Conventional Loan Program Guide
Conventional Loan Program Guide Wholesale Lending October 20, 2014 Table of Contents Program Overview ......................................................................................................... 5 Credit Philosophy .......................................................................................................... 5 Ability to Repay and Qualified Mortgage ........................................................................ 5 Program Parameters ...................................................................................................... 6 Eligible Programs ........................................................................................................ 6 Program Details ......................................................................................................... 6 ARM Program Information ........................................................................................... 6 ARM Closing Documents .............................................................................................. 6 Loan Limits ................................................................................................................... 7 Loan to Value (LTV) Matrices .......................................................................................... 7 Fixed Rate LTV Matrix ................................................................................................. 7 5/1 and 7/1 ARM LTV Matrix ........................................................................................ 8 Automated Underwriting Systems (AUS) .......................................................................... 9 Loan Prospector (LP) ................................................................................................... 9 Desktop Underwriter (DU) ......................................................................................... 11 Social Security Validation .......................................................................................... 14 Assets ........................................................................................................................ 14 Asset Documentation ................................................................................................ 15 Business Accounts .................................................................................................... 16 Cash Reserves ......................................................................................................... 16 Cash Deposit on Sales Contract (Earnest Money) .......................................................... 17 Credit Card Charges, Cash Advances and Unsecured Lines of Credit ................................ 18 Employer Assistance ................................................................................................. 18 Gift from a Related Person ......................................................................................... 19 Gift of Equity ........................................................................................................... 20 Gift or Grant from an Agency ..................................................................................... 20 Ineligible Source(s) of Funds...................................................................................... 21 Large Deposits ......................................................................................................... 21 Life Insurance – Cash Value ....................................................................................... 22 Pooled Funds ........................................................................................................... 22 Proceeds from the Sale of Real Property ...................................................................... 23 Rent Credit/Option to Purchase .................................................................................. 23 Retirement Accounts ................................................................................................. 24 Secured / Unsecured Loans ....................................................................................... 24 1031 Tax Deferred Exchange ..................................................................................... 25 Trust Accounts ......................................................................................................... 25 Verification of Assets for Non-U.S. Citizens .................................................................. 26 Borrower Contribution from Own Funds .......................................................................... 26 Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 1 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Borrowers .................................................................................................................. 26 Age of Borrower ....................................................................................................... 26 Borrower Eligibility.................................................................................................... 27 Borrower in the Construction Industry ......................................................................... 27 Employee Loan Policy ................................................................................................ 27 Non-Borrowing Spouse .............................................................................................. 27 Non-Occupying Co-Borrowers .................................................................................... 28 Non-U.S. Citizens ..................................................................................................... 28 Separated Borrowers ................................................................................................ 28 Social Security Number (SSN) Validation ..................................................................... 29 Credit / Underwriting ................................................................................................... 29 Age of Documents .................................................................................................... 29 Authorized User Accounts .......................................................................................... 29 Bankruptcy - Multiple Filings – Desktop Underwriter (DU) only ....................................... 30 Borrowers without a Usable Credit Score ..................................................................... 30 Collection, Past Due, and Charge-Off Accounts ............................................................. 30 Consumer Credit Counseling (CCCS) ........................................................................... 31 Disputed Tradelines .................................................................................................. 31 Judgments and Garnishments .................................................................................... 31 Modified Mortgages ................................................................................................... 31 Multiple Financed Properties ...................................................................................... 32 Restructured Mortgages ............................................................................................ 34 Foreclosure – Desktop Underwriter (DU) ..................................................................... 35 Mortgage Charge-Off - Desktop Underwriter (DU)......................................................... 36 Short Sale/Preforeclosure Sale - Loan Prospector (LP) ................................................... 36 Short Sale/Preforeclosure Sale/Deed-in-Lieu of Foreclosure - Desktop Underwriter (DU) ... 37 Significant Derogatory Credit ..................................................................................... 38 Tax Liens ................................................................................................................. 39 Collateral.................................................................................................................... 39 General Property Eligibility Requirements .................................................................... 39 Appraisal Requirements ............................................................................................. 39 Appraisal Forms ....................................................................................................... 40 Appraisal Transfers ................................................................................................... 43 Borrower Acknowledgement....................................................................................... 44 Escrow Holdback ...................................................................................................... 44 Flip Properties .......................................................................................................... 44 Inspections and Certification Requirements .................................................................. 46 Leaseholds .............................................................................................................. 46 Mixed Use Properties ................................................................................................ 47 Modular and Panelized Homes .................................................................................... 47 Property Affected by a Disaster .................................................................................. 47 Property Listed for Sale ............................................................................................. 48 Property Overlays ..................................................................................................... 49 Resale Restricted Properties – Freddie Mac Fixed Rate loans only ................................... 49 Condominiums ............................................................................................................ 49 Condominium Approval Methods................................................................................. 50 Condominium Type/Status ......................................................................................... 51 Ineligible Projects ..................................................................................................... 52 Project Review Type – Documentation Required ........................................................... 53 Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 2 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Florida Condos ......................................................................................................... 54 Debt to Income Ratios/Qualifying .................................................................................. 