs (minus the existing reserves funded for this purpose),
including inflation;
An analysis of existing funded reserves; and
A suggested reserve funding plan.
NOTE: Individual states may have various statutes concerning the use
and content of reserve studies. Fannie Mae requires that a reserve study
used by the lender in its analysis meet or exceed requirements set forth
in relevant state statutes.
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Condo and PUD Projects,
Full Review:
Continued

Additional Requirements for Attached Units in New and Newly
Converted Condo Projects.

When performing a Full Review of attached units in new or
newly converted condo projects, lenders must ensure
compliance with the following additional requirements.
NOTE: These requirements are not applicable to attached
units in new or newly converted projects in Florida, which
must be reviewed by Fannie Mae through the PERS process.
See Geographic-Specific Condo Project Considerations.
✓
Full Review Requirements
For Attached Units in New or Newly Converted Condo Projects
The project, or the subject legal phase, must be “substantially complete” unless other
completion arrangements have been approved by Fannie Mae through the PERS review process.
There may not be more than one legal phase per building.
“Substantially complete” means that:


A certificate of occupancy or other substantially similar document has been issued by the
applicable governmental agency for the project or subject phase; and
Athe units in the building in which the unit securing the mortgage is located are
complete, subject to the installation of buyer selection items, such as appliances.
NOTE: Fannie Mae does not require the installation of typical buyer selection items such as
appliances, floor coverings, counter tops, or light fixtures that are common and customary for
the market, although buyer selections that involve the modification of a unit floor plan must be
complete. Lenders are expected to obtain appropriate documentation to verify that all buyer
selection items for the unit being financed are properly installed prior to closing.
Two- to four-unit projects: All units, common elements, and facilities within the project must
be 100% complete and not subject to additional phasing even when the project is a new or
newly converted project.
At least 50% of the total units in the project or subject legal phase must have been conveyed or
be under contract for sale to principal residence or second home purchasers for loans scored
through DU.
For a specific legal phase or phases in a new project, at least 50% of the total units in the
subject legal phase(s), considered together with all prior legal phases, must have been conveyed
or be under contract for sale to principal residence or second home purchasers.
At least 70% of the total units in the project or subject legal phase must have been conveyed or
be under contract for sale to principal residence or second home purchasers for loans scored
through LP.
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For a specific legal phase or phases in a new project, at least 70% of the total units in the
subject legal phase(s), considered together with all prior legal phases, must have been conveyed
or be under contract for sale to principal residence or second home purchasers
For the purposes of this review process, a project consisting of one building cannot have
more than one legal phase.
Two- to four-unit projects: All but one unit in the project must have been conveyed or be
under contract for sale to a principal residence or second home purchaser.
Individual units in new condo projects must be available for immediate occupancy at the time of
loan closing.
Not Applicable to Two- to Four-Unit Condo Projects
If the project is part of a larger development, and the unit owners are required to pay monthly
assessments of more than $50 to a separate master association for that development, lenders
must review the overall development plan for the master association to evaluate the
acceptability of the project.
The overall development plan of the project must be reviewed and the following must be
acceptable:

Consistency of future and existing improvements,

Time limitations for expansion, and

Reciprocal easements between legal phases.
For projects (or the subject legal phase) that are only substantially complete rather than 100%
complete, lenders must determine that acceptable completion assurance arrangements that
guarantee the future completion of all project facilities, common elements, and limited common
elements have been provided. These assurance arrangements may include:

Cash deposits,

Letters of credit,

Assignments of certificates of deposit, or

Assignments of other assets that can be easily converted to cash.
Similar arrangements must be provided to support assurances against construction and
structural defects. The assurances must protect each unit against defects that become apparent
within one year from the date of its settlement, and cover all common facilities for one year from
the date on which units that represent at least 60% of the votes in the HOA have been
transferred.
The developer or sponsor should provide for and promote the unit owners’ early participation in
the management of the project.
The project must meet the condo project legal document requirements in the following section.
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Condo and PUD Projects,
Condo
Project
Legal
Document
Review
Requirements for
Attached
Units in
New or
Newly
Converted
Projects
Continued
The table below provides Ocwens requirements for the
review of the condo project's legal documents for attached
units in new and newly converted condo projects
Condo Project Legal Document Review Requirements
For Attached Units in New or Newly Converted Condo Projects
Limitations on
Ability to
Sell/Right of First
Refusal
Any right of first refusal in the condo project documents will
not adversely impact the rights of a mortgagee or its assignee
to:



Foreclose or take title to a condo unit pursuant to the
remedies in the mortgage,
Accept a deed or assignment in lieu of foreclosure in the
event of default by a mortgagor, or
Sell or lease a unit acquired by the mortgagee or its
assignee.

Rights of Condo
Mortgagees and
Guarantors
The project documents must give the mortgagee and guarantor of
the mortgage on any unit in a condo project the right to timely
written notice of:



Any condemnation or casualty loss that affects either a
material portion of the project or the unit securing its
mortgage;
Any 60-day delinquency in the payment of assessments or
charges owed by the owner of any unit on which it holds
the mortgage;
A lapse, cancellation, or material modification of any
insurance policy maintained by the homeowners’
association; and
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
Any proposed action that requires the consent of a specified
percentage of mortgagees.
First Mortgagee’s
Rights Confirmed
No provision of the condo project documents gives a condo unit
owner or any other party priority over any rights of the first
mortgagee of the condo unit pursuant to its mortgage in the
case of payment to the unit owner of insurance proceeds or
condemnation awards for losses to or a taking of condo units
and/or common elements.
Amendments to
Documents
Required provisions related to amendments to project
documents are as follow:



The project documents must provide that amendments of a
material adverse nature to mortgagees be agreed to by
mortgagees that represent at least 51% of the votes of unit
estates that are subject to mortgages.
The project documents must provide for any action to
terminate the legal status of the project after substantial
destruction or condemnation occurs or for other reasons to
be agreed to by mortgagees that represent at least 51% of
the votes of the unit estates that are subject to mortgages.
The project documents may provide for implied approval to
be assumed when a mortgagee fails to submit a response
to any written proposal for an amendment within 60 days
after it receives proper notice of the proposal, provided the
notice was delivered by certified or registered mail, with a
return receipt requested.
Notwithstanding the foregoing, project documents that were
recorded prior to August 23, 2007, may provide for implied
approval to be assumed when a mortgagee fails to submit a
response to any written proposal for an amendment within 30
days after it receives proper notice of the proposal, provided
the notice was delivered by certified or registered mail, with a
return receipt requested.
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Condo and PUD Projects,
Geographic –
Specific
Condo
Project
Considerations
Florida — Attached Units in New and Newly Converted
Condo Projects


Florida –
Project
Review
Maximum
LTV
Requirement
s for
Attached
Units in New
or Newly
Converted,
and
Established
Projects
Continued
PERS is required for new and newly converted condo
projects consisting of attached units located in Florida. See
Project Eligibility Review Service (PERS).
The following project review methods may not be used to
review such projects in Florida:
o Limited/Streamline Review, or
o Full Review (with or without CPM).
The following table provides the project review requirements
for loans secured by units in condo projects located in Florida.
The required project review type depends on the LTV ratio of
the mortgage loan.
Florida — Attached Units in New and Newly Converted Condo Projects
Maximum LTV Ratios
PERS
Approved
Principal Residence
75%
Second Home
65%
Investor
Full Review (with or without CPM)
Limited Review
Not Eligible
Not permitted
Florida — Attached Units in Establish Condo Projects
Maximum LTV Ratios
PERS
Approved
Full Review (with or without CPM)
Limited Review
Principal Residence
75%
75%
Second Home
65%
65%
Not permitted
Not Eligible
Investor
NOTE: Florida condominiums are not permitted for cash out refinancing.
Investment condominiums are not permitted in Florida.
Continued on next page
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Condo and PUD Projects,
FHA Approved
Condo Review
Edibility
Overview



Project
Requirements
Continued
Ocwen accepts FHA mortgage loans in FHA-approved condo
projects that appear on the FHA-approved condo list. For
conventional mortgage loans, the condo project must meet Fannie
Mae's project eligibility requirements. FHA condo project approval
alone is not acceptable for conventional mortgage loans.
Search for FHA-approved condo projects by location, name, or
project status online at HUD.gov or through CPM.
Printed copies of the FHA approval documentation in the loan file
Lenders must ensure that:





The FHA standard conditions have been met for presale, occupancy
status, and completion;
Any additional conditions noted by FHA have been met;
The project is not an ineligible project as defined in Ineligible
Projects;
The project is covered by the required insurance Additional Project
Insurance; and
The project is not comprised of manufactured homes.
Document
Retention
Mortgage loans secured by condo units in an FHA-approved project,
lenders must retain the documentation as set forth in Document
Retention for Project Eligibility in General Information on Project
Standards.
Delivering FHA
Mortgage
Loans Secured
by Units in
FHA-approved
Condo
Projects
FHA mortgage loans secured by individual units in FHA-approved
condo projects, the lender must report the Project Type Code U for an
FHA-approved project as part of the delivery data.
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Condo and PUD Projects,
Project
Eligibility
Review
Service
(PERS)
Continued
Overview
The Project Eligibility Review Service (PERS) is an option available to
submit new and newly converted condo projects to Fannie Mae to
determine eligibility. Lenders must submit complete project packages to
Fannie Mae via email to PERS Project Submission. Upon completion of its
review, Fannie Mae will issue one of the following project eligibility
determinations:




Conditional Project Approval,
Final Project Approval,
Ineligible, or
Suspension of the Application
Mortgages secured by units in projects must have a valid Fannie Mae Final
Project Approval prior to approval approval. Mortgages may not be under
the Conditional Project Approval, Ineligible, or Suspension of the
Application designations.
Required Use
of PERS

The following projects must be submitted to PERS to determine
eligibility:



Decision
Expiration
Dates

New and newly converted condo projects consisting of attached
units located in Florida;
Newly converted non-gut rehabilitation attached units in condo
projects that contain more than four residential units; and
All attached and detached units in condo and PUD projects
consisting of manufactured homes, with the exception of PUD
projects that contain multi-width manufactured homes. (See
Fannie Mae Additional Requirements for Review of Condo, and PUD
Projects Comprised of Manufactured Homes, for additional
information.)
Conditional Project Approval: expires 9 months from the date of issue.
Final Project Approval: expires 18 months from the date of issue.
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Condo and PUD Projects,
Newly
Converted
Non-Gut
Rehabilitation
Condo
Projects
Additional
Requirements
for Review of
Condo and
PUD Projects
Comprised of
Manufactured
Homes
Projects with
Special
Considerations
and Project
Eligibility
Waivers
Continued
Non-gut rehabilitation refers to the renovation of a property that does
not involve structural or functional changes, such as the replacement
of all HVAC and electrical components. Rather, the rehabilitation might
include, for example, the replacement of appliances and carpeting.
In order for Ocwen to purchase a unit in a newly converted non-gut
rehabilitation condo project, the lender must obtain project approval
through PERS.
Submission to Fannie Mae PERS: All condo projects comprised of
manufactured homes must be submitted to Fannie Mae for review and
acceptance through the PERS submission process.
Projects with Special Considerations: Identify projects that merit
special consideration even though the project characteristics do not
meet all of the Fannie Mae eligibility requirements. In these instances,
Ocwen may contact the Fannie Mae Project Standards team to discuss
the possibility of accepting such projects. Exceptions to Fannie Mae
eligibility and underwriting requirements are considered on a projectby-project basis.
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Condo and PUD Projects,
Project
Eligibility
Waivers

Continued
If Ocwen believes that a specific eligibility requirement should be
waived for a particular project with respect to a single loan, then the
lender must:
 First enter the project into CPM before requesting a waiver through
the Credit Variance Administration System (CVAS), and
 Request a waiver from Fannie Mae through CVAS.
Fannie Mae’s Project Standards team (see Fannie Mae List of Contacts)
will determine if a single loan project eligibility waiver is warranted.
Fannie Mae charges a nonrefundable $200 review fee for each waiver
request. A higher review fee may be charged based on the complexity of
the waiver review.
Ocwen will collect this fee from the broker prior to submitting the
request to Fannie Mae’s CPM.
NOTE: Project eligibility waivers are typically issued only for established
projects, though Fannie Mae at its sole discretion reserves the right to
allow this type of waiver for a unit in a new project on a case-by-case
basis. New or newly converted projects must be reviewed for eligibility
through an eligible lender review process or by Fannie Mae through the
PERS submission process. Clients must not request a project eligibility
waiver for a unit in a new project to circumvent the required review for
new projects.
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Condo and PUD Projects,
Continued
Environmental
Hazard
Assessments
Overview
Types of
Environmental
Hazard
Assessments
The table below describes two types of environmental hazard
assessments:
An environmental hazard assessment is required for condo
projects if an environmental problem is identified by the lender
through performance of its project underwriting or due diligence.
If environmental problems are identified, the problems must be
determined to be acceptable. Lenders should keep a copy of this
assessment in file.
Type
Performed by
Phase I Assessment (see Phase
I Environmental Hazard
Assessments)
The lender or by
someone employed by
the lender
Phase II Assessment
A qualified
environmental
consultant
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Description
Gathers information from various
sources to evaluate the environmental
soundness of the project.
When required:

Phase I assessment identifies
problems or

Phase I assessment is
inconclusive with regard to any
particular hazard.
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Acceptability
of Consultants
Phase I
Environmental
Assessment
Fannie Mae reserves the right to notify lenders that a particular consultant
is no longer acceptable. Fannie Mae also reserves the right to refuse to
accept, at any time, any future environmental assessment, report,
warranty, or certification from individual consultants, specific consulting
firms, or specific branch offices of consulting firms.
A Phase I assessment enables lenders to quickly determine whether
adequate information exists to evaluate the environmental status of a
property. A Phase I assessment is principally a screening process that
focuses on reviewing the available documentation, interviewing people
who are knowledgeable about the site operations, and inspecting the site,
the building, and adjoining properties. Fannie Mae does not require a
specific form for a Phase I assessment.
Any report that is thorough and professionally prepared will be acceptable
Phase II
Environmental
Assessment
Description
A Phase II assessment provides a more detailed review of the site. It
includes specific physical sampling for each hazard that was not
acceptable under the Phase I assessment, as well as a review of historical
records. It determines the presence or absence of specific environmental
liabilities (such as asbestos or leaking underground storage tanks) or
quantifies the extent of an observed or suspected environmental liability
(such as soil or groundwater contamination).
Who Should
Complete the
Phase II
Environmental
Assessment
The specialized nature of the investigations conducted under a Phase II
assessment requires the knowledge and experience of a qualified
consultant.
Lenders must use care in choosing firms to perform environmental hazard
assessments. Lenders should confirm that the consultant it plans to use is
not affiliated with the buyer or seller of the property or a firm engaged in
a business that might present a conflict of interest. Lenders should also
evaluate whether the consulting firm’s personnel have adequate and
appropriate education and training to carry out the required duties.
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,
Continued
Phase II
Environmental
Assessment
Report Forms
and Requirements
✓
Fannie Mae does not specify an exact format for the consultant’s report.
Any report that is thorough and professionally prepared will be
acceptable.
The table below provides the requirements for the Phase II Environmental
Assessment Report:
The consultant’s report for a Phase II environmental assessment report must
Include a full description of the sampling procedures
Include the laboratory results
Include the consultant’s recommendations
Follow all regulatory standards and good management practices at all times, especially when
physical sampling and laboratory analysis are involved
Include a certification in the report that:
 The assessment was performed diligently and in accordance with all regulatory and good
management standards; and
 To the best of the consultant’s knowledge, the results are complete and accurate
Include the signature of an officer of the consulting firm that conducted the work
Types of Testing
or Sampling
under Phase II
Environmental
Assessments
Examples of the kind of testing or sampling that occur under a Phase II assessment include
but are not limited to the following:






Investigating the status of any enforcement actions related to neighboring
properties under the Superfund or Resource, Conservation, and Recovery Acts;
Testing for underground storage leaks;
Sampling and analyzing the soil;
Sampling and analyzing the groundwater;
Testing soil or facilities that are suspected as being contaminated by
polychlorinated biphenyls; and
Sampling and analyzing bulk asbestos and developing related abatement and
maintenance programs, if necessary.
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,
Continued
Unacceptable
Environmental
Conditions
Overview
The existence of one or more unacceptable environmental
conditions generally will result in a project being ineligible.
However, if the lender believes that the relative risk is minimal or
can be managed, it may contact the Fannie Mae Project
Standards team.
The table below describes examples of unacceptable
environmental conditions; however, this list is not exhaustive:
✓
Examples of Unacceptable Environmental Conditions
A property that is (or has been) used as a landfill or other solid, hazardous, or
municipal waste disposal site
A property that is (or has been) used for activity related to the storage of oil,
hazardous waste, or other toxic substances—except that the property may have been
used for the storage of small quantities of hazardous substances that are generally
recognized as appropriate for residential uses and maintenance of the property
A property that is the subject of outstanding environmental or public health litigation
or administrative action from private parties or public officials
A high-risk neighboring property that has evidence of hazardous waste spills or soil or
groundwater contamination on or around its site
A property that has documented soil or groundwater contamination and/or a
documented tank leak that is leaking at more than 0.05 gallons per hour (which is the
National Fire Protection Association’s standard)
A property with soil sampling that has values for metal in excess of the following
concentration limits in parts per million (ppm):
 Chromium: 100 ppm
 Arsenic: 20 ppm
 Zinc: 350 ppm
 Cadmium: 3 ppm
 Lead: 100 ppm
 Nickel: 100 ppm
 Copper: 170 ppm
 Selenium: 20 ppm
A property that is contaminated from polychlorinated biphenyls (PCBs)
A property with soil sampling that has values for other organic materials in excess of
the following concentration limits in parts per million (ppm):
 Total volatile organics: 1 ppm
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


Total hydrocarbons: 100 ppm
Total petroleum hydrocarbons: 100 ppm
A property with groundwater sampling that has values for other organic materials in
excess of the following concentration limits in parts per million:
 Total organics (volatiles and base neutrals): 0.10 ppm
Total petroleum hydrocarbons: 1.00 ppm
A property with groundwater sampling that has values for metals in excess of the
following concentration limits in parts per million:
 Arsenic: 0.05 ppm
 Lead: 0.05 ppm
 Boron: 1.00 ppm
 Mercury: 0.002 ppm
 Cadmium: 0.01 ppm
 Selenium: 0.01 ppm
 Chromium: 0.05 ppm
 Silver: 0.05 ppm
A property with high radon levels (e.g., above four picocuries per liter) that can be
corrected only through large capital improvements or extensive ongoing maintenance
programs that are beyond the financial or technical abilities of the HOA for the project
A property that has conditions representing material violations of applicable local,
state, or federal environmental or public health statutes and laws
A property that is contaminated by friable asbestos-containing materials
Continued on next page
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Continued
Remedial
Actions for
Environmental
Assessments
Below
Standards
Properties that fail to meet a particular standard may be corrected
through remedial actions and then retested. Remedial actions must be
undertaken with the advice and written endorsement of a qualified
environmental consultant. All remedial actions must be taken in
accordance with all regulatory and good management standards.
Typically, lenders must confirm the completion and effectiveness of
remedial actions based on the following conditions:


A qualified environmental consultant states in writing that remedial
work needed to make the property eligible under the
environmental standards can be completed within 90 days.
The project’s developer or sponsor signs a contract with a qualified
firm to perform the remedial work within 90 days.
The lender must warrant that the job has been satisfactorily completed
and the property meets Fannie Mae’s environmental eligibility standards.
The project developer or sponsor must provide a performance escrow
equal to 150% of the gross contract amount to ensure the completion of
the remedial work.
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,
Continued
Eligibility
Requirements for
Units in PUD
Projects
PUD Project Definition
A PUD is a project or subdivision that consists of common property
and improvements that are owned and maintained by an HOA for
the benefit and use of the individual PUD units. For a project to
qualify as a PUD for the purposes of this policy, all of the following
requirements must be met:




Each unit owner’s membership in the HOA must be automatic
and non-severable,
The payment of assessments related to the unit must be
mandatory,
Common property and improvements must be owned and
maintained by an HOA for the benefit and use of the unit
owners, and
The subject unit must not be part of a condo...
Zoning is not a basis for classifying a project or subdivision as a
PUD. Units in projects or subdivisions simply zoned as PUDs that
include the following characteristics are not defined as PUD projects
under Fannie Mae’s policies. These projects



Have no common property and improvements,
Do not require the establishment of and membership in an
HOA, and
Do not require the payment of assessments.
Fannie Mae classifies PUD projects as either:


Type E—established PUD projects in which the developer has
turned over voting control of the HOA to the unit purchasers.
Type F—new PUD projects in which the developer has not
turned over voting control of the HOA to the unit purchasers.
PUD projects are not eligible for review using the PERS process,
unless they contain single-wide manufactured housing, which does
require a PERS submission.
Eligibility
Requirements
for Units in
PUD Projects
Lenders must determine that the subject unit meets the following
requirements:
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Eligibility Requirements
For Units in PUD Projects
If the unit is an attached unit in a PUD project, then the project must not be in an
ineligible project in accordance with the provisions applicable to attached units in PUDs in
Ineligible Projects.
The appraisal of the unit meets all appraisal requirements.
The individual unit securing the mortgage must be substantially complete. Any unfinished
items must be in compliance with Agency or Ocwens Postponed Improvements (see
Requirements for Postponed Improvements).
The unit securing the mortgage satisfies allOcwens’ insurance requirements. Insurance,
including all provisions applicable to PUD projects in, Additional Project Insurance.
NOTE: Any unit located in a condo project within a larger PUD project or master association
must meet the applicable requirements for condo projects.
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Escrow (Completion) Holdback
Overview
Not permitted.
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Natural Disasters
Overview
Ocwen Loan Servicing, LLC continually monitors FEMA for updates in
regards to federally declared disaster notifications. Once a location has
been identified by FEMA, a Natural Disaster Notification (NDN) will be
disseminated identifying the specific location, policies and procedures.
Procedure

Ocwen Loan Servicing, LLC will require a re-inspection (DIR: Disaster
Inspection Report) of the subject property prior to issuing closing
documents.



Example
You will need to log into your account at
http://www.homewardfunding.com and select the Tab ORDER
APPRAISAL to order a re-inspection/DIR of the property.
A fee is associated with the re-inspection/DIR of these properties. If
you choose to charge the borrower for this fee, you will be required to
complete a “Change of Circumstance Form” (located on our
website under Forms) indicating the reason for the re-disclosure
(Natural Disaster) and the increased fee. This completed form must be
uploaded into Imageflow.
Closely examine your rate lock expiration date. If a rate lock
extension is needed (noting, any fee changes to the borrower will
require a change of circumstance form as well), select the tab from
our web site labeled “SELECT A RATE LOCK EXTENSION” and
complete. All extension fees are listed on the website for your
convenience.
Below is an example of the declared location and effective dates that will
be announced on the specific NDN.
STATE
Declared Areas
Counties of
_________________________
Effective Date
Expiration/End Date
01/01/2010
01/02/2010
IMPORTANT: Appraisals performed BEFORE the Expiration/End Date will require
documentation as indicated on page two (2) of this notification (referring to the NDN
notification).
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Natural Disasters,
Requirements
for Affected
Areas
Continued
Underwriting/Closing Requirements: For loans secured by properties
appraised and not closed/funded prior to the disaster declaration date,
Ocwen Loan Servicing, LLC will require the following additional
documentation on all loans.
REQUIREMENTS:
Property appraised prior to the
disaster THROUGH to FEMA’s
Expiration/Safe Date:
A thorough inspection/DIR (1004D permitted as well) of the property is
required; it is important to note that the degree and nature of the inspection
will vary depending on the nature of the disaster and property location:
The original appraiser (if available) should perform the inspection to the
extent he/she deems necessary so that a certification stating the below
can be signed and warranted:

Property is free from damage and is in the same condition as
previously/originally appraised;

Marketability and value remain the same.

Re-inspections will always be required regardless of time frame if the
appraisal was performed BEFORE the disaster date.
NOTE: In order to comply with AIR regulations, the re-inspection
must be ordered through Ocwen Loan Servicing, LLC’s appraisal
management company. Refer to the previous page for specific
instructions.