54 Qualifying Rate ........................................................................................................ 54 Maximum Debt to Income Ratio (DTI) ......................................................................... 55 Higher-Priced Mortgage Loans (HPMLs) and HPML Qualified Mortgages ............................ 55 Geographic Restrictions ................................................................................................ 55 Income and Employment .............................................................................................. 56 Assets as a Basis for Mortgage Qualification ................................................................. 56 Automobile Allowance ............................................................................................... 56 Borrower Employed by a Family Member or Party to the Transaction............................... 57 Capital Gains Income ................................................................................................ 57 Child Support, Alimony, Separate Maintenance ............................................................ 58 Commission Income.................................................................................................. 58 Continuity of Income ................................................................................................ 59 Employment Offers or Contracts – Desktop Underwriter (DU) only .................................. 59 Foreign Income – Desktop Underwriter (DU) only ......................................................... 60 Foster Care Income .................................................................................................. 60 Housing or Parsonage Allowance ................................................................................ 60 IRS Form 4506-T ...................................................................................................... 60 Long-term Disability Income ...................................................................................... 60 Mortgage Differential Payments .................................................................................. 61 Newly Employed Borrowers........................................................................................ 61 Non-Taxable Income ................................................................................................. 61 Notes Receivable ...................................................................................................... 61 Re-entering the Workforce – Loan Prospector (LP) only ................................................. 61 Rental Income.......................................................................................................... 62 Retirement, Government Annuity and Pension Income .................................................. 65 Royalty Income ........................................................................................................ 66 Seasonal Employment and Unemployment Compensation .............................................. 66 Secondary / Part-time Employment ............................................................................ 66 Self-Employed Borrowers .......................................................................................... 67 Significant Increase or Decrease in Income Level ......................................................... 68 Social Security Income .............................................................................................. 68 Stable Monthly Income.............................................................................................. 69 Temporary Leave Income .......................................................................................... 69 Trust Income ........................................................................................................... 71 Verification of Employment (VOE) ............................................................................... 71 Liabilities .................................................................................................................... 72 Alimony, Child Support or Separate Maintenance Payments ........................................... 72 Business Debt in Borrower’s Name.............................................................................. 72 Contingent Liability ................................................................................................... 72 Debt Secured by Financial Assets ............................................................................... 73 Deferred Payments (includes Deferred Student Loans) .................................................. 73 Installment Debt ...................................................................................................... 73 Lease Payments ....................................................................................................... 74 Open-End (30 day) Accounts ..................................................................................... 74 Revolving Debt ......................................................................................................... 74 Sale or Conversion of Primary Residence ..................................................................... 74 Mortgage Insurance (MI) .............................................................................................. 76 Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 3 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Mortgage Insurance Coverage Requirements ............................................................... 77 Mortgage Insurance Plans .......................................................................................... 77 Mortgage Insurance Providers .................................................................................... 78 Florida Hurricane Tax ................................................................................................ 78 Occupancy.................................................................................................................. 78 Primary Residence .................................................................................................... 78 Second Home........................................................................................................... 78 Investment Property ................................................................................................. 79 Property Tax Calculation ............................................................................................ 80 Property Insurance ...................................................................................................... 80 Secondary Financing .................................................................................................... 80 Ineligible Subordinate / Second Mortgages .................................................................. 80 Purchase Transactions............................................................................................... 81 HELOCs ................................................................................................................... 81 Seller Carried Secondary Financing ............................................................................. 82 Refinance Transactions.............................................................................................. 82 Seller/Interested Party Contributions ............................................................................. 82 Transactions ............................................................................................................... 83 Purchase ................................................................................................................. 83 Rate/Term (“No Cash-Out”) Refinance ........................................................................ 83 Cash-out Refinance................................................................................................... 84 Continuity of Obligation ............................................................................................. 85 Delayed Financing .................................................................................................... 86 Land Contract or Contract for Deed............................................................................. 87 Net Tangible Benefit ................................................................................................. 87 Non-Arm’s Length Transactions .................................................................................. 88 Refinance to Buyout a Co-Owner ................................................................................ 88 Pricing and Fees .......................................................................................................... 88 Fees and Services ..................................................................................................... 89 Borrower Paid Fees ................................................................................................... 89 Program Codes ........................................................................................................... 89 Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 4 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Program Overview This Program Guide provides an overview of the conventional products and policies eligible for delivery to Pacific Union Financial, LLC for financing consideration. The details are based on the policies outlined in the Freddie Mac Single Family Seller/Servicer Guide (“Freddie Mac Seller Guide”) and/or the Fannie Mae Single Family Selling Guide (“Fannie Mae Seller Guide”). This document also identifies overlay restrictions specific to Pacific Union Financial. The guidelines within this document apply to all loans evaluated using LP or DU unless stated otherwise. For information regarding the Freddie Mac’s Relief Refinance or Fannie Mae DU Refi Plus program, refer to the applicable program guidelines. Credit Philosophy The Pacific Union Financial philosophy is to offer our products with minimal overlays to our clients. All loans are evaluated in accordance with the following principles: Conventional Program loans must be evaluated using Desktop Underwriter (DU). Fannie Mae only products must be evaluated using DU. Freddie Mac only products must be evaluated using LP. An LP Accept/Eligible or DU Approve/Eligible recommendation is required. Loans that receive the following recommendations are not eligible: LP Caution Risk Class with or without A-Minus eligibility DU Refer with Caution Loans that are submitted to LP or DU and do not receive credit approval may not be submitted to the other underwriting system. Manual underwriting is not allowed. Each loan is evaluated in accordance with: Freddie Mac or Fannie Mae policies as defined in the applicable Seller Guide. Loan Prospector or Desktop Underwriter feedback/findings. Policies as outlined within this Program Guide. Each loan applicant is underwritten individually, and all credit standards are applied consistently to each borrower. All factors are weighed in when evaluating a loan file. The underwriting decision is not based on any single item or factor. Ability to Repay and Qualified Mortgage Pacific Union is committed to complying with Ability-to-Repay and Qualified Mortgage rules (ATR/QM) by making a reasonable, good-faith determination that borrowers have a reasonable ability to repay the loan in accordance with the policies set forth within Fannie Mae and Freddie Mac guidelines. Factors considered in making this determination include the borrower’s income, assets and employment status (if relied on) against the mortgage loan payment, ongoing expenses related to the mortgage loan or the subject property, payments on simultaneous loans secured by the subject property, other debt obligations, and alimony and child-support payments as required by Fannie Mae and Freddie Mac. A borrower’s credit history is also considered in the evaluation and must comply with Fannie Mae and Freddie Mac policies. Pacific Union will utilize reasonably reliable third party sources of information. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 5 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Program Parameters Eligible Programs Conforming Balance and High Balance loan amounts 10, 15, 20, 25 and 30 year Fully Amortizing Fixed Rate 5/1 and 7/1 Fully Amortized LIBOR ARMs Program Details All programs are fully amortizing. Minimum credit score is the highest of 620 or the score required per LP/DU. higher score may be required by the MI provider. Temporary Buydowns are not permitted. A ARM Program Information Index: The index is the average of interbank offered rates for one-year U.S. dollar denominated deposits in the London market (“LIBOR”), as published in the Wall Street Journal. Margin: The base margin is 2.25%. Refer to the rate sheet for applicable margin add-ons. Floor: The margin is the floor. 5/1 ARM caps: 2% at first adjustment (Initial Periodic Cap) 2% at each subsequent adjustment (Subsequent Periodic Cap) 5% over initial note rate (Lifetime Cap) 7/1 ARM caps: 5% at first adjustment (Initial Periodic Cap) 2% at each subsequent adjustment (Subsequent Periodic Cap) 5% over initial note rate (Lifetime Cap) Conversion Option: Not convertible Interest Rate / Payment Change Date: The first interest rate and payment adjustment is at 60 months for the 5/1 ARM and 84 months for the 7/1 ARM. Subsequent adjustments occur every 12 months. The payment change date is the first day of the month following an interest rate change date. It is the date in which a payment change due to an interest rate change becomes effective. Fannie Mae ARM Plan Numbers: Fully Amortized 5/1 ARM with 2/2/5 caps: FM GENERIC, 5 YR Fully Amortized 7/1 ARM with 5/2/5 caps: FM GENERIC, 7 YR ARM Closing Documents • • • Note: Fannie Mae Form 3528 or state specific version Rider: Fannie Mae Form 3187 – Non-convertible Fully Amortizing 5/1, 7/1 or 10/1 LIBOR Adjustable Rate Rider. Acceptable ARM disclosure Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 6 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Loan Limits Conforming Balance and High Balance loan amounts are available as shown below. Maximum Units 1 2 3 4 Maximum and Minimum Loan Amounts Conforming Balance High Balance 1 Contiguous Alaska and Contiguous Alaska and States Hawaii States Hawaii $417,000 $533,850 $645,300 $801,950 N/A N/A N/A N/A $625,500 $800,775 $967,950 $1,202,9252 N/A N/A N/A N/A Minimum-Conforming: None Minimum-High Balance: Conforming loan amount plus $1 1. High Balance: Refer to Maximum County Limits (select Fannie/Freddie in Limit Type field) 2. Conventional and Freddie Mac: Maximum $1,000,000 loan amount. Loan to Value (LTV) Matrices The loan to value is the base loan amount divided by the lesser of the appraised value or the purchase price. Fixed Rate LTV Matrix Fixed Rate Occupancy Units 1 Fannie Mae 2 DU Only LTV/(H)CLTV Purchase and Rate/Term Conforming 95%1/95% 80%1/80% 75%/75% 95%/95% 80%/80% 80%/80% 95%/95% 85%/85% 75%/75% Purchase and Rate/Term High Balance ≤$625,500 High Balance 1 2 3-4 1 90%1/90% 90%/90% 90%/90% 2-4 75%1/75% 75%/75% 75%/75% Purpose Primary Second Home Freddie Mac LP Only LTV/(H)CLTV Loan Amount Cash-Out Conforming Cash-Out High Balance ≤$625,500 High Balance Purchase and Rate/Term Cash-Out Purchase and Rate/Term Cash-Out Conforming Conforming High Balance ≤$625,500 High Balance Conventional DU only LTV/(H)CLTV 1 1 2-4 80% /80% 75%1/75% 80%/80% 75%/75% 85%/85% 75%/75% 1 60%/60% 75%/75% 60%/60% 2-4 Not allowed 65%/65% Not allowed 1 85%1/85% 85%/85% 90%/90% 1 1 75% /75% 75%/75% 75%/75% 1 65%/65% 80%/80% 65%/65% 1 Not allowed 65%/65% Not allowed Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 7 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Fixed Rate Occupancy Purpose Loan Amount Units Purchase Conforming Rate/Term Conforming Cash-Out Conforming 1 2-4 1-4 1 2-4 Conventional DU only LTV/(H)CLTV 1 85% /85% 75%1/75% 75%1/75% 75%1/75% 70%1/70% Freddie Mac LP Only LTV/(H)CLTV 1 Fannie Mae 2 DU Only LTV/(H)CLTV 85%/85% 75%/75% 75%/75% 75%/75% 70%/70% 85%/85% 75%/75% 75%/75% 75%/75% 70%/70% High Balance 1 65%/65% 80%/80% 65%/65% ≤$625,500 Purchase Investment High 2-4 65%/65% 70%/70% 65%/65% Property Balance High Balance 1 65%/65% 75%/75% 65%/65% ≤$625,500 Rate/Term High 2-4 65%/65% 70%/70% 65%/65% Balance High Cash-Out Balance 1-4 Not allowed 65%/65% Not allowed ≤$625,500 1. For loans with Secondary Financing, the maximum LTV is 5% lower than the maximum CLTV. 2. LTV/CLTV and credit score restrictions apply if the subject property is a Second Home or Investment Property and the borrower owns 5-10 financed properties. Refer to Multiple Financed Properties. 5/1 and 7/1 ARM LTV Matrix 5/1 and 7/1 ARM Occupancy Primary Second Home Investment Property Conventional DU Only LTV/(H)CLTV Freddie Mac 1 LP Only LTV/(H)CLTV 1 75%/75% 90%/90% 2-4 1 2-4 65%/65% 75%/75% 65%/65% 75%/75% 80%/80% 75%/75% 1 60%/60% 75%/75% 2-4 Not allowed 65%/65% Conforming 1 80%/80% 85%/85% Conforming High Balance ≤$625,500 High Balance 1 65%/65% 75%/75% 1 65%/65% 80%/80% 1 1 2-4 1-4 Not allowed 75%/75% 65%/65% 65%/65% 65%/65% 85%/85% 75%/75% 75%/75% Purpose Loan Amount Purchase and Rate/Term Conforming Purchase and Rate/Term High Balance ≤$625,500 High Balance Cash-Out Conforming Cash-Out High Balance ≤$625,500 High Balance Purchase and Rate/Term Cash-Out Purchase and Rate/Term Cash-Out Purchase Conforming Rate/Term Conforming Units 1 2 3-4 90%/90% 75%/75% 65%/65% 95%/95% 80%/80% 80%/80% Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 8 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC 5/1 and 7/1 ARM Occupancy Purpose Loan Amount Cash-Out Conforming Units 1 2-4 Conventional DU Only LTV/(H)CLTV 65%/65% 60%/60% Freddie Mac 1 LP Only LTV/(H)CLTV High Balance 1 65%/65% ≤$625,500 High Balance 2-4 65%/65% High Balance 1 65%/65% ≤$625,500 Rate/Term High Balance 2-4 65%/65% Cash-Out High Balance 1-4 Not allowed 1. For loans with Secondary Financing, the maximum LTV is 5% lower than the maximum Purchase 75%/75% 70%/70% 80%/80% 70%/70% 75%/75% 70%/70% 65%/65% CLTV. Automated Underwriting Systems (AUS) Loan Prospector (LP) Loans submitted to Loan Prospector (LP) must receive an Accept/Eligible Risk Class. Loans that receive a Risk Class of “Caution”, with or without A-Minus eligibility, are not eligible. Loans that do not receive credit approval through DU may not be resubmitted to LP. Loans that are evaluated using LP must be coded and priced as Freddie Mac. Note: Loans may not be resubmitted to Loan Prospector after the loan has closed. Documentation Levels Loans may be documented in accordance with LP Findings. Loans approved by LP will receive either a “Streamlined Accept” or “Standard” documentation level and must be documented based on requirements indicated on the Feedback Certificate. Sections 37.22 and 37.33 of the Freddie Mac Seller Guide provide more information regarding these documentation levels. Invalid, Ineligible, or Incomplete Evaluation Status Loans that receive an evaluation status of Invalid, Ineligible, or Incomplete are not eligible. If a loan receives one of these evaluation statuses, an attempt should be made to resubmit the loan with new and/or corrected information. If the loan continues to receive an Invalid, Ineligible, or Incomplete evaluation status, it is not eligible. Maximum Number of Borrowers Loan Prospector cannot evaluate more than five borrowers on a single application. Minimum Assessment Feedback (MAF) The Minimum Assessment Feedback (MAF) shown in the LP Feedback Certificate indicates the least comprehensive appraisal or inspection report required for the Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 9 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC submitted loan. The MAF also indicates whether a loan is eligible for Property Inspection Alternative (PIA). A more comprehensive appraisal or inspection report may be obtained if desired. Refer to the Appraisal topic. Resubmission Requirements The final Risk Class and Documentation Level must be based on submission of accurate data to LP prior to the closing of the Mortgage. Resubmission to LP prior to the closing of the Mortgage is required if: Information on the previous submission was not true, complete or accurate. The most recent submission (including the date of the LP credit report) will be more than 120 days after the Note Date. Any information used by LP changes; however, a change from the previous submission involving the following does not require resubmission. Debts/Income: The monthly debt payment (including monthly housing expense) decreases. 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 3%, and The total debt-to-income ratio on the previous submission did not exceed 45% Assets/Reserves: The amount of verified assets increases. The amount of verified reserves increases. The amount of verified reserves decreases by no more than 10%. Loan Amount: The loan amount decreases by no more than 1% on a refinance transaction and at the time of the most recent LP submission mortgage insurance is not required on the Mortgage. • The loan amount decreases by no more than 1% on a refinance transaction and at the time of the most recent LP submission mortgage insurance on the Mortgage is required, and The change does not impact the amount of the mortgage insurance coverage, and The amount of the mortgage insurance premium collected is based on the new loan amount and new mortgage insurance certificate is obtained. Any other changes in the information used by Loan Prospector require resubmission. For example The borrower's monthly debt payment (including the monthly housing expense) decreases, the borrower's income decreases and the total debt-to-income ratio on the previous submission was 38%. Based on the revised monthly debt payment and income figures, the total debt-to-income ratio increased by 4%. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 10 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC This Mortgage must be resubmitted to LP because the borrower's income decreased and the change in the debt payment-to-income ratio was more than 3%. If the only change in the Mortgage had been a decrease in the monthly debt payment (including the monthly housing expense), resubmission would not have been required. If a Mortgage is resubmitted to LP, the Risk and/or Documentation Classes might change. However, LP minimizes the number of times that the Documentation Class will change, even if the Risk Class changes. Documentation must comply with the requirements of the last Feedback Certificate. Significant Inaccurate Information If it is determined that the repository file used to create the borrower(s) credit report contains significant inaccurate information, the LP decision must be determined to be Invalid, and the loan will not be eligible. If the credit report includes derogatory credit information disputed by the borrower, the disputed information must be corrected on the credit report and the loan must be resubmitted to Loan Prospector. Desktop Underwriter (DU) Loans submitted to Desktop Underwriter (DU) must receive an Approve/Eligible recommendation. Loans that receive a Refer with Caution or Approve/Ineligible recommendation are not eligible. Loans that do not receive credit approval through LP may not be resubmitted to DU. Loans evaluated using Desktop Underwriter (DU) may be coded and priced under the Conventional or Fannie Mae program. Note: Loans may not be resubmitted to Desktop Underwriter after the loan has closed. Disputed Tradelines When DU issues a message stating that DU identified a disputed tradeline and that tradeline was not included in the credit risk assessment, the accuracy of disputed tradelines reported on the borrower's credit report must be confirmed. If it is determined that the disputed tradeline information is accurate, insure that the disputed tradelines are considered in the credit risk assessment by obtaining a new credit report with the tradeline no longer reported as disputed and resubmitting the loan casefile to DU. If DU does not issue the disputed tradeline message, no further investigation is required. However, if the account does belong to the borrower, insure that the monthly payment, if any, has been included in the DTI ratios. Documentation Requirements Pacific Union Financial will accept loans documented as outlined in the DU Findings. DU indicates the minimum verification documentation requirements required. While DU may offer a reduced level of documentation, a more comprehensive level of documentation is acceptable when circumstances in the loan file warrant it. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 11 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Errors in Credit Data If the credit report contains derogatory information, and DU does not recognize or consider the derogatory information and does not reflect the derogatory information in the Underwriting Findings Report, the DU decision must be determined to be Invalid, and the loan will not be eligible. Maximum Number of Borrowers Desktop Underwriter cannot evaluate more than four borrowers on a single application. Non-Applicant Debts/Accounts When DU encounters possible non-applicant accounts on the credit report, DU will include the accounts in the credit risk assessment, and will issue a message in the DU Underwriting Findings report regarding the existence of the accounts. If the debts are on the loan application, DU will also include them in the DTI ratio. If documentation is provided to support that the debts do not belong to the borrower, the debt(s) may be removed from the loan application, and the loan may be resubmitted to DU in order for the DTI to be updated to exclude the non-applicant debts. Out of Scope Recommendations An Out of Scope recommendation indicates that DU is unable to underwrite the particular product, mortgage, or borrower submitted. Any mortgage that receives an Out of Scope recommendation is not eligible. Property Fieldwork Recommendation DU will recommend the use of one of three levels of property fieldwork: an appraisal based on an interior and exterior property inspection; an appraisal based on an exterioronly property inspection; or an exterior-only property inspection. Refer to the Collateral topic for Pacific Union Financial requirements. Potential Red Flag Messages DU provides a number of “potential red flag” messages designed to help detect inconsistencies in the loan casefile as well as potentially fraudulent transactions. Neither the presence nor absence of these messages changes the responsibility to ensure accurate information in all areas of the loan process or otherwise comply with applicable law, including the Fair Credit Reporting Act. The appearance of these messages does not affect the underwriting recommendation from DU. The messages are to be used as an aid in detecting inconsistencies and potentially fraudulent transactions. The absence of any of these messages does not indicate or imply Fannie Mae’s acceptance of the data submitted to DU, including the appraised value. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 12 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Potential red flag messages include: Rapid appreciation: Help to identify purchase and refinance transactions with subject property values that, according to a recent prior sale, appear to have an excessive rate of appreciation. Quality control: Identifies transactions that have risk characteristics that historically have been found to contribute to an inflated property valuation. Excessive Resubmissions: Alert provided when an unusually high number of loan resubmissions may be the result of data manipulation. Excessive value: Helps identify refinance transactions where the initial value estimate appears to be excessive. Refer to DU Potential Red Flag Messages for additional information. Resubmission Requirements The final DU recommendation must reflect the loan as it was closed, including occupancy type, product type, amortization, loan term, property type, loan purpose, sales price, and appraised value. Verification documents must be reviewed and the verified values compared to the data submitted to DU. The terms of the closed loan must match the terms of the final loan casefile submission to DU or fall within the following tolerances. Data Attribute and Description Trigger Action Required • Interest rate increase • Discrepancies between the The changes cause the debt-toincome (DTI) ratio to: • Exceed 45%, or • Increase by 3% or more (if the recalculated DTI ratio is less than 45%) Loan must be resubmitted to DU Loan Amount increase or decrease The loan amount may increase by the lesser of $500 or 1% of the loan amount Loan must be resubmitted to DU credit report payments and balances and those listed on the loan application, including the presence of debt that is not on the credit report but is on the application • Additional debt(s) disclosed by the borrower or identified by the lender during the mortgage process • Verified income is less than the income on the loan application submitted to DU. The loan amount may decrease by 5% of the loan amount The above loan amount tolerances are permitted provided the new LTV/CLTV does not result in: • Changes to the amount of required MI coverage, or • Different loan-level price adjustments, or Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 13 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Data Attribute and Description Interest rate on fixed-rate and adjustable rate mortgages Assets – Funds required to close Trigger Action Required • Changes to the loan eligibility. Interest rate decreases, not as a result of a permanent interest rate buydown Interest rate decreases as a result of a permanent interest rate buydown The actual amount of the assets required to close the transaction exceeds the amount of “Funds Required to Close” per the DU findings No resubmission required Loan must be resubmitted to DU If sufficient liquid assets to cover the actual amount of assets required to close the transaction has been documented, no resubmission required Otherwise, loan casefile must be resubmitted to DU Assets – Reserves required to be verified Due to changes in the actual amount of assets required to close the transaction, the verified amount of reserves is less than the “Reserves Required to be Verified” per the DU Underwriting Findings report If the lender has documented reserves that equal at least 90% of the Reserves Required to be Verified per the DU Underwriting Findings report, no resubmission required Otherwise, loan casefile must be resubmitted to DU Social Security Validation DU may identify data integrity issues pertaining to the borrower’s Social Security number, including numbers not issued, borrower age/issue date discrepancies, or Social Security numbers not associated with the borrower. If the DU messaging is received and the Social Security issue is not resolved, the borrower would not be eligible for financing with Pacific Union Financial. If Social Security number inconsistencies cannot be resolved: Lenders must validate the Social Security number with the Social Security Administration (SSA). Direct validation with SSA by a third party is acceptable. SSA Form 89 must be used for this purpose. Lenders must ensure that when utilizing third-party vendors, the vendors are going directly to the SSA to validate the Social Security numbers. It is important to note that most standard vendor reports are not direct SSA validations and do not satisfy Fannie Mae’s requirements. If the Social Security number cannot be validated with the SSA, the loan is not eligible for delivery to Fannie Mae. Assets The borrower must have sufficient cash assets to cover the minimum down payment, closing costs, and any required reserves. Requirements for certain asset types are detailed below. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 14 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Refer to the Freddie Mac or Fannie Mae Seller Guide(s) for additional information on eligible sources of borrower funds guidelines not addressed in this section. Asset Documentation Assets must be documented in accordance with LP or DU requirements. Loan Prospector: Refer to the LP Feedback Certificate and/or the Loan Prospector Documentation Matrix. Desktop Underwriter: The DU Findings will identify the funds that require verification. Verification of Deposit (VOD) • • • • • • • VOD’s must be on a standard verification form and must be sent directly from the loan originator to the financial institution and returned directly from that entity. Faxed verification forms are acceptable if it is clear from the document that the information was sent by fax transmission directly from the source to the originator. The original documents must not contain any alterations, erasures, correction fluid or correction tape. The loan file must include legible copies of the originals. The VOD form must identify all of the following, when applicable: The name of the financial institution Account number Account owner(s) Type of account Account open date Current account balance Average balance for the previous two months Outstanding loans If a securities account, the specific stocks/securities The title, signature, and phone number of the individual completing the VOD. Funds must be properly sourced when an account is opened within 90 days of the VOD and/or when the current account balance is significantly greater than the average balance. If a portion of the borrower's funds were to be saved by the borrower between the date of the loan application and the date of the loan closing, the loan file documents must show that funds were accumulated and on deposit prior to closing. Electronic Asset Verification • • An electronic verification is a computer generated document, accessed and printed from an Intranet or Internet, and may include on-line bank statements or investment account statements. Electronic verifications are acceptable provided the on-line statement reflects all of the following: URL from which the statement was obtained Date obtained Financial institution Borrower’s name and account number Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 15 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Account balance Last activity date Business Accounts When business assets are used for down payment, closing costs, financing costs, prepaids/ escrows, and/or reserves, the assets must be verified per LP or DU documentation requirements and must be related to a documented borrower owned business. The borrower must be listed as an owner of the business account. Because the withdrawal of assets from a sole proprietorship, partnership or corporation may have a negative impact on the ability of the business to continue operating, the impact of the withdrawal must be considered in the analysis of the borrower’s self-employed income. The lender must document a cash flow analysis for the borrower’s business using individual and/or business tax returns, as applicable. The cash flow analysis may be in any format that allows the underwriter to determine that the withdrawal of the funds will not have a detrimental effect on the business. The cash flow analysis must be included in the loan file. Cash Reserves Reserve requirements for one unit Primary Residence transactions are determined by LP or DU. 2-4 unit Primary Residence: Six months PITI, regardless of whether rental income is used to qualify. Second Home: Two months PITI for the subject property, and Two months PITI for each additional financed Second Home or Investment Property. Investment Property: Six months PITI for the subject property, and Two months PITI for each additional financed Second Home or Investment Property. See Sale or Conversion of Primary Residence. See Multiple Financed Properties. Determination of Monthly Housing Expense (PITI) • The following expenses must be included when determining the monthly housing expense to be used in calculation of reserve requirements: Principal and interest (P&I) Hazard, flood, and mortgage insurance premiums (as applicable) Real estate taxes Leasehold payment or ground rent Special assessments Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 16 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Homeowner’s association dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit) Any subordinate financing payments on mortgages secured by the subject property. Assets Considered in Cash Reserves Checking or savings accounts. Vested portion of retirements accounts. Stocks, bonds, mutual funds, Certificates of Deposit, money market funds, U.S. Government Securities and other securities that are traded on an exchange or marketplace generally available to the public (NYSE, NASDAQ, etc.). The value of the funds or securities must be readily verified through financial publications, and documentation of the borrower’s ownership of the securities must be provided. Cash Value of vested life insurance. The borrower must be the owner of the policy, and not the beneficiary. Borrower’s portion of undistributed trust funds. Assets Not Considered in Cash Reserves • • • • • • • • Funds in which the borrower is not vested. Funds that cannot be withdrawn under circumstances other than the account holder’s retirement, employment termination, or death. Non-financial assets such as collectibles, coins, stamps, and art work that would require appraisal and/or liquidation. Stocks issued by, or notes/loans receivable from, a privately held company. Stock options and non-vested restricted stock. Cash proceeds from a cash-out refinance transaction. Personal unsecure loans. Interested Party Contributions. Retirement accounts (subject to limitations). See Retirement Accounts. Cash Deposit on Sales Contract (Earnest Money) • • The funds for the earnest money deposit must be from an eligible source and must be documented per the topics within this section of the program guide or the applicable Seller Guide. Insure that the funds are not counted twice in the evaluation of the mortgage loan by deducting the amount from funds to close and including the funds as an asset. Desktop Underwriter (DU) When earnest money is entered in Section VI Assets, DU does not consider it liquid. Therefore, in order to give the borrower credit for earnest money that is not reflected in a liquid account, the earnest money must be entered as follows: • If the earnest money has not cleared the borrower’s bank account, the amount may be included in the depository account balance. • If the earnest money has cleared the borrower’s bank account and verification is included in the loan file, the amount may be entered as Other Credit in Section VII. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 17 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Credit Card Charges, Cash Advances and Unsecured Lines of Credit The amount charged by the borrower on a credit card, or a cash advance taken by the borrower on a revolving credit card account or unsecured line of credit, may be considered in borrower funds when the funds are used to pay fees related to the mortgage process. Use of these funds is subject to the following: The amount charged or advanced must be included in the borrower’s total outstanding debt and the repayment of such amount must be included when determining the borrower’s monthly debt-to-income ratio. A payment of 5% of the new balance on the credit card or unsecured line of credit must be included in the borrower’s DTI ratios, unless direct verification of the new payment amount is obtained. The borrower must have sufficient verified funds to pay these fees (in addition to the funds needed for the down payment, prepaids, other closing costs, financing costs and reserves as required); however, the borrower is not required to pay off these charges at closing. A copy of the credit card receipt must be included in the loan file. This policy must be applied manually, by either: Including the fees charged to the borrower’s credit card on line f of the Details of Transaction and removing any “Borrower Paid Fees” entered in the Other Credits section of the Details of Transaction for the fees paid outside of closing; or By increasing the monthly credit card payment in the liabilities section of the loan casefile submitted to LP or DU to include the charges if not reflected in the credit report. The HUD-1 must reflect a paid outside closing (POC) credit to the borrower for the amount charged. Loan Prospector (LP) The amount charged may not exceed the higher of 2% of the loan amount or $1,500. Desktop Underwriter (DU) The amount charged may not exceed 2% of the loan amount. Employer Assistance • • • A borrower of a mortgage loan secured by a principal residence may use funds provided by an employer to fund all or part of the down payment or closing costs subject to the minimum borrower contribution requirements. Employer assistance can also be used for financial reserves for all types of assistance with the exception of unsecured loans (which may only be used for the down payment and closing costs). Employer assistance funds are not allowed on a Second Home or an Investment Property. Borrower must meet minimum contribution requirements from own funds. See Borrower Contribution from Own Funds. The employer assistance may be in the form of: A grant A direct, fully repayable second mortgage or unsecured loan, A forgivable second mortgage or unsecured loan, or A deferred-payment second mortgage or unsecured loan. Funds must come directly from the employer. This may include an employeraffiliated credit union. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 18 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC • • If the assistance is in the form of a secured second mortgage or unsecured loan, the transaction must meet the requirements for loans with subordinate financing. If the secured second mortgage or unsecured loan does not require regular payments of either principal and interest or interest only, a payment does not need to be included in the monthly DTI ratios. Gift from a Related Person • • • • Allowed on Primary Residence and Second Home. If LTV is >80%, the borrower must make a minimum 5% down payment from own funds. See Borrower Contribution from Own Funds for Desktop Underwriter exception on Conforming Balance only. Gift funds may be provided only by an immediate family member, spouse, fiancé, fiancée, or domestic partner of the borrower. A letter signed by the donor, evidence of the donor’s ability to provide the gift, and documentation of the gift funds per the table below is required. Brokers are encouraged but not required to use the Pacific Union Financial Gift Letter. DONOR(S) MUST PROVIDE EVIDENCE OF THEIR ABILITY TO DONATE GIFT FUNDS AND EVIDENCE OF RECEIPT OF THOSE GIFT FUNDS FROM THE DONOR’S ACCOUNT MUST BE PROVIDED PER THE FOLLOWING. If the gift funds ... Then the required documentation is ... • Are in the borrower’s account and the loan is AUS approved • Are to be provided at closing AND • In the form of a certified check from donor’s account • Are to be provided at closing AND • Are in the form of a cashier’s check, money order, official check, or other type of bank check • Document according to AUS findings • Are to be provided at closing AND • Are in the form of an electronic wire transfer to /or cashier’s check deposited with the closing agent • Are being borrowed by the donor, AND • Documentation from the bank or other savings account is not available • Bank statement showing the withdrawal from the donor’s account disclosed in the gift letter, AND • Copy of the certified check made payable to escrow company • Have the donor provide a withdrawal document or cancelled check for the amount of the gift, evidencing that the funds came from the donor’s personal account disclosed in the gift letter, AND • A copy of the check, AND • Borrower’s deposit slip or bank statement that shows the deposit and new balance OR the check may be given directly to the Title Company or Realtor who must provide written acknowledgment identifying the specific check received & being held in escrow by the Title Company • Have the donor provide documentation of the wire transfer from donor’s account disclosed in gift letter, AND • Written acknowledgement that the specific check or wire transfer was received and is being held in escrow by the Title Company • Written evidence provided by the donor to evidence that the funds were borrowed from an acceptable source. Funds may not be provided by an interested party to the transaction, including the lender. • Borrower’s deposit slip or bank statement showing the deposit and new balance OR • Written acknowledgment that the specific check was received and is being held in escrow by the Title Company. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 19 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Gift of Equity • • • • • • • • A gift of equity is permitted for purchase of a Primary Residence or Second Home. With a gift of equity, no cash changes hands. Instead, the seller agrees to donate a portion of the equity in the subject property in lieu of all or a portion of the down payment. The LTV should be calculated based on the purchase price or appraised value ‐ whichever is less. The gift of equity may not be deducted from the sales price before calculating LTV. To be eligible as a source of funds for a down payment, the following requirements must be met: The gift of equity must be provided by a relative (i.e., the borrower’s spouse, child, or other dependent, or any other individual related to the borrower by blood, marriage, adoption, or legal guardianship), a fiancé, or a domestic partner. The donor may not be or have any affiliation with the builder, developer, real estate agent or any other interested party to the transaction. A gift letter explaining the type of gift is required. The file must include confirmation that the borrower has contributed his or her own funds in an amount equal to at least 5% of the purchase price of the property if the gift of equity is less than 20% of the sales price. The gift of equity must be identified in the Sales Contract. The gift of equity must be transferred to the buyer as a credit in the transaction, and the final equity exchange must be documented on the fully executed HUD ‐1 . The gift of equity is not subject to interested party contribution requirements. Gift or Grant from an Agency • • Allowed on Primary Residence only A gift or grant from an Agency is an eligible source of borrower funds, provided that: The funds were provided by a municipality, non-profit religious organization, or non-profit community organization. The funds do not have to be repaid. The gift or grant is given pursuant to an established program. The Agency is not an interested party to the transaction. The funds were not obtained from an interested party to the transaction. Loan Prospector (LP) Allowed on Primary Residence or Second Home. The loan file must include evidence that the funds were received by the borrower or by the property seller in the borrower’s behalf. Acceptable documentation includes: Copy of grant program materials. Awards Letters. Terms and conditions provided to the borrower. Documentation must provide the donor’s mailing address. Desktop Underwriter (DU) Allowed on Primary Residence only. The donated gift or grant must be documented with either: A copy of the letter awarding the gift or grant to the borrower, or A copy of the legal agreement that specifies the terms and conditions of the gift or grant. The documentation must include language indicating that repayment of the gift or grant is not expected, and how the funds will be transferred to the borrower, lender, or Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 20 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC closing agent. Evidence of the transfer of the gift or grant must be included in the loan file, such as: Copy of the donor’s canceled check, or Copy of the settlement statement showing receipt of the check. Ineligible Source(s) of Funds Signature loan(s) Gifts that must be repaid Cash for which the source cannot be verified (cash on hand). Borrower’s commission from sale of subject property. Salary advances. Sweat equity (contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash). Unverified sources of funds. Reverse mortgages. • • • • • • • • Large Deposits Loan Prospector (LP) Except as stated below, documentation of the sources of unverified deposits for purchase or refinance transactions is required. However, when qualifying the borrower, any liabilities resulting from borrowed funds must be considered. For purchase transactions, document the source of funds for any single deposit exceeding 50% of the total monthly qualifying income for the mortgage if the deposit is needed to meet the requirements for funds to close and/or reserves. When a deposit is not documented and is not needed for funds to close and/or required reserves, reduce the funds used for qualifying purposes by the amount of the unverified deposit and enter the reduced amount of the asset into Loan Prospector. When a single deposit consists of both verified and unverified portions, the unverified portion may be used when determining whether the deposit exceeds the 50% requirement. When the source of funds can be clearly identified from the deposit information on the account statement (e.g., direct payroll deposits) or other documented income or asset source in the loan file (e.g. tax refund amounts appearing on the tax returns in the file), additional documentation is not required. Document the source of a deposit of any Desktop Underwriter (DU) Refinance transactions: • Documentation or explanation for large deposits is not required. • However, if the funds were borrowed funds, any related liability must be considered. When appropriate, evidence that no new liability has been created may be required. Purchase transactions: Single deposits exceeding 50% of the total monthly qualifying income for the loan must be documented. If the funds are to be used for down payment, closing costs, or reserves, document that the funds are from an acceptable source. If the borrower does not have all of the documentation required to confirm the source of a deposit, 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. Written documentation of the rationale for using the funds must be included in the loan file. Verified funds must be reduced by the amount (or portion) of any undocumented large deposit (as defined above), and the remaining funds must be sufficient for the down payment, closing costs, and reserves. When a reduced Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 21 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC amount regardless of the transaction type if there is any indication that the funds are borrowed or are not from an eligible source. When using a direct account verification (VOD) include documentation of the source of funds when an account is opened within 90 days of verification and/or when the current balance in an account is significantly greater than the average balance. If a portion of the borrower’s funds were to be saved by the borrower between the date of the loan application and the date of the loan closing, the loan file must include documents showing that funds were accumulated and on deposit prior to closing. amount (net of the undocumented large deposit) is used, the reduced amount must be used for underwriting purposes. 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. Life Insurance – Cash Value • • • Net proceeds from a loan against the cash value or from the surrender of a life insurance policy are an acceptable source of funds for down payment, closing costs, and reserves. If the funds are needed for down payment or closing costs, the borrower’s receipt of the funds must be documented by obtaining either a copy of the check from the insurer or a copy of the payout statement from the insurer. If used for reserves only, the cash value must be documented but evidence of liquidation is not required. Pooled Funds Pooled Funds are funds on deposit provided by the borrower and other member(s) of a group of related persons who have resided together for at least one year, and Will continue to reside together in the subject property, and Are “pooling” their funds to purchase the subject property Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 22 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Documentation must be provided to evidence that the borrower and the Related Person have resided together for at least one year. In addition, the borrower must attest, by written statement executed at application, to the: Source of the pooled funds, and The fact that the pooled funds are not borrowed, and The relationship between the borrower and the related person. The borrower must also attest that the related person: Has resided with the borrower for the past year, and Intends to continue to reside with the borrower in the subject property for the foreseeable future. The written statement(s) are not required to be notarized or acknowledged but must be retained in the loan file. Pooled funds provided by related person who do not reside with the borrower are considered gift funds. Proceeds from the Sale of Real Property Settlement statements or evidence of sale of assets (bill of sale or HUD-1 form) must: Be computer generated or typed Identify the Borrower as the seller of the property Identify the property sold Show the proceeds to the property seller Show the disposition of all liens against the property Be signed by the buyer and the seller, or their authorized agents. Desktop Underwriter (DU) The final HUD-1 is acceptable in lieu of the “fully executed” HUD-1; however the file must include evidence that the transaction has