Reduced Appraisal Forms:
Non-standard appraisals (such as PIWs) will NOT be permitted once a
location has been declared by FEMA within a disaster area. A full appraisal
will be required up to 90 calendar days after the Expiration/Safe Date.
Borrower’s Certification and
Affidavit for Weather Related
Damage form
In addition to the re-inspection/DIR, the borrower must sign a certification of
acceptable property condition if their home is in one of the disaster areas. A
copy of this form is located on Ocwen Loan Servicing, LLC’s website.
If the re-inspection/DIR, reports
any damage or change in value
to the property, then:
Prior to closing, Ocwen Loan Servicing, LLC will require the property to be
repaired adequately and evidenced by the FNMA Form 1004D (appraisal
update and/ or completion report).
IMPORTANT if the property
location is within a FEMA
declared area AND a FLOOD
ZONE:
Loans in the NDN site AND in a FEMA Flood Zone will NOT be allowed
to close until after the Expiration/Safe Date has been published AND the reinspection has been performed
Property appraised AFTER
FEMA’s Expiration/Safe Date for
the disaster:
For up to 90 calendar days after the Expiration/Safe Date is issued by
FEMA, the appraisal must include written certification by the appraiser that
“The property is free from damage and the disaster has had no affect on the
subject property’s value or marketability”.
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Loan Purpose
Overview
The following guidelines should be used only to determine whether a transaction
should be underwritten as a purchase or a refinance. Federal or State laws may
categorize the transaction differently for disclosure purposes.
Principal
Reductions
Lender Paid Transactions
On transactions where the loan originator is paid by the lender, Ocwen
will permit a Principal Curtailment on rate term refinance loans unless
noted below as a result of excess premium rate credit. The excess
premium must be identified on the HUD-1 Settlement Statement and is
limited to the amount of the excess premium rate credit below. The
premium rate credit is the amount associated with the lowest pricing rate
option that allows for some or all of the borrower's closing costs to be
paid so the borrower does not have to pay those closing costs out of
pocket.

Principal curtailments are limited to the lesser of 2% or $2500.
If the program permits, the borrower may also receive cash back within
program guidelines in addition to the amount of the curtailment. Check
your product summary for cash back eligibility criteria.
Borrower Paid Transactions
On transactions where the loan originator is paid by the consumer,
principal curtailments are not permitted in any amount. The premium rate
credit may not exceed the amount of third party costs.
NOTE: After closing, borrower may enroll in weekly, bi-weekly and semimonthly principal reduction programs by visiting the servicing website at
www.ocwen.mortgagebanksite.com
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Loan Purpose,
Purchase
Transactions
Continued
A purchase transaction is one in which the proceeds are used to finance
the purchase of a home. For underwriting of agency loans this also
includes:
 A mortgage transaction in which the proceeds are used to retire an
outstanding balance on an installment land contract within 12 months
of the loan application, including costs incurred for rehabilitation,
renovation or energy conservation improvements.

A new mortgage created to pay off an interim construction loan within
180 days from completion as long as the borrower does not receive
cash back at closing.

If the conversion occurs more than 180 days after completion, the
transaction must be treated as a refinance.

The borrower may not be on title prior to the loan closing. The seller
that is on title (the vested owner of record) must be the individual
who executes the sales contract. Additionally, the seller must be on
title prior to when the HUD-1 and closing documents are executed.


Seller must be the vested owner of record in all cases; exceptions
are for relocation scenarios only. A fully executed and acceptable
Relocation (Buyout) Agreement must be documented within the
file.
Credits back on purchase transactions or a HUD-1 showing cash back
to the buyer is permissible if the reason for the cash back was due to
one of the following:




Crediting the borrower for accrued taxes that were the obligation
of the seller,
Crediting the borrower with rental income collected by the seller
for a period after the sale, or
Crediting the borrower with rental deposit funds being transferred
from the seller to the borrower.
Crediting the borrower for down payment funds placed into the
transaction and the loan amount was more than sufficient to cover
the costs. For example, the borrower deposited $10,000 for sales
contract and the closing costs were only $7,000.
NOTE: If the borrower receives an acceptable cash back amount, the
Underwriter will confirm that the minimum borrower contribution
and/or down payment have been met.
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Loan Purpose,
Purchase
Agreements
Continued
Purchase agreements renegotiated after the completion of the appraisal
that increase the sales price are only acceptable under the following
circumstances:

The sales price adjustment is due to price overruns that impact the
tangible value of the property on new construction. An updated
appraisal must be obtained to verify the value of the modifications.

A renegotiation of only seller paid closing costs and/or pre-paids
occurs where seller paid closing cost/pre-paids are common and
customary for the market and supported by comparables.

Changes in the purchase contract resulting from renegotiating terms
of sale will require additional review and consideration by the
appraiser.
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Loan Purpose,
Limited CashOut Refinance
Continued
Limited cash out (also known as rate term) refinance transaction enables a
borrower to pay off his or her existing mortgage by obtaining a new first mortgage
that is secured by the same property.
A loan classified as a Limited Cash Out Refinance is described as a loan where the
proceeds of the new transaction are being used to pay off the outstanding first lien
(including HELOC’s), customary costs associated with the new transaction,
including prepayment penalties, loan costs, fees, pre-paids, etc. Any draws taken
on the first lien position HELOC, including those made after the initial acquisition of
the property, are eligible to be included in the payoff amount of the limited cashout refinance transaction. Any secondary liens being paid off with the funds of the
new transaction must have been liens that were used in whole to acquire the
subject property.
A limited cash-out refinance transaction may consist of the following components:

The unpaid principal balance, including any associated payoff fees, of the
existing first mortgage that was used in whole to acquire the subject property
(purchase money only); note that HELOCs with any subsequent draws for any
reason will be considered a cash out transaction;

Closing costs (including all prepaid items) and points;

The payoff of the outstanding principal balance of any existing subordinate
mortgage that was used in whole to acquire the subject property (purchase
money only). Satisfactory documentation must be obtained and included
within the loan package.

Incidental cash to the borrower up to a maximum of the lesser of $2,000 or
2% of the amount of the new refinance mortgage.

May be based on the current appraised value unless otherwise required by the
Underwriter due to value concerns or by the MI Partner (if applicable).




Non-purchase money second liens, including any associated fees to
closing the account (even if currently at a zero balance), must be paid off
outside of the transaction; otherwise, it will be considered a cash out
refinance.
HUD-1 settlement statement(s) required from any transaction within the
most recent 6 months. If previous transaction was a cash out or if it
combined a first and non-purchase money subordinate into a new first,
the loan will be considered a cash out refinance (seasoning measured
from Note Date to Application Date).
If the borrower has been on title less than 6 months AND purchased the
property from a relative (or an individual with whom they have an
established relationship), the payoff from the purchase transaction must
be provided AND reflect the mortgage was current at the time the
borrower purchased the property.
Must continue to meet requirements within the Continuity of Obligation
and Ownership.
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Loan Purpose,
Buyout
Refinance
Continued
Ocwen will also treat an inheritance or divorce settlement in which one
spouse is required to "buy-out" the interests of the other spouse or any
other refinancing in which an owner "buys-out" the interests of another
owner as a limited cash out refinance—as long as the following conditions
are satisfied:

Security property must have been jointly owned and occupied as a
primary residence by the borrower and the co-owner receiving the
buy-out proceeds for at least 12 months before the date of the
mortgage application. Seasoning and occupancy is not required for
inherited property.

All parties must be able to demonstrate that they occupied the
security property as their principal residence, by providing an
acceptable source of verification—such as a driver's license, bank
statement, credit card bill, utility bill, etc. that was mailed to the
individual at the address of the security property. Occupancy is not
required for inherited properties.

All parties must sign a written agreement that states the terms of the
property transfer and the proposed disposition of the proceeds from
the refinancing transaction.

Borrower who acquires sole ownership of the property may not receive
any of the proceeds of the refinancing.

Party who is "buying out" the other party's interest must be able to
qualify for the mortgage under our standard underwriting guidelines.

Legal Separation or Divorce Decree.
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Loan Purpose,
Cash-Out
Refinance
Continued
The funds received by the borrower from the loan transaction can be used for any
legitimate purpose. The purpose of the cash out should be clearly stated on the
loan application, and if necessary, further described in a separate document. If the
purpose of the cash out indicates potential additional debt or a change in financial
condition, further clarification should be obtained. For example, if the borrower
states that the cash out is being used as a down payment for the purchase of
another property, further details are required to understand additional debts that
may be incurred. If the cash out would cause any change in financial standing
(i.e. funds are being used to start a new business may result in borrower leaving
their current employment), it is necessary that the situation be explained and
verified thoroughly to ascertain if there may be an impact to the borrower’s ability
to repay the loan..

Condominiums in Florida are not permitted for cash out refinancing.

The property must have been purchased (or acquired) by the borrower at
least six months prior to the disbursement date (for Fannie Mae DU loans) or
Note Date (for Freddie Mac LP Loans) of the new mortgage loan except for the
following:


There is no waiting period if it is documented that the borrower acquired
the property through an inheritance or was legally awarded the property
(divorce, separation, or dissolution of a domestic partnership).

The delayed financing requirements are met. See Delayed Financing
Exception below.
Continuity of obligation (see below) must be demonstrated unless one of the
following conditions is met:



The borrower was added to title 24 months or more prior to the
disbursement date of the new loan, or
There is no existing mortgage on the subject property as a result of the
borrower(s) having purchased the subject property with cash or paid off
any prior mortgage for which the borrower was an obligor.
If the proceeds of the cash out refinance are paying off a restructured loan (as
defined in Restructured Loans section above) the new loan will be ineligible for
sale to Ocwen.

If the loan being paid in full is noted as “modified” on the credit report (or
information from another source is obtained indicating the loan has been
modified) the Ocwen must review the loan and modification details and
determine if it meets the definition of a Restructured Mortgage. A copy
of the modification agreement must be in the file.
Continued on next page
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Loan Purpose,
Delayed
Financing
Cash-Out
Refinance

Continued
If the subject property was purchased in the last 6 months measured from the
date of purchase to the disbursement date (for Fannie Mae DU loans) or Note
date (for Freddie Mac LP Loans) of the new refinance, the loan will be eligible
for a Cash Out Refinance transaction provided the following requirements are
met:

The borrower(s) may have initially purchased the property as one of the
following:
o A natural person;
o An eligible inter vivos revocable trust, when the borrower is both the
individual establishing the trust and the beneficiary of the trust; or
o An LLC or partnership in which the borrower(s) have an individual or
joint ownership of 100%.

The HUD-1Settlement Statement from the purchase transaction must
reflect no financing secured by the subject property was used to purchase
the subject property.

The purchase transaction was an Arms-Length transaction.

The source of funds used to purchase the subject property must be fully
documented.

If funds were borrowed (either unsecured or secured by an asset other
than the subject property) to purchase the subject property, those funds
must be paid with the cash out proceeds and reflected on the HUD 1
Settlement Sheet for the refinance transaction. If the Cash out proceeds
do not pay off the borrowed funds, the payments on the balance
remaining must be included in the debt to income ratio calculation.
NOTE: Funds received as gifts and used to purchase the property may
not be reimbursed with proceeds of the new mortgage loan

The amount of the cash out refinance loan can be no more than the actual
documented amount of the borrower’s initial investment in purchasing the
property plus the financing of closing costs, prepaid fees, and points
(subject to the maximum LTV/CLTV/HCLTV rations for the transaction.

The preliminary title report for the refinance must reflect the borrower(s)
as the owner of the subject property and must reflect that there are no
liens on the property.

All other cash-out refinance eligibility requirement as noted above are met
and cash out pricing is applied.
NOTE: For DU run loans, Investor and second home borrowers with five to
ten financed properties are ineligible for cash-out refinance transactions
unless all of the delayed financing exception requirements listed above are
met. Additional restrictions apply, Number of Properties Owned / Financed
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Loan Purpose,
Divestiture of
Interest
Continued
Permitted ONLY for equal 50/50% splits between TWO (2) borrowers that
are both on the mortgage application.
NOTE: Borrowers may take title to the property as joint tenants, tenants
by the entirety, tenants in common (without a tenancy in common
agreement), or as individuals. If the scenario has a tenancy in common
agreement, it will not be permitted.
Continuity of
Ownership
and Obligation
For all properties, Ocwen must establish/verify the time of transfer,
obligor of the current mortgage and previous/current title holder(s) (i.e.
other than inherited or legally awarded properties, there must be at least
one borrower obligated on the new loan who was also a borrower
obligated on the existing loan being refinanced within Ocwen seasoning
requirements).
NOTE: Refer to the Mortgage History section within this Lending Guide for
acceptable methods of mortgage verification.

Continuity of obligation occurs on a refinance transaction when at
least one of the borrower(s) on the existing mortgage is also a
borrower on the new refinance transaction secured by the subject
property.