closed. Rent Credit/Option to Purchase Rent credit for an option to purchase is an acceptable source of funds toward the down payment or minimum borrower contribution. Credit for the down payment is determined by calculating the difference between the market rent and the actual rent paid for the last 12 months. The market rent is determined by the appraiser in the subject property appraisal. The file must include a copy of the rent/purchase agreement. Loan Prospector (LP) Documentation must be provided to support the applicant’s own 5% down payment, including any allowable credit for payments made above the fair market rent. • The loan file must include evidence of rent paid. • Desktop Underwriter (DU) Borrowers are not required to make a minimum borrower contribution from their own funds in order for the rental payments to be credited toward the down payment. • The loan file must include copies of the borrower’s cancelled checks or money order receipts for the last 12 months evidencing the rental payments. • Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 23 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Retirement Accounts Vested funds from individual retirement accounts (IRA/SEP/Keogh accounts) and tax-favored retirement savings accounts (401(k) accounts) are acceptable sources of funds for down payment, closing costs, and reserves. The ownership of the accounts and the borrower's actual receipt of the funds realized from the liquidation of the assets must be verified if needed to complete the transaction. When funds from retirement accounts are used for reserves, documentation of the withdrawal of the funds is not required. In order to be used as reserves, retirement accounts must be vested and allow withdrawals regardless of the current employment status. The terms of withdrawal from the plan must be documented. Loan Prospector (LP) May include personal IRA and SEP-IRA accounts owned by the borrower, 401(k), KEOGH, 403(b) and other IRS qualified employer retirement plans. The asset balance may include up to 70% of the vested amount less any outstanding loans. In lieu of the 70% requirement, the vested amount less outstanding loans may be reduced by the minimum federal income tax withholdings required by the IRS. Document per the Loan Prospector Documentation Matrix. Desktop Underwriter (DU) If the retirement account is in the form of stocks, bonds, or mutual funds, only 60% of the value of the account may be used for reserves. If the borrower is retirement age (typically 59 ½), 70% of the value may be used. Secured / Unsecured Loans Secured Loans Proceeds from a loan secured by financial assets such as automobiles, artwork, collectibles, real estate, or financial assets such as savings account, stocks, bonds, Certificates of Deposits, and 401(k) accounts may be used for down payment, closing costs, and reserves. When a loan is secured by the borrower’s financial assets, a monthly payment is not required to be considered in the DTI ratios. The monthly payment for loans secured by non-financial assets must be included in DTI ratios. If the loan does not require a monthly payment, an equivalent payment must be calculated and considered as a recurring debt. If the borrower is using the financial asset to satisfy reserve requirements, the asset must be reduced by the amount of the loan. The following documentation is required: The terms of the secured loan. Evidence that the party providing the loan is not a party to the transaction. Evidence that the funds have been transferred to the borrower. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 24 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Unsecured Loans Personal unsecured loans may not be used for down payment, closing costs, or reserves. Examples of unsecured loans include signature loans, lines of credit on credit cards, and overdraft protection on checking accounts. Refer to Credit Card Charges, Cash Advances and Unsecured Lines of Credit for use of unsecured funds to pay for fees associated with the Mortgage (appraisal, etc.). 1031 Tax Deferred Exchange Allowed on Investment Property purchase transactions only. The equity from the 1031 Exchange may be used for all or part of the down payment. Reverse exchanges are not allowed because the borrower is not on title to the property at the time of closing. No seller provided secondary financing. The loan closing must be handled by a qualified intermediary. A qualified intermediary is an entity (usually a subsidiary to a title company) who enters into a written agreement with the taxpayer. The intermediary may not be an agent, attorney, accountant, investment banker, or broker. The Exchange Agreement requires the intermediary to acquire and transfer the relinquished property and to acquire and transfer the replacement property. The relinquished property is the property “sold” and the replaced property is the property “acquired”. Copies of all closing documents and the Purchase Agreement on the relinquished property must be obtained. Required documentation includes: 1031 Exchange Agreement. Settlement Statement (HUD-1). Title Transfer. The Purchase Agreement for both properties must contain appropriate language to identify the 1031 exchange. Trust Accounts Funds disbursed from a borrower’s trust account may be used for down payment, closing costs, and/or reserves provided the borrower has immediate access to the funds. Loan Prospector (LP) Provide verification of the trust funds that includes the following: Typed copy of the trust agreement or Signed statement on letterhead from the trustee that: Identifies the Trustee including name, address, telephone number and an individual contact. The trustee must be an independent party that typically handles trust accounts (trust company, financial institution, CPA, lawyer). Identifies the borrower as the Desktop Underwriter (DU) The loan file must include the following: Written documentation of the value of the trust account from either the trust manager or the trustee. The conditions under which the borrower has access to the funds and the effect, if any, that the withdrawal of funds will have on trust income used in qualifying the borrower for the mortgage. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 25 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC beneficiary. Shows that the borrower has access to all or a certain specific amount of the funds. Shows that the trust has the assets to disburse funds to the borrower. If the assets are needed for closing, proof of receipt is required. Verification of Assets for Non-U.S. Citizens Funds that a non-U.S. Citizen recently deposited in a U.S. depository institution are acceptable subject to the following: Evidence of funds transfer from the country from which the borrower immigrated has been provided. Documentation to evidence that the funds belonged to the borrower before the date of the transfer is provided. The source(s) of all funds used for closing can be verified just as they would for a U.S. Citizen. Borrower Contribution from Own Funds Units/Occupancy 1 unit Primary Residence Conforming Balance only Desktop Underwriter (DU) LTV/CLTV Minimum Borrower Contribution 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. Loan Prospector (LP) and Desktop Underwriter (DU) Units/Occupancy LTV/CLTV Minimum Borrower Contribution 1-4 unit Primary Residence Second Home 80% or less 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. 1-4 unit Primary Residence Second Home Greater than 80% (Excluding 1 unit Primary Residence – Conforming Balance evaluated through DU) Investment Property The borrower must make a minimum 5% borrower contribution from his or her own funds. After the minimum borrower contribution has been met, gift funds may be used to supplement the down payment, closing costs, and reserves. All Entire down payment must be from borrower’s own funds. Gifts are not allowed. Borrowers Age of Borrower All borrowers must have reached the age at which the mortgage note can be legally enforced in the jurisdiction where the property is located. There is no maximum age limit for borrowers. All applicants are evaluated on their ability to meet underwriting guidelines. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 26 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Borrower Eligibility Pacific Union Financial makes mortgages to natural persons only. Borrowers are ineligible for a mortgage if they are a different type of legal entity or hold title as a different type of legal entity. These legal entities include, but are not limited to, the following: Corporations S corporations Borrowers with diplomatic immunity Inter-vivos trusts Life estates Land trusts General partnerships Real estate syndications Additionally, loans where a custodian, agent, conservator, or guardian is signing on behalf of the borrower, non-borrowing spouse, or a vested owner are not allowed. Borrower in the Construction Industry If the borrower is acting as his/her own builder (general contractor or subcontractor) and his/her primary occupation is in the construction industry, the following requirements must be met: Allowed on Primary Residence only The acquisition cost must be fully documented, regardless of the LTV/(H)CLTV To document acquisition cost, the borrower must provide copies of receipts, bills, lien waivers, lot purchase agreement, etc., in addition to the itemized cost breakdown. The LTV/(H)CLTV will be based on the lesser of the documented acquisition cost or appraised value The borrower may not receive cash back at closing that is not a verifiable reimbursement of expenses. Employee Loan Policy Loans to the originating Broker and/or their employees are allowed subject to Second Level Review and approval by a Credit Risk Underwriter. Non-Borrowing Spouse To perfect a lien under governing state law when a married applicant purchases a property without involving a spouse and when required by law, Pacific Union Financial requires the spouse to sign the security instrument and any other applicable documentation to confirm relinquishment of all rights to the property. If a spouse is on the purchase contract, he or she must be added to the loan application or removed from the purchase contract. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 27 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Non-Occupying Co-Borrowers Applicable on Primary Residence transactions only. The non-occupying borrower may not be an interested party to the transaction (such as the builder, seller or broker). Non-occupying borrowers are subject to the same underwriting and documentation criteria as occupying borrowers. For LTVs >80%, the occupying borrower must make the first 5% down payment from occupying borrower funds. Funds that are owned jointly by the occupant and non-occupant borrowers are considered the funds of the occupant borrower. Loan Prospector (LP) LP will consider the non-occupying co-borrower’s income as qualifying income. If non-occupying co-borrower is needed to qualify, the loan should be evaluated using LP. Desktop Underwriter (DU) DU will not consider the non-occupying coborrower’s income in qualifying. Verification of the non-occupying co-borrower’s employment or income is not required. Non-U.S. Citizens • • • • A non-U.S. citizen who is lawfully residing in the United States as a permanent or non-permanent resident alien is eligible for a Mortgage on the same terms as a U.S. Citizen. A mortgage to a non-U.S. citizen who has no lawful residency status in the U.S. is not eligible. To insure that the borrower or borrowers are legally able to reside and work in the U.S., a valid Social Security Number (SSN) is required for all borrowers whose income and/or assets are being used to qualify for the loan. Freddie Mac and Fannie Mae do not specify the documentation required to establish lawful U.S. residency. Borrowers with Diplomatic Immunity Not allowed. North American Free Trade Agreement (NAFTA) Workers Canadian and Mexican citizens who are working in the United States under the terms of NAFTA must be treated as Non-US Citizens when determining their eligibility. They must meet the standard requirements established for non-permanent resident aliens. NAFTA workers must provide a NAFTA Worker’s VISA. Separated Borrowers When the borrower indicates that he/she is separated, it must be determined whether it is a legal separation. If the borrower is legally separated, a copy of the recorded legal separation agreement must be provided to determine the division of assets, liabilities and potential obligations. If there is no legal separation, a letter from the attorneys of both parties involved specifying the proposed settlement terms must be provided. If no documentation can be obtained to verify the division of assets and liabilities, the loan will generally be considered an unacceptable risk. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 28 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC If the borrower states there are no plans for a legal separation, no further documentation is necessary; he/she is legally married and qualified accordingly. Social Security Number (SSN) Validation All borrowers must have a valid Social Security number as evidenced by one of the following: Pay stub W2 Validated tax returns Credit / Underwriting Manual Underwriting is not allowed. All loans must be submitted to Loan Prospector (LP) or Desktop Underwriter (DU). Pacific Union Financial will accept only loans that receive a LP Risk Class of Accept/Eligible or a DU recommendation of Approve/Eligible. Refer to the Loan Prospector or Desktop Underwriter topic(s) for additional information. Age of Documents All income and asset documentation must be dated within 30 days of the application date. Verifications of employment, income, source of funds, and payment history must be made no more than 120 days prior to the Note Date. Any information verified more than 120 days prior to the Note Date must be reverified. When there are consecutive documents in the loan file, the most recent document is used to determine the age. For example, when two consecutive monthly bank statements are provided, the most recent bank statement must be dated within 120 days of the Note Date. Authorized User Accounts • • When the repository file used to create the credit report contains any authorized user accounts, the Loan Prospector (LP) or Desktop Underwriter (DU) decision is considered valid if the loan file includes documentation to evidence that at least one of the following for each authorized user account: Another borrower on the loan owns the tradeline in question, The account belongs to the borrower’s spouse, or The borrower has been making the payments on the account for the last 12 months. If at least one of the above requirements is not documented for each authorized user account, the LP or DU decision may be considered valid and the loan may be underwritten as an LP or DU approved loan only if is determined that the authorized user accounts have an insignificant impact on the borrower's overall credit history and the information on the credit report is representative of the borrower's own credit reputation. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 29 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC • • This determination must be based on the number of the borrower's own tradelines, as well as their age, type, size and the payment history, as compared to the authorized user accounts. The determination must be documented on the 1008, Uniform Underwriting and Transmittal Summary, or another document in the loan file. If it is determined that the authorized user tradelines are not an accurate reflection of the borrower's credit history and that the loan would not receive an LP or DU approval without the authorized user accounts, the loan is not eligible. Bankruptcy - Multiple Filings – Desktop Underwriter (DU) only For borrowers with more than one bankruptcy filing in the last seven years, a five year waiting period is required, measured from the most recent dismissal or discharge date. A three year waiting period is permitted if extenuating circumstances can be documented. The most recent bankruptcy filing must have been as a result of the extenuating circumstances. DU is not able to determine if multiple filings have occurred due to the manner in which bankruptcies are reported to the credit report. DU will issue a message when it appears that there may have been multiple bankruptcy filings. This message will list each of the bankruptcies seen on the credit report, and will instruct lenders to ensure the loan casefile meets the criteria for underwriting loan casefiles with multiple bankruptcies. Borrowers without a Usable Credit Score The following requirements apply when a loan receives an LP Accept/Eligible or DU Approve/Eligible and not all borrowers have a usable credit score: At least one borrower on the transaction must have a usable credit score, as determined by LP or DU. The transaction must be a Purchase or Rate/Term Refinance. Allowed only for one unit Primary Residence transactions. All borrowers must occupy the property as a Primary Residence. Borrower with a usable credit score must contribute more than 50% of the total monthly qualifying income. For all borrowers without a credit score, any debt that is not reported must be verified to have a satisfactory payment history and the payment must be included in the DTI ratio. For pricing purposes, the borrower with no credit score will be considered to have a 620 credit score. Loan Prospector (LP) • Allowed on Conforming and High Balance • The borrower without a credit score may not be using self-employment income to qualify. Desktop Underwriter (DU) • Conforming Balance only • The income used to qualify the Borrower(s) may not be from self-employment. Collection, Past Due, and Charge-Off Accounts Follow LP or DU recommendation for treatment of these accounts. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 30 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Consumer Credit Counseling (CCCS) Borrowers with a history of consumer credit counseling are allowed subject to DU or LP approval. No additional review is required. Disputed Tradelines • • Loan Prospector: Refer to Significant Inaccurate Information topic. Desktop Underwriter: Refer to Disputed Tradelines topic. Judgments and Garnishments Open judgments and garnishments that are in the Public Records section of the credit report must be paid off at or prior to closing. Any judgment that is reflected on the title policy must be paid off or resubordinated. If re-subordinated, the subordination agreement must be included in the loan file. Judgments on the subject property must be included when determining the LTV/(H)CLTV of the loan. Modified Mortgages • A modified mortgage is a one in which a permanent change has been made to the original loan terms without forgiveness of any principal or accrued interest. This may include, but is not limited to: A change in amortization term A reduction in interest rate A reduction in the scheduled monthly payment amount. A copy of the modified note must be in the loan file. See Restructured Mortgages, if applicable. Credit Reporting Modified mortgages may not be accurately reflected on the borrower’s credit report. If it is known or suspected that the borrower had a previous modification, the credit report must be updated and the loan re-scored and resubmitted to DU/LP. Eligibility Transaction Refinance of a Modified Mortgage OR Other Modified Mortgage Non-Subject Loan Prospector (LP) • Allowed with LP approval Desktop Underwriter (DU) • Allowed with DU Approve/Eligible, and • Mortgage payment history must be reviewed to insure that there have not been one or more 60, 90, 120, or 150 day delinquencies within the 12 months prior to the report date. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 31 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Multiple Financed Properties If the subject loan is for a Primary Residence, there is no limitation on the number of properties that the borrower can currently be financing. If the subject loan is for a Second Home or Investment Property, each borrower individually and all borrowers collectively may not own more than four 1-4 unit financed properties, including the subject property. If the subject is an Investment Property and the borrower owns more than one Investment property, the loan type is limited to Fixed Rate or 7/1 ARM. Note: Borrowers who will own more than four properties are eligible for Fixed Rate only. See below. Ownership of commercial or multi-family (five or more units) real estate is not included in this limitation. The financed property limits apply to the borrower’s ownership of 1-4 unit financed properties or mortgage obligations on those properties and is cumulative for all borrowers on the loan. The limits apply to the number of properties financed, not the number of mortgages on the property or the number of loans sold to any one investor. Fannie Mae 5 to 10 financed properties Loan must be evaluated using DU and must be coded and priced as a Fannie Mae only. If the subject loan is for a Second Home or Investment Property, the borrower may own or be obligated on up to 10 financed properties, subject to the following: DU is not able to determine the number of financed properties that 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 eligibility and underwriting requirements must be applied manually to each loan. • Six months of reserves required for each additional Second Home or Investment Property owned. Maximum LTV