Requirements for Continuity of Obligation
All refinance transactions must




Comply with the definition above,
Meet one of the permissible exceptions described below, or
Comply with the limited eligibility parameters described below.
Note the following:



Continuity of obligation requirements do not apply when there is
no existing mortgage on the subject property as a result of the
borrower either having purchased the subject property with cash
or when any prior mortgage for which the borrower was an obligor
was paid in full.
All time period references in this section are measured from the date
of the event (for example, transfer of title) and end with the
disbursement date (For Fannie Mae DU Loans) or Note date (For
Freddie Mac LP Loans) of the new refinance transaction.
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Loan Purpose,
Continuity of
Ownership
and
Obligation,
(Cont’d)

Continued
Permissible Exceptions to Continuity of Obligation
Although the following refinance transactions do not meet the
definition of continuity of obligation, the new refinance transaction will
be eligible and not bound by the limited eligibility parameters
described below if any of the following are applicable:

The borrower on the new refinance transaction was added to title
24 months or more prior to the disbursement date (For Fannie Mae
DU Loans) or Note date (For Freddie Mac LP Loans) of the new
refinance transaction.
 The file is documented that the borrower acquired the property
through an inheritance or was legally awarded the property (for
example, divorce, separation, or dissolution of a domestic
partnership). There is no minimum waiting period with regard to
when the borrower acquired the property before completing a new
refinance transaction.
 The borrower on the new refinance transaction has been added to
title through a transfer from a trust, or a limited liability company
(LLC), or partnership. The following requirements apply:
o The borrower must have been a beneficiary/creator (trust) or a
25% or more owner of the LLC or partnership prior to the
transfer, and
o The transferring entity and/or the borrower has had a
consecutive ownership (on title) for at least the most recent 6
months prior to disbursement (For Fannie Mae DU Loans) or
Note date (For Freddie Mac LP Loans) of the new loan.
NOTE: Transfer of ownership from a corporation to an individual does
not meet the continuity of obligation requirement.
 The borrower has been on title for at least 12 months but is not
obligated on the existing mortgage(s) that is being refinanced and
the borrower meets at least one of the following requirements:
o Has been residing in the property for at least 12 months,
o Has paid the mortgage for at least 12 months, or
o Can demonstrate a relationship with the current obligor (for
example, relative or domestic partner).
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Loan Purpose,
Continuity of
Ownership
and
Obligation,
(Cont’d)

Continued
All Other Refinance Transactions — Limited Eligibility

All other refinance transactions that do not meet either the
continuity of obligation requirements or a permissible exception
must comply with the following LTV, CLTV, HCLTV ratio restrictions
(in the below table) regardless of the occupancy of the property.
The LTV, CLTV, HCLTV ratios must be based on the current
appraised value.
Months on Title
Eligibility Requirements
< 6 months
Ineligible
≥ 6 months < 24 months
Limited to 50% LTV/CLTV/HCLTV ratios
≥24 months
No additional restrictions
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Loan Purpose,
Listed for Sale

Cash Out Refinance:



Continued
Properties listed for sale in the six months preceding the
disbursement date of the new mortgage loan are limited to 70%
LTV/CLTV/HCLTV ratios (or less if mandated by the specific
product, occupancy, or property type – for example, 65% for
manufactured homes).
Borrowers must confirm their intent to occupy the subject property
(for principal residence transactions) for Cash-Out refinance.
NOTE: Properties that were listed for sale must have been taken
off the market on or before the disbursement date of the new
mortgage loan.
Limited Cash Out (Rate/Term) Refinance Transactions:


Properties listed for sale are not eligible for refinancing. The
listing agreement must have been cancelled on or before the
disbursement date of the new mortgage loan.
Borrowers must confirm their intent to occupy the subject property
(for principal residence transactions) for a Limited Cash-Out
refinance.
NOTE:

Properties currently listed are not eligible for any refinance
transactions. Borrower must provide documentation of cancelled MLS
listing or similar documentation.

Policy does not apply to scenarios without appraisals, such as property
inspection waivers (PIWs).

Refer to Ocwen’s Early Payoff (EPO) policy for additional details.
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Loan Purpose,
Newly
Constructed
Properties
Continued
Construction to permanent financing as defined for Ocwen Loan Servicing,
LLC involves two loans, a construction loan and a long-term refinance of
the construction loan. The second transaction involves the use of
standard loan documents; modification of the bank loan is not permitted.
NOTE: Applies to end financing of the interim bank loan; Ocwen Loan
Servicing, LLC does not offer interim, construction financing.
A construction to permanent loan not structured as a one-time close may
be submitted as a purchase or refinance, subject to the below:


Purchase: Transaction must have occurred within 180 days after
completion of the home. The borrower may not receive cash out
and the acquisition cost is to be documents. If the purpose of the
long-term mortgage is to allow the borrower to make a single
disbursement to a builder/contractor for the purpose of a
completed property, then the transaction must be considered a
purchase.
Refinance: The borrower may or may not receive cash out. A
refinance transaction has no time limitation. If the transaction
occurs more than 180 days after the completion of the home, then
it must be considered a refinance.

Borrower must be the primary obligor on the construction financing
obtained through a legitimate financial institution.

Borrower must be the owner of the lot to be considered a refinance.

Final Certificate of Completion, full appraisal with photos is required.

Primary Residences, detached SFR only.

Transaction must be arms length (i.e. borrower may not be the
builder).
IMPORTANT: Construction loan modifications are not permitted; this is
not the FNMA Home-style Renovation program nor is it available through
Ocwen Loan Servicing, LLC.
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Loan Purpose,
New
Construction
Purchase

Continued
On a purchase transaction, the borrower may hold title to the land as
follows:


Borrower may or may not own the land.
Ownership is deeded to the builder/contractor in lieu of the down
payment as reflected in the construction statement/agreement.
NOTE: The borrower may use the cash investment in the land, provided
it was acquired more than 12 months before the date of the application
for construction financing. Acceptable documentation includes the final
HUD-1, a copy of the warranty deed showing no liens or a copy of a
release of the lien.
Ownership of Land
Determination of LTV
Owned land <12 months
Based on the lesser of the current
appraised value OR sales price of the land
plus any documented improvement costs.
Owned land >=12 months OR received
land as a gift
Based on the lesser of the current
appraised value OR appraised value of the
land plus any documented improvement
costs.
New
Construction
Refinance
On a refinance transaction, the Borrower must own the land.
Ownership of Land
Determination of LTV
Owned land <12 months
DU Run Loans – Based on the current appraised value
LP Run Loans - Based on the lesser of the current
appraised value OR sales price of the land plus any
documented improvement costs.
Owned land >=12 months
Based on the current appraised value
Received land as a gift
Based on the lesser of the current appraised value OR
appraised value of the land plus any documented
improvement costs.
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Loan Purpose,
General
Contractor
Continued
If the borrowers employ a general contractor, the following
documentation is required to verify the cost of construction:
Signed construction contract

Sealed copy of the improvement plans and complete breakdown of
construction costs and specifications.

Copies of canceled checks and receipts of bills for payment of any
supplied, materials, labor or funds paid directly to subcontractors by
the borrower.
NOTE: If a general contractor is not used to construct the home, the
construction costs must be documented with copies of receipts or invoices
and cancelled checks for materials, supplies and/or labor.
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Conventional Lending Guide
Mortgage Insurance
Overview
Mortgage Insurance is required on loans with a loan to value (LTV) over
80.00% (Exception: HARP transactions for which MI was not required on
the underlying loan). Unless otherwise restricted in the product
guidelines, Ocwen Loan Servicing, LLC will accept the private mortgage
insurers noted in the “Approved Mortgage Insurance Companies” matrix
below.
Approved MI
Companies
The matrix below lists the mortgage insurance companies currently
approved by Ocwen Loan Servicing, LLC.
Approved Mortgage Insurance Companies

Arch MI

National MI – National Mortgage Insurance
Corporation

Essent Guaranty, Inc.

Radian

GE – (Genworth) GE Capital Mortgage
Insurance Corporation

UG – United Guaranty

MGIC - Mortgage Guaranty Insurance
Company
NOTE:

Ocwen reserves the right to add or remove companies to this list at their sole discretion.

Ocwen does not currently utilize its MI delegate status; therefore, all loans requiring mortgage
insurance must also be underwritten by the MI Partner.
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Subordinate Financing
Overview
Second Trust Deeds, junior liens and subordinate liens (secondary
financing) are defined as mortgages that have rights that are secondary to
a first mortgage.
These are encumbrances on real estate (for example, a second mortgage,
a tax lien or mechanic’s lien) where the priority of the secondary financing
is inferior to that of another recorded interest in the same property.
Requirements
and
Restrictions
Requirements and restrictions apply to new subordinate financing and
existing financing:

Maximum Combined Loan to Value (CLTV/HCLTV) ratio of the first and
second must not exceed the limit outlined by these guidelines and by
the Product matrix.


Certified copy of the executed second Note and Subordination
Agreement must be provided to confirm loan amount, payment terms,
and lien status.


Refer to Fannie Mae guidelines for exact definitions of CLTV and
HCLTV; 2011 Selling Guide, Part B2-1.1-02 (3/31/2011).
If the first mortgage lien loan is a rate term refinance in Texas and
the first lien loan is being renewed and extended, a subordination
agreement for a second lien on the property is not required unless
the title company requires a subordination agreement in order to
insure that the lien will remain in first lien position.
Subordination agreement must be recorded concurrently with the first
Mortgage/Deed of trust if an existing second will remain.

If the note and terms of the second lien have been received and
approved, the actual subordination agreement can be a Prior to
Funding Condition.

For financing other than HELOCs, Secondary financing must have a
term of no less than five years, unless the financing fully amortizes
prior to that time

For financing other than HELOCs, Financing must not permit the Note
holder to “call” the financing within the first five years following loan
closing.

Interest rate on the Note must be at market rates.

Secondary financing must not have a negative amortization feature.
Continued on next page
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Subordinate Financing,
Requirements
and
Restrictions,
(Cont’d)
Continued

Term of the Note must provide for regular monthly payments of at
least interest only.

Monthly payments on the secondary financing must be included in the
borrower’s ratios.

Payments may be graduated or variable, as long as the payment
remains constant for at least 12 months and the annual payment
adjustments of the second do not exceed a 2% interest rate increase.
Exception for HELOCs in which the monthly payment does not have to
remain constant.

May not be subject to prepayment penalties; excludes HELOC
products where borrowers may be required to pay third party closing
costs incurred at time of closing, typically if the line is closed within
the first 36 months (or contains an early termination fee not to exceed
$500; note, early termination fees set as a percentage of the loan
amount are not permitted).

Subordinate liens may held be a private party including owner-carry
second from the owner of the property, and other private party, or an
institutional lender unless otherwise restricted within specific product
guidelines.

Privately held liens will require all formal documentation (including
the Note) to confirm payments which must be included in DTI.
The lien must be recorded and clearly subordinated to the Ocwen
Loan Servicing, LLC first lien and meet all other FNMA
requirements.

May not be held by the Broker, Developer or Realtor.

If subordinate financing exists, the loan to value must be 5% lower
than the maximum LTV allowed for that scenario.

Second liens may not be a Small Business Administration (SBA) loan
nor held in the name of a business.
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Subordinate Financing,
Required
Documentation
Continued
For Purchase transactions, the following subordinate financing
documentation is now required and must be included in the loan file:




Note
Good Faith Estimate and Final TIL Statement
HUD-1 Settlement Statement or other closing statement
For HELOCs, the HELOC agreement indicating all fees and costs
paid by the borrower at closing, and the maximum permitted
credit advance.
For Refinance transactions, the following subordinate financing
documentation is now required and must be included in the loan file:


Note
Copy of the Subordination agreement
NOTE: A copy of the recorded documents may be provided as a postfunding item.
Continued on next page
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Subordinate Financing,
Seller
Carry
Backs
Continued
Seller carry-backs are permitted on primary residences only provided the
combined LTV does not exceed the maximum for the product, program
and documentation process selected. Typically, the Purchase & Sale
Agreement will state that the present owner is willing to provide
secondary financing.

All payments related to secondary financing must be included in the
debt ratio.

The lien must be recorded and clearly subordinated.

A copy of the note must be obtained to verify the amount secured
against the property.

Regular payments must cover at least the principal and the interest at
the market rate. If financing provided by the property seller is more
than 2% below the current standard rates for second mortgages, it
must be considered a sales concession and the subordinate financing
amount must be deducted from the sale price or appraised value,
whichever is lower.

The subordinate loan cannot have a call option of less than 5 years.
 The subordinate loan must permit pre-payment at any time without a
penalty.
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Subordinate Financing,
Modifying
Existing
Second Liens
Continued
Subordinate lien holders may request modifications to the terms of the
lien (typically a reduction for lien) in exchange for remaining in a
subordinate position. Modifying the subordinate lien in this manner
results in re-executing the lien at closing which is acceptable. In these
scenarios, Ocwen Loan Servicing, LLC does not consider the modified lien
a new subordinate lien.
NOTE:





Use the existing definitions to determine the loan purpose of the
first lien (i.e. rate term versus cash out).
If the modification is addressed AND recorded PRIOR to closing, a
copy of the signed modification will be required AND a
subordination agreement must be prepared.
If the modification is addressed AT closing and subsequently
recorded (recorded with the new refinance documents), the
modification must be re-signed AND recorded in a subordinated
position to the first lien.
Second lien may be a closed end or line of credit; either will be
acceptable.
Partial pay downs of subordinate liens (i.e. not true re-executed,
re-recorded modifications) are not permitted.
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Subordinate Financing,
Municipal
Betterment
Assessments
Continued

When a limited area of a community benefits from a public
improvement (e.g., water, sewer, sidewalks, etc.), special property
taxes may be assessed to the property owners to reimburse the city
or town for all, or part, of the costs incurred in completing the project.

Each property parcel receiving a benefit from the improvements is
assessed a proportionate share of the cost which may be paid in full,
or apportioned over a period of up to approximately 20 years.

If the homeowner elects not to pay the cost in full and/or if the title
commitment references a municipal betterment lien, a copy of the tax
bill reflecting the higher assessment will be required in order to
correctly establish the borrower’s escrow account.

If the borrower is not establishing an escrow account, the tax bill
continues to be required or replaced with other supporting
documentation to confirm the origin of the second lien (i.e. must
confirm second lien is a forced, municipal betterment assessment).
NOTE:





File must confirm payment is through taxation or separate
payment.
If the city or township will not provide a subordination agreement
to the mortgage lien, it is acceptable to waive a subordination
agreement.
Other types of acceptable betterment liens by a municipality
include Utility Liens, Water Liens, Sewer Liens, Trash Liens and
Municipal Light Liens.
Betterment liens do not necessarily have to be paid off when a
property is conveyed. It may remain with the property and the
new owner can continue to pay it down.
Unacceptable betterment liens, include community seconds in
which only the specific subject property receives a grant or
forgivable type lien for necessary repairs, such as energy efficient
improvements, plumbing or electrical repairs needed to bring the
property up to current code.
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Subordinate Financing,
Community
Seconds
Not Permitted.
Down
Payment
Assistance
Not Permitted.
Continued
Continued on next page
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Subordinate Financing,
Virginia
Automatic
Subordination
Continued
The automatic subordination of certain subordinate liens as provided in Virginia Code
Ann. § 55- 58.3 is permitted with the below conditions:
 The original principal amount of the second lien may not exceed $150,000
(effective July 1, 2011)

The real estate cannot contain more than one dwelling unit

With respect to the refinance of the first mortgage:


The security instrument must state on the first page in bold or capitalized
letters: "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 WHICH IS ________.";
The principal amount secured by the refinance mortgage may not exceed the
outstanding principal balance secured by the prior mortgage plus $5,000; and
The interest rate stated in the refinance mortgage at the time it is recorded does
not exceed the interest rate set forth in the prior mortgage.
Key Definitions

"Refinance mortgage" means the mortgage, deed of trust or other instrument
creating a security interest in real estate given to secure a refinancing.

"Refinancing" means the replacement of a loan secured by a prior mortgage
with a new loan secured by a mortgage, deed of trust or other instrument and
the payment in full of the debt owed under the original loan secured by the
prior mortgage.

"Subordinate mortgage" means a mortgage or deed of trust securing an
original principal amount not exceeding $150,000, encumbering or conveying
an interest in real estate containing not more than one dwelling unit that is
subordinate in priority (i) under subdivision A 1 of Virginia Code § 55-96 to a
mortgage, deed of trust or other security interest in real estate (otherwise
known as the prior mortgage); or (ii) as a result of a previous refinancing.
The following second liens are not eligible:
A subordinate mortgage securing a promissory note payable to any county, city or
town or any agency, authority or political subdivision of the Commonwealth if such
subordinate mortgage is financed pursuant to an affordable dwelling unit ordinance
adopted pursuant to § 15.2-2304 or § 15.2-2305, or pursuant to any program
authorized by federal or state law or local ordinance or resolution, for (i) low- and
moderate-income persons or households or (ii) improvements to residential potable
water supplies and sanitary sewage disposal systems made to address an existing or
potential public health hazard, and 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 SUBORDINATED UPON THE
REFINANCING OF ANY PRIOR MORTGAGE."

Continued on next page
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Subordinate Financing,
Maryland
Automatic
Subordination
Continued
The automatic subordination of certain subordinate liens as provided in
Maryland Senate Bill 199 is permitted with the below conditions:

The original principal amount of the second lien may not exceed
$150,000

With respect to the refinance of the first mortgage:

The security instrument must state on the first page in bold or
capitalized letters: “This is a refinance of a deed of
trust/mortgage/other security interest 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 principal amount secured by the refinance mortgage may not
exceed the unpaid outstanding principal balance secured by the first
mortgage or deed of trust plus an amount not exceeding $5,000 to
pay closing costs and escrow costs. (“Escrow Costs” are defined as
“Money to pay property taxes, hazard insurance, mortgage insurance,
and similar costs associated with real property secured by a refinance
mortgage that a lender requires to be collected at closing and held in
escrow.”; and
The interest rate stated in the refinance mortgage at the time it is
recorded does not exceed the interest rate set forth in the prior
mortgage.
The following second liens are not eligible:
(i) a judgment lien; or (ii) a lien filed under the Maryland contract lien
act.

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Ratio
Calculation

A borrower’s housing ratio is a comparison of the borrower’s total
housing obligations to the borrower’s stable monthly income. Total
housing obligations are the sum of:




P&I payments on the mortgage
Hazard insurance premiums
Real estate taxes. Taxes must be based on the reasonable
estimate of the improvement value, not the existing tax based on
the unimproved or land value.
Any applicable charges for:



Mortgage insurance premiums
Homeowner’s association dues or condominium maintenance fees,
excluding utility charges
Payments on secondary financing
The borrower’s ability to pay the monthly housing expense, in addition to
other monthly obligations, must be carefully measured.
Continued on next page
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Ratio,
Continued
Real Estate
Tax Payment
Calculation of real estate taxes for borrower qualification must be based
on no less than the current assessed value. (The taxes are listed on the
title commitment.) However, the real estate taxes may (or must in some
cases) be projected if it can document one of the following:

The amount of taxes will be reduced based on federal, state, or local
jurisdictional requirements. However, the taxes may not be reduced if
an appeal to reduce them is only pending and has not been approved.

If the transaction is new construction, the lender must use a
reasonable estimate of the real estate taxes based on the value of the
land and completed improvements.

There is a tax abatement on the subject property that will last for no
less than 5 years from the note date. For example:


For a municipality with a 10-year abatement, the lender may
qualify the borrower with the reduced tax amount;
For a municipality with a 10-year abatement and with annual real
estate tax increases in years 1 through 10, the lender must qualify
the borrower with the annual taxes that will be required at the end
of the 5th year after the first mortgage payment date.
NOTE: For purchase transactions, the state of California will base
property taxes on 125% of purchase price.
Continued on next page
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Ratio,
Continued
Real Estate
Debt

Mortgage obligations that do not meet the criteria for utilizing rental
income must provide additional Reserves and the PITI included in the
debt ratio for qualifying (PITI may be omitted under certain
circumstances as stated below).
Current Residence Not Pending Sale
If the current principal residence is still owned by the borrower(s) at the time of
closing on the new primary residence and there is NOT a pending sale, then:

A minimum of 6 months PITI for BOTH the retained property and
the new principal residence is required (2 months reserve is
allowed if 30% equity in the existing principal residence is
documented by a minimum Form 2055; AND
 BOTH the current and proposed PITI must be used in qualifying
the borrower for the new loan.
NOTE: If the borrower cannot meet both the reserve and qualifying
requirements, then the scenario is not eligible.
Current Residence Pending Sale
If the current principal residence is still owned by the borrower(s) at the time of
closing with a pending sale that will not close with title transfer to the new owner
prior to the new purchase transaction, then:

The current principal residence PITI may be omitted from the qualifying ratio
calculation ONLY IF the borrower(s) document a minimum of 6 months PITI
for BOTH the retained property and the new principal residence is required (2
months reserve is allowed if 30% equity in the existing principal residence is
documented by a minimum Form 2055; AND

Provide the following documentation (if the below documents cannot be
provided, then refer to the “Not Pending Sale” requirements):
The executed sales contract for the current residence; AND
Confirmation that any financing contingencies have been cleared. This
may be satisfied with documented proof of the buyer’s lender
commitment letter.
NOTE: If the borrower cannot meet both the reserves requirement and the
pending sale documentation, then the scenario is not eligible under this
definition.
o
o
NOTE:

Loans requiring mortgage insurance may require 6 months minimum reserves
regardless of DU findings; refer to specific mortgage insurance partner
guidelines for details.
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Ratio,
Continued
Revolving
Debt

Revolving debts should be included in the debt to income ratio based
on the minimum payment from the statement or credit report or the
greater of $10 or 5% of the current balance. If multiple account
payments are not reported, the underwriter should obtain actual
minimum payments from the borrower’s account statement.
Continued on next page
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Ratio,
Continued
30-Day Charge
Accounts
IMPORTANT: For Open 30-day Charge Accounts, such as American
Express, that do not reflect a monthly payment on the credit report OR
reflect a monthly payment that is identical to the account balance,
borrower must verify funds sufficient to cover the account balance. The
verified funds must be in addition to any funds required for closing costs
and reserves.
NOTE:

DU will include the balance of the 30-day charge accounts on the loan
application in the Reserves Required to be Verified amount shown on
the DU Underwriting Findings report.

For refinances where the borrower is receiving cash back and
where there is not a minimum reserve requirement for the
transaction, DU will subtract any cash back being received by the
borrower from the amount of the 30-day account balance. (i)
When the amount of cash back covers only a portion of the 30-day
account balance, DU will only require the remaining amount to be
documented, verified funds. (ii) When the amount of cash back
covers the entire 30-day account balance, DU will not require any
portion of the balance to be verified.

If the borrower paid off the account balance prior to closing, borrower
may provide proof of payoff in lieu of verifying funds to cover the
account balance. Funds to be sourced to confirm borrower did not
incur additional debt.

Employer reimbursement is permitted to omit the payment from debt
calculation with the following required documentation:

Evidence in either the form of a letter on company letterhead or by
evidence of monthly reimbursement for a minimum six (6)
months.
 If the borrower is self-employed, and does not have sufficient
personal assets to cover the account in full, it must be documented
that the business pays the monthly account with cancelled checks
for a minimum of six (6) months.
At no time is it acceptable to include partial or full balances in the
borrower’s qualifying debt ratio in order to address 30-day accounts.
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Ratio,
Continued
Installment
Debt
Installment debts with less than or equal to 10 monthly payments
remaining do not need to be included in the total debt ratio. It is the
underwriter’s discretion to include paid down installment debt within the
debt to income ratio. Verification that the debt has been paid must be
provided by one of the following:

A copy of the HUD-1

A supplemental credit report

Verification from the creditor

Refer to Paying Off Debt section for additional details.

Installment debts with 10 or fewer monthly payments should also be
considered as a recurring monthly obligation if it significantly affects
the borrower’s ability to meet his or her credit obligations.
Continued on next page
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Ratio,
Continued
Lease
Payments
Lease payments must be considered as recurring monthly debt obligations
regardless of the number of months remaining on the lease AND
regardless of being paid off at or just prior to closing.
NOTE: This is because the expiration of a lease agreement for rental
housing or an automobile typically leads to either a new lease agreement,
the buyout of the existing lease, or the purchase of a new vehicle or
house.
Paying off /
Paying Down
Debt

Paying Off / Paying Down Debts: It is necessary to review Borrowers
carefully when they are paying off (or paying down) debts in order to
qualify. The credit history and the Borrower’s use of credit should be
a factor in determining whether it is appropriate to exclude debts for
qualification purposes.

If it is determined that paying off (or paying down) a debt is
appropriate, it is necessary to document as follows:
 Installment loans being paid off or paid down to ten months,
must be documented with cancelled checks, paid receipts
and/or copy of the HUD-1
 For DU scored loans: Paying down revolving debt to qualify is
not allowed for DU Scored loans. If revolving accounts are
being paid off, documentation that the account is paid in full
and closed will be required.
 For LP scored loans: Paying down revolving debt for loans
scored through LP, the funds cannot come from mortgage
proceeds. All sources of funds that are used to pay down debt
must be fully documented.
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Ratio,
Continued
Authorized
User Accounts
– DU
For Desktop Underwriter (DU) loans: Trade lines designated as
authorized user are taken into consideration as part of the risk
assessment. However the credit report must be reviewed for trade lines in
which the applicant has been designated as an authorized user in order to
ensure the trade lines are an accurate reflection of the borrower's credit
history. If it is believed the authorized user trade lines are not an
accurate reflection of the borrower's credit history, the Underwriter should
evaluate the borrower's credit history without the benefit of these trade
lines and use prudent underwriting judgment when making its final
underwriting decision.
When ensuring trade lines are an accurate reflection of the borrower's
credit history, as a general guide, if the borrower has several authorized
user accounts but only has a few accounts of his/her own, the loan file
should establish:
 The relationship of the borrower to the owner of the account,
 If the borrower uses the account, and
 If the borrower makes the payments on the account.
If the authorized user trade line belongs to another borrower on the
mortgage loan, no additional investigation is needed. However, if the
borrower has several trade lines in good standing and only a minor
number of authorized user accounts, the Underwriter could make the
determination that:
 The authorized user accounts had minimal, if any, impact on the
borrower's overall credit profile; and
 The information reported on the credit report is an accurate
reflection of the borrower's credit history.
NOTE:
 If the account belongs to the borrower’s spouse (whether on the
loan or not) or the co-borrower OR if there is evidence in the file
that the borrower has been making the payment, then the account
payment must be included in the borrower qualifying debt to
income ratio.
Continued on next page
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Ratio,
Continued
Authorized
User Accounts
– LP
For Loan Prospector (LP) loans, credit report trade lines that list a
borrower as an authorized user cannot be considered in the underwriting
decision, except as outlined below. An authorized user trade line may be
considered if:
 Another borrower in the mortgage transaction is the owner of the
trade line; or
 The borrower can provide written documentation (e.g., canceled
checks, payment receipts, etc.) that he or she has been the actual
and sole payer of the monthly payment on the account for at least
12 months preceding the date of the application.
If written documentation of the borrower’s monthly payments on the
authorized user trade line is provided, then the payment history —
particularly any late payments that are indicated — must be considered in
the credit analysis and the monthly payment obligation must be included
in the debt-to income ratio.
An authorized user trade line must be considered if the owner of the trade
line is the borrower's spouse and the spouse is not a borrower in the
mortgage transaction.
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Ratio,
Monthly
Payment
Debts
Continued
The monthly debt payment is the sum of the following monthly
obligations:

Monthly housing expense

Installment debts with 10 or fewer monthly payments should also be
considered as a recurring monthly obligation if it significantly affects
the borrower’s ability to meet his or her credit obligations.
Exception: Payments on all automobile and non-automobile leases,
regardless of the remaining number of payments and regardless if pay
off at closing, must be included in the calculation of recurring monthly
expenses.
Obligations
Not
Considered
Debt

Monthly Payments on revolving accounts at the greater of $10 or 5%
of the current balance. If the balance has recently or is to be paid
off/down and the account remains open, the qualify terms continue to
be required based on the most recent high balance.

Aggregate negative net rental income from all investment properties
owned.

Monthly mortgage payment for second home.

Payments on any Home Equity Line of Credit (HELOC) are calculated
into the ratio based on the greater of the credit report amount or an
interest only amount for the current balance; if the current balance is
zero, then a payment amount is not required.
Payments for loans secured by the borrower's personal financial assets
(such as life insurance policies, 401(k) accounts, CDs, stocks, bonds,
etc.), do not have to be included in the debt ratio calculations if the loan
instrument shows the asset as collateral for the loan. The borrower may
not use the same asset to satisfy cash reserve requirements.
IMPORTANT: Appropriate documentation must be provided to confirm
exclusion of debt.
Continued on next page
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Ratio,
Continued
Co-Signed
Obligations
Co-signed obligations for installment, revolving and mortgage debt/loans
can be excluded from recurring monthly expenses if all of the following
documentation is provided:

Twelve months of cancelled checks that show payments have been
made by another party.

If the account on the loan has been in existence for less than 12
months, the full payment of the co-signed account is considered a
liability and must be used in calculating the debt ratio.

Verification that there have been no delinquencies on the account
during the most recent 12 months.

Debt must be a co-signed obligation (i.e. the other party must also be
legally on the debt).

A copy of the note must also be provided to show that the person
making the payments in indeed an obligor on the note.
NOTE: Liabilities solely in the applicant’s name must always be
considered in the debt ratio, regardless of who is making the monthly
payment (as the legal obligation resides with the applicant).
Court Ordered
Assignments
of Debts
If the borrower is no longer responsible for a payment of a debt as a
result of a divorce settlement, or buyout but has not been released of the
obligation by the creditor, the debt does not need to be included in the
DTI if the following is provided and specifically assigns the payment to
another party:

Applicable pages and signature page of the recorded divorce
decree or legal separation agreement (must be finalized by the
court and recorded); and
 Evidence of the transfer of title.
IMPORTANT: The Borrower continues to be liable for any adverse
payment history or outstanding debt associated with these joint accounts,
including AUS recommendations that lowers credit scores, require
accounts to be paid in full, etc.
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Ratio,
Continued
Deferred Debt

Deferred debts (such as student loans) must be included in the
recurring debt obligations. If the payment is not specified on the
credit report, obtain copies of the payment letters or forbearance
agreements and calculate a monthly payment to be used in the debt
ratio.
DU Loans: For all student loans, whether deferred, in forbearance, or
in repayment (not deferred), the lender must use the greater of the
following to determine the monthly payment to be used as the
borrower’s recurring monthly debt obligation:
 1% of the outstanding balance; or
 the actual documented payment (documented in the credit report,
in documentation obtained from the student loan lender, or in
documentation supplied by the borrower).
 If the actual documented payment is less than 1% of the
outstanding balance and it will fully amortize the loan with no
payment adjustments, the lender may use the lower, fully
amortizing monthly payment to qualify the borrower.
NOTE: If the payment currently being made cannot be documented
or verified, 1% of the outstanding balance must be used.
LP Loans: For a student loan, in lieu of obtaining copies of payment
letters or forbearance agreements, Ocwen will allow the lender to use
2% of the outstanding balance as the borrower’s recurring monthly
debt obligation. However, if any documentation is provided by the
borrower or obtained by the lender that indicates the actual monthly
payment, that figure must be used in qualifying the borrower.
Continued on next page
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Ratio,
Continued
Business Paid
Debt
Excluding the monthly debt obligation associated with a self-employed,
sole proprietor, Corporations, Partnerships business requires a minimum
of the most recent twelve (12) months cancelled checks from the
business owned checking account.




The account has no late payments in the last 12 months and no
more than 1x30 in the last 24-month period, if applicable.
Evidence such as canceled company checks that the debt has been
paid out of company funds.
The cash flow analysis of the company took the payment of the
debt into consideration.
The debt must demonstrate a company related business function,
such as a credit card used for business related items, an
automobile loan for commutes to and from work, or a mortgage
loan for a home serving as temporary quarters for employees or
relocation programs.
NOTE:



The debt must be considered as part of the borrower’s individual
recurring monthly debt obligations if any one of these conditions
cannot be met.
Similar debt obligations may be combined to meet the 12 month
minimum requirement. For example, the documented period a
previous auto debt paid by the business can be used in conjunction
with a new auto tradeline (i.e. the borrower sold the older car to
purchase a newer model).
The payment must be included in the borrower’s DTI, if the
business does not provide sufficient evidence of the debt being
paid out of company funds. If evidence of the business paying the
debt is provided, but the cash flow analysis does not reflect any
business expense related to the debt (such as an interest expense,
taxes and insurance, if applicable, equal to or greater than the
amount of interest that one would reasonably expect to see given
the amount of financing shown on the credit report and the age of
the loan). It is then reasonable to assume that the debt has not
been accounted for in the cash flow analysis.
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Ratio,
Continued
Undisclosed
Debt
ALL existing debt must be disclosed within the loan application. In
addition, any pending transactions which may result in new debt must be
disclosed on the 1003. Supporting documentation for pending transaction
in which an application has been submitted in anticipation of new debt
being extended to the borrower must be included in the loan package.
Supporting documentation may include sales agreement, loan
commitment, security agreement, etc.
Examples of Pending Debt (but not limited to):



Auto loan purchase or refinance in process
Newly submitted Credit Card Applications
Pending or Applied Credit Application for Refinance and/or
Purchase of Real Estate
Failure to disclose existing or pending debt is considered to be material
misrepresentation and default in violation of the agreements set forth
within the Loan Application. Non-disclosure of existing and/or pending
debt will result in acceleration of the indebtedness in accordance with the
terms of the Security Instrument.
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Conventional Lending Guide
Property Flipping
Overview
Property flipping generally refers to the process of purchasing an existing
property with the intention of immediately reselling it for a profit.
Property flipping in itself is not illegal unless it includes an act of fraud or
misrepresentation, which can result in a predatory transaction. The
property is often a distressed property that was acquired at a discounted
price that is being refinanced or resold at an inflated price within a short
timeframe to an uninformed buyer.
Due to the nature/history of these transactions and propensity for illegal
or inappropriate activity, Ocwen Loan Servicing, LLC will apply at
minimum the below requirements; however, Ocwen Loan Servicing, LLC
reserves the right to scrutinize all loan transactions for possible property
flipping and refuse to approve where inappropriate property flipping is
indicated.
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Conventional Lending Guide
Property Flipping,
Requirements
Continued

Property seller must be owner of record and in title prior to the
borrower’s application AND prior to date of the sales contract for the
purchase transaction.

Re-sales up to 90 days will be heavily scrutinized for value, acceptable
comparables and characteristics of a bona fide transaction:




If the Seller is a business, LLC or any other non-individual who
owns multiple properties in the subject market area that is
predominantly a foreclosure market and has flipped numerous
properties in the subject’s market area, the subject’s appraised
value will not be accepted and the loan will be declined.
If the Seller is a business, LLC or any other non-individual, Ocwen
Loan Servicing, LLC will require the name of the Seller on all
comparables used in the appraisal to confirm a false market value
is not being created.
If the Seller is a business, LLC or any other non-individual, the
following checklist must be completed to confirm transaction is
arms length, legitimate and seller is affiliated with the business
entity/LLC. (i.e. confirm individual is authorized to sell the
property).
Re-sales from 91 days up to 12 months will be reviewed for all the
above concerns at the discretion of the underwriter.
IMPORTANT: Ocwen Loan Servicing, LLC will not allow for a borrower to
purchase a property or multiple properties when the Seller is a LLC and
the subject property was recently purchased by the Seller with rapid
appreciation, which cannot be supported with documented home
renovation/improvements.
Continued on next page
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Property Flipping,
Anti-Flipping
and the Sales
Contract
Continued
It is not acceptable practice for the sales contract to be re-signed for the
sole purpose of circumventing Ocwen Loan Servicing, LLC’s flip rules.
NOTE: This includes any evidence within the file, such as original sales
contract date on the appraisal, indicating that the loan was re-structured
for the sole purpose of circumventing Ocwen Loan Servicing, LLC
requirements.
Omitted
Transactions
Flip transactions that are not affected by the above:



Checklist for
Business
Seller
A builder selling a newly built home or building a home for a
homebuyer.
Transactions resulting from an inheritance, divorce or legal
settlement.
Sales by employers or relocation agencies related to employee
relocations.
If the seller is a non-individual AND the property is being re-sold within
90 days, the Non-Individual Seller Evaluation & Validation Checklist is
available as a helpful tool but is not required.
Continued on next page
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Property Flipping,
Continued
Non-Individual Seller Evaluation & Validation Checklist
NOTE: This is a helpful tool, but not required)
Date: __________________________
Reviewer: ______________________
Borrower Name: _________________
Loan Number: ___________________

Who is the seller in the contract?
_____________________________________________

Is this an individual or a business entity?



Who signed the contract on behalf of the seller?
Who is listed as the current owner on title?
Is the non-individual seller entity found on the state corporation’s website search?



Who is listed as the Officer, Principal or Agent?
Is the person who signed on behalf of the non-individual seller an officer, registered
agent of principal of the business entity?
If not, are you able to determine who the officers or owners of the business entity
are?
CONCLUSIONS / FINDINGS



Non-individual seller entity is acceptable and _____________________ is
authorized to sign on behalf of the non-individual seller.
Non-individual seller entity is acceptable but we are conditioning for full disclosure
of members and authorization for the signor, ______________________ to sign on
behalf of the non-individual seller.
Non-individual seller entity is deemed unacceptable for the following reason(s):
______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
Continued on next page
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Property Flipping,
Additional
Evaluations
Continued

Who is the non-individual business entity?

Can we validate the existence of the non-individual business entity?

Can we identify the members with ownership and interest in the
business entity?

Is the person who signed the sales agreement an identified member
with ownership and interest in the business entity OR do we need to
obtain specific written authorization from a member with ownership
and interest in the business entity?

Is there a potential or identified business or personal relationship
between any or the other interested parties to the transaction and the
selling business entity?



YES
o
If so, is this relationship clearly disclosed?
o
If so, what is the relation?
o
What affect might this relationship have on the subject
property value?
o
Are there unreasonable incentives?
o
Who if anyone is benefiting most from any potential
relationship with the selling business entity?
NO
Do we have matching disclosure of the seller listed as the seller in the
sales agreement, the seller listed as current owner on the appraisal
and the current person or entity listed as holding current title?


YES
NO
o
Can you clearly see why the information differs between one
disclosure versus the other or others?
o
Has there been a recent transfer of ownership? If so, why?
o
Have there been an unreasonable number of ownership
transfers in the most recent 36 months?
Continued on next page
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Property Flipping,
Continued
State Business
Website
Search

Better
Business
Bureau
Website: http://welcome.bbb.org/
Massachusetts:
http://corp.sec.state.ma.us/uccfiling/uccSearch/Default.aspx
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Conventional Lending Guide
General Compliance Policies
Overview
Ocwen supports the expansion of fair and equitable home ownership
opportunities and opposes predatory lending. We are committed to
upholding the standards of fair and responsible lending in all aspects of
our business practice. Our commitment emphasizes product choice, fair
pricing and credit terms with clear disclosure.
Ocwen requires that all Borrowers be treated fairly and equitably through
all channels. Ocwen requires adherence to applicable federal state and
local laws, statutes, regulations, commentary and principles, including but
not limited to the items more fully described herein.
Predatory
Lending
To assure a clear and unequivocal understanding of our commitment to a
method of doing business that excludes predatory and abusive lending,
Ocwen has adopted an internal 5% policy limit on all total borrower
charges and broker compensation (subject to lower state and municipal
thresholds), including such broker fees as origination, processing fees,
etc.
Ocwen will not fund any loan that is considered to be “high rate” or “high
fee”, or any loan that is considered to be predatory in the jurisdiction
where the property is located.
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General Compliance Policies,
Laws
Continued
Ocwen strictly complies will all applicable federal, state and local laws,
ordinances, and regulations. This includes but not limited to:
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Equal Credit Opportunity Act (Regulation B)
Consumer Credit Protection Act
Fair Credit Reporting Act (FCRA)
Truth-in-Lending Act (Regulation Z); Ocwen will permit only
Qualified Mortgages as defined within the Truth-in-Lending Act.
Real Estate Settlement Disclosure Act (RESPA – Regulation X)
Home Mortgage Disclosure Act (HMDA – Regulation C)
Home Ownership and Equity Protection (HOEPA); note Ocwen will
not proceed with any loan scenario that exceeds HOEPA’s
guidelines.
SAFE Act
Home Valuation Code of Conduct (HVCC) and subsequent
regulations
OFAC
Customer Identification Program (CIP) under USA Patriot Act
FHA (Fair Housing Act)
CRA (Community Reinvestment Act)
FTD Unfair and Deceptive Acts and Practices (UDAP)
DFA (Dodd-Frank Wall Street Reform & Consumer Protection Act;
and all implementing regulations thereto as regulations become
effective)
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General Compliance Policies,
Laws
(Cont’d)
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Continued
Loan Originator Compensation; amendment to §1026.36(h).
Disclosure and Delivery Requirements for Copies of Appraisals and Other
Written Valuations under the Equal Credit Opportunity Act (Regulation B)
o Form C-9, Disclosure of Right to Receive a Copy of Appraisal with
language: "We may order an appraisal to determine the property's
value and charge you for this appraisal. We will promptly give you a
copy of any appraisal, even if your loan does not close. You can pay
for an additional appraisal for your own use at your own cost." must
be executed and in the file.
o Must provide evidence that the applicants are provided a copy of all
written appraisals and valuations promptly upon their completion or
three business days before consummation, whichever is earlier.
NOTE: The borrower may waive this 3-day requirement if such
waiver (Waiver of Advance Delivery Appraisal Form) is obtained at
least three (3) days prior to the closing of the mortgage.
o The borrowers cannot be charged a fee for a copy of their appraisal.
Adherence to the Ability to Repay and Qualified Mortgage Standards under
the Truth-in-Lending Act (Regulation Z).
Homeownership Counseling Amendments to the Real Estate Settlement
Procedures Act of Regulation X. Each file must contain:
o The List of Homeowners Counseling Organizations provided to the
borrower within three (3) business days of the application. This must
be provided on all applications taken on or after July 10, 2014
The list must be obtained from either:
 The CFPB website created to assist lenders in complying with
this section which can be found here:
http://www.consumerfinance.gov/find-a-housing-counselor/;
or
 Lenders may use their own system to generate the list using
the same HUD data that the CFPB uses on HUD-approved
counseling agencies, in accordance with the CFPB’s list
requirements (See
http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm). or
o
The interim homeowners counseling disclosure within three (3)
business days of the application. This option is acceptable on
loans with applications dated prior to July 10, 2014.
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General Compliance Policies,
Continued
Digital
Signatures
Permitted for appraisals only.
Compliance
with Points
and Fees
The maximum points and fees applicable to a Qualified Mortgage vary
based upon the loan amount. In addition, all dollar amounts, including
loan amounts, will be adjusted for inflation annually on January 1 by the
CFPB. The applicable points and fees thresholds for 2015 are listed
below:
Points and Fees Thresholds
Note Amount
Points and Fees Threshold
Greater than or equal to $101,953
3% of Total Loan Amount
$61,172-$101,952
$3,059
$20,391-$61,171
5% of Total Loan Amount
$12,744-$20,390
$1,020
<=$12,743
8% of Total Loan Amount
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Points and
Fees
Calculation
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Continued
The points-and-fees calculation is the same as that used in the HOEPA points-and-fees
calculation.
To calculate the points-and-fees, a creditor will add together the amounts paid in connection
with the transaction in six categories of charges:
1. Finance Charge – In general, all items included in the finance charge under 1026.5(a)
and (b) will be included, except the following:
a. Interest or the time-price differential
b. Mortgage Insurance Premiums
i.
For federal or state government sponsored MIPs, exclude up-front and annual
FHA premiums, VA funding fees, and USDA guarantee fees
ii. For PMI, exclude monthly or annual PMI premiums. Also can exclude up-front
PMI premium if it is refundable on a prorated basis and a refund is
automatically issued upon loan satisfaction. However, if the premium can be
excluded, you must still include any portion exceeding the up-front MIP for FHA
loans.
c. Bona Fide Third Party Charges - Cannot be retained by the creditor, loan originator,
or an affiliate of either
d. Bona Fide Discount Points
i.
Exclude up to 2 bona fide discount points if the interest rate before the discount
doesn’t exceed the APOR by more than 1 percentage point; or
ii. Exclude up to 1 bona fide discount point if the interest rate before the discount
doesn’t exceed the APOR by more than 2 percentage points.
2. Loan Originator Compensation – Compensation paid directly or indirectly by a consumer
or creditor to a loan originator that is not an employee of the creditor or mortgage
broker must be included.
a. Compensation paid by the creditor to its own employee loan originator on a
transaction can be excluded;
b. Compensation paid by a mortgage broker to its own employee loan originator on a
transaction can be excluded;
c. Compensation paid by a consumer directly to a mortgage broker can be excluded (so
long as the amount has already been included in the points-and-fees under the
finance charge);
d. Compensation paid by a creditor to a mortgage broker that is not its own employee
is to be included
3. Real Estate-Related Fees – The following categories of charges are excluded if (i) the
charge is reasonable; (ii) the creditor receives no direct or indirect compensation; and
(iii) the charge is not paid to an affiliate of the creditor:
a. Title related fees
b. Loan-related documentation preparation fees
c. Notary and credit-report fees
d. Property appraisal or inspection fees
e. Amounts paid into escrow or trustee accounts that are not otherwise included in the
finance charge
4. Premiums for credit insurance; credit property insurance; other life, accident, health or
loss-of-income insurance where the creditor is beneficiary; or debt cancellation or
suspension coverage payments
a. Do not include these charges if they are paid after consummation of the loan
b. For purposes of this provision, credit property insurance is defined as insurance that
protects the creditor’s interest in the property and does not include homeowner’s
insurance that protects the consumer.
5. Maximum Prepayment Penalty – note Ocwen does not offer prepayment penalty options.
6. Prepayment Penalty Paid in a Refinance – If a creditor is refinancing a loan that it or its
affiliate currently holds or services, then any penalties charged for prepaying the
previous loan must be included – note Ocwen does not offer prepayment penalty
options.
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General Compliance Policies,
High Cost
Loans
Continued
Mortgage loans that are designated as “high-cost” or “high-risk” are not
eligible for funding with Ocwen.
By definition, a high-cost mortgage is any consumer credit transaction,
whether closed-end or open-end, that is secured by the consumer’s
principal dwelling in which:
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The annual percentage rate applicable to the transaction will exceed
the average prime offer rate (“APOR”), as defined in § 1026.35(a)(2),
for a comparable transaction by more than:
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6.5 percentage points for a first-lien transaction
8.5 percentage points for a first-lien transaction if the dwelling is
personal property and the loan amount is less than $50,000; or
8.5 percentage points for a subordinate-lien transaction; or
The transaction’s total points and fees will exceed:
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5 percent of the total loan amount for a transaction with a loan
amount of $20,391 or more; the $20,391 figure shall be adjusted
annually on January 1 by the annual percentage change in the
Consumer Price Index that was reported on the preceding June 1;
or
The lesser of 8 percent of the total loan amount or $1,020 for a
transaction with a loan amount of less than $20,391; the $1,020
and $20,391 figures shall be adjusted annually on January 1 by
the annual percentage change in the Consumer Price Index that
was reported on the preceding June 1.
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Conventional Lending Guide
General Compliance Policies,
Higher Priced
Mortgage
Loans
Continued
Ocwen will not fund loans that are categorized or qualify as Higher Priced
Mortgage Loans unless otherwise specified within the product summaries.
By definition, a “Higher Priced Mortgage Loan” (HPML) is a first lien
secured by a primary residence that has an annual percentage rate (APR)
of 1.5% or more above the average prime offer rate (APOR) for
comparable transaction as of the rate lock date. APR and APOR are both
defined in Regulation Z. Requirements, as outlined in Regulation Z, must
be followed. Loans that are not eligible include, but are not limited to,
loans with prepayment penalties, ARMs with initial period less than 7
years and 5 year balloon reset mortgages.
Higher Priced
Covered
Transactions
A Higher Priced Covered Transaction is a covered transaction with an
annual percentage rate that exceeds the average prime offer rate for a
comparable transaction as of the date the interest rate is set by 1.5 or
more percentage points for a first-lien covered transaction, other than a
qualified mortgage under paragraph (e)(5) or (f) of § 1026.43; by 3.5 or
more percentage points for a first-lien covered transaction that is a
qualified mortgage under paragraph (e)(5) or (f) of § 1026.43; or by 3.5
or more percentage points for a subordinate-lien covered transaction.
NOTE: Ocwen does not purchase subordinate lien transactions.
IMPORTANT: A Higher Priced Mortgage Loan (HPML) will always be
considered a Higher Priced Covered Transaction; however, a Higher Priced
Covered Transaction may not always be a Higher Priced Mortgage Loan.
Prepayment
Fees or
Penalties
Prepayment fees or penalties prohibited under any State, Local or Federal
Laws or may create an oppressive financial condition are not permitted.
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General Compliance Policies,
Continued
Net Tangible
Benefit
All loans are required to provide a net tangible benefit to the borrower;
must use state specific forms where required.
Federal and
State
Regulations
Brokers represent and warrant to Ocwen that all loans delivered to Ocwen
are originated in accordance with state and federal law.
Repayment
Ability
Ocwen Loan Servicing, LLC does not engage in the practice of making
loans unless it is reasonably believed the borrower has the ability to repay
the loan based on a consideration of current and expected income,
current obligations, employment status, other financial resources or other
compensating factors other than the borrower’s equity in the dwelling
which will secure repayment of the loan as determined through
reasonable means in accordance with the underwriting standards and
procedures normally observed for the particular loan products.
Title
Commitment
Title Commitment must include 24 month history of property ownership
and is valid for 60 days.
NOTE: Gap endorsements are acceptable.
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General Compliance Policies,
Code of
Conduct
Continued
Ocwen Loan Servicing, LLC is committed to making loans to all applicants in a
consistent, fair and reasonable basis, striving to conduct our business in an
ethical manner with the utmost professionalism.
Ocwen Loan Servicing, LLC does not endorse, nor conduct business that may
be perceived as “Predatory” in nature. For example, we will not conduct
business with brokers who engage in equity stripping (serial re-financings that
strip away borrower equity), churning (re-financing loans with little or no
benefit to the borrower) and packing (including superfluous hidden expenses
and fees in a loan).
Ocwen Loan Servicing, LLC conducts its business in an ethical, fair and
reasonable manner, maintaining an environment that encourages fair and
equitable treatment of all customers within the spirit of fair lending laws.
All borrowers will be treated fairly with regard to loan pricing, underwriting
and service of the loan request irrespective of race, color, age, gender,
marital status, disability or national origin.
Ocwen Loan Servicing, LLC respects its borrower(s) privacy data and
complied with all anti-dissemination laws and rules relating to such, including,
but not limited to the provisions of the Gramm-Leach-Bliley Act.
All products are offered to the largest spectrum of borrowers to avoid
targeting minorities with specific loan programs.
Ocwen Loan Servicing, LLC underwrites all loan products in a sound
and consistent manner, always considering foremost the customers’
ability to repay.
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General Compliance Policies,
Interest
Closing
Protection
Letters
Continued
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Interest Credits permitted up to the 10th day of the month.
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Maximum amount of prepaid interest on any transaction not to exceed
45 days.
Specific closing protection letters are required; Ocwen Loan Servicing, LLC
will not accept E&O Insurance Policies.
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Conventional Lending Guide
Closing Policies & Procedures
Scheduling a
Loan
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Loan must be Cleared to Close in order to schedule for Closing.
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Request to Close (Broker Fee Sheet) and Preliminary HUD must be
uploaded into Image Flow.
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To schedule the loan, the Broker will email
[email protected] with the date and time of the closing:
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Allow a minimum of 48 hours from when loan is being scheduled to
closing/signing date.
A confirmation email will be sent to the Broker.
Closing
Practices
The next sections reiterate and highlight best practices for Ocwen Loan
Servicing, LLC’s closing and funding process.
Verification of
Employment
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A verbal verification of employment must be completed within 5 days
of the Note Date and must include:
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Independent Verification of Employer’s phone number.
Borrower’s start date.
Verification borrower is still employed.
Closing
Protection
Letter
Ocwen Loan Servicing, LLC Funding will validate all Closing Protection
Letters as well as Closing Agents wiring information prior to the loan
funding.
Taxes
Any taxes that are due within 60 days of closing must be collected at
closing and be reflected on the HUD-1 settlement statement regardless if
loan is escrowing or not.
Insurance
Insurance must be paid through the first mortgage payment.
Title
Commitment
Title Commitment must include 24 month history of property ownership
and is valid for 60 days.
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Closing Policies & Procedures,
Escrow
Accounts
Continued
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Escrow waiver permitted as indicated below for LTVs less than or
equal to 80% (90% in California).
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Partial Escrow Accounts permitted under the following circumstances:
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Hazard & Wind Insurance(s) may be waived with taxes still
escrowed.
o Note in this scenario, the escrow wavier fee is not applied.
o If HO-6 insurance is required, then it must be escrowed
regardless of partial escrow request.
Note if the loan requires flood insurance, then partial escrow
waivers are not permitted; either a full escrow account or a full
escrow wavier is required.
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Escrows may not be waived for any real estate taxes when delinquent
taxes past due by more than 60 calendar days are being included in
the new loan amount (for cash out refinance transactions).
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Refer to the daily rate sheet for non-escrow account loan level price
adjustments to be applied when full escrows are waived.
Escrow accounts are required in the following circumstances:
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When the loan requires Mortgage Insurance of any type, including
single premiums and LPMI.
NOTE: In California, loans with LTVs between 80.01% - 90.00%, the
borrower may elect to waive escrows for Taxes and Insurance (subject
to the above requirements), but MUST escrow any Mortgage
Insurance premiums that are to be paid by the Servicer.
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Closing Policies & Procedures,
Seller
Contributions
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Seller Contributions are limited to program maximums as identified on
the Loan Approval.
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Allowable Seller Paid Fees on Lender Paid Transaction:
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Any or all 3rd Party Fees (Title, Appraisal, Credit, etc.)
Allowable Seller Paid Fees on a Borrower Paid Transaction:
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Premium
Pricing Credits
Continued
Any or all 3rd Party Fees (Title, Appraisal, Credit, etc.)
Broker Compensation
Allowable Fees Paid By Premium Credit:
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Any and all Third Party Fees (Title, Appraisal, Credit, etc.)
Interest, Escrow Accounts, Taxes Due, HOA Dues, Oil Adjustments,
etc.
POC Items, such as appraisal and insurance on Purchase
Transactions.
Interest on loan being paid off as well as any fees associated with
payoff.
NOTE: Broker compensation of any kind may not be paid by the
Premium Credit.
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Closing Policies & Procedures,
Principal
Reductions
Continued
Lender Paid Transactions
On transactions where the loan originator is paid by the lender, Ocwen
will permit a Principal Curtailment on rate term refinance loans unless
noted below as a result of excess premium rate credit. The excess
premium must be identified on the HUD-1 Settlement Statement and is
limited to the amount of the excess premium rate credit below. The
premium rate credit is the amount associated with the lowest pricing rate
option that allows for some or all of the borrower's closing costs to be
paid so the borrower does not have to pay those closing costs out of
pocket.
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Principal curtailments are limited to the lesser of 2% or $2000.
If the program permits, the borrower may also receive cash back within
program guidelines in addition to the amount of the curtailment. Check
your product summary for cash back eligibility criteria.
Borrower Paid Transactions
On transactions where the loan originator is paid by the consumer,
principal curtailments are not permitted in any amount. The premium rate
credit may not exceed the amount of third party costs.
NOTE: After closing, borrower may enroll in weekly, bi-weekly and semimonthly principal reduction programs by visiting the servicing website at
www.ocwen.mortgagebanksite.com
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Conventional Lending Guide
Closing Policies & Procedures,
HUD Approval
Process
Ocwen Loan Servicing, LLC will approve all HUD-1 statements prior to the
loan funding and wire being released.
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The HUD Approval Process ensures:
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Funding
Continued
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Borrower has brought the minimum funds to closing as required
per program.
Borrower’s funds to close do not exceed assets verified per the
loan approval.
Borrower is not receiving more than the allowable cash at closing
per program maximum.
Premium Pricing Credit does not exceed allowable costs.
Principal Reduction is within guideline.
Wire cut off time is 3:30pm EST.
Prior to ordering the wire, Ocwen Loan Servicing, LLC will verify the
following:
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VOE has been completed within 5 days of the Note
HUD has been approved
All Prior To Fund (PTF) conditions have been satisfied
Fed Reference numbers are available upon request. Note, there may
be a delay in retrieving once the wire has been ordered.
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Closing Policies & Procedures,
Payoff
Requests
Continued
The following options are available to request a payoff on loans currently
being serviced by Ocwen Loan Servicing, LLC:
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Requests through Automated Voice Response Unit: 800-746-2936
Requests through phone agents: 800-746-2936
Online Requests: The borrower may login to their account at
www.ocwen.mortgagebanksite.com to request a payoff.
Written Request:
Ocwen Loan Servicing
ATTN: Cashiering - Payoffs
1661 Worthington Road, Suite 100
West Palm Beach, FL 33409
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Conventional Lending Guide
FNMA Loan Quality Initiative
LQI Overview
In response to Fannie Mae’s Loan Quality Initiative Ocwen Loan Servicing,
LLC will implement the following process changes to call out and address:
 Undisclosed Liabilities
 Confirmation of Borrower’s Identity
 Validation of Qualified Parties to the Transaction
NOTE: The following process changes apply to loans applications taken
on or after June 1, 2010.
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FNMA Loan Quality Initiative,
Undisclosed
Liabilities
1.
2.
Continued
At time of loan submission to Underwriting:

Kroll’s Factual ID Report which will be pulled by the Submission team. Kroll’s
Factual ID Report will be reviewed by the underwriter – heightening awareness
of potential issues within the loan submission (i.e.: ssn, address
discrepancies, etc)
Upon issuance of Clear to Close:

Underwriter will pull a Kroll Loan Review Report – Credit Refresh Report &
MERS Report. (NOTE: This initiative requires the Loan Review Report to be
pulled within 5 days of closing. If loan does not close within 5 days of date of
report, closing coordinator will return file to underwriter and a new Loan
Review Report must be pulled and analyzed. If the credit report used in
underwriting the loan, as verified by the most recent AUS findings, is dated
less than five (5) calendar days prior to the note date, then a credit refresh is
not required.)

Underwriter will review report for new debt and significant increases in liability.

If the payments on any new and/or existing debt cause the DTI to increase,
the underwriter must update monthly payments and balances on the 1003 in
Avista and resubmit the loan through DU to assure recommendation remains
A/E. (NOTE: If the monthly payments have decrease, the underwriter is not
required to update the 1003 or resubmit the loan through DU).

For Conventional loans Only, if any new derogatory credit is report, DU must
be re-run with a new credit report.



If there are any credit inquiries dated AFTER the DU/LP credit report on the
LQI report:
 DU Loans – Ocwen must confirm that the borrower has not obtained any
additional credit that is not reflected in the credit report or the mortgage
application. If additional credit was obtained, a verification of that debt
must be provided and the borrower must be qualified with the monthly
payment.
 LP Loans – Ocwen must determine whether additional credit was granted.
A letter from the creditor or, if such a letter is unobtainable, a signed
statement from the Borrower may be used to determine whether
additional credit was obtained. If additional credit was granted, the Seller
must obtain verification of the debt and must consider the debt when
qualifying the Borrower.
The Loan Review Report does not contain fico scores. The only time the loan
will be subject to re-pricing and re-verification of eligibility is when new debt
has been incurred and/or monthly payments on existing debts have increased
such that the DTI is outside the AUS total expense ratio tolerances or when
new derogatory credit is reported requiring a new tri-merge Credit Report to
be run with DU.
The MERS section of the Loan Review Report must be reviewed by the
underwriter to identify any undisclosed properties and mortgage liability.
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FNMA Loan Quality Initiative,
Confirmation
of Borrower’s
Identity


Validation of
Qualified
Parties to the
Transaction
Continued
Ocwen Loan Servicing, LLC requires that the Closing Agent/Attorney
provided evidence in the file that the identification document included
a photo and has been checked for each borrower
This is not responsibility of the underwriter.
1. At time of loan submission to Underwriting:
 Kroll Full Facts Report will be pulled by the Submission team.
Kroll’s Full Facts Report will check all parties to the transaction
against HUD’s LDP/GSA lists.
 Any party to the transaction included on either list will result in the
loan being ineligible for approval/funding
 Material parties include but are not limited to:
o Borrower
o Seller
o Processor
o Listing/Seller Realtor
o Builder
o Loan Officer
o Broker
o Title Company
o Appraiser
 If party is not known at time of loan submission, underwriter will
be required to add party to report and re-run to confirm they are
not on either list.
 Until Full Facts report is implemented, underwriter will rely on
LDP/GSA lists as validated thru Fraud Guard or as pulled directly
thru the FHA Connection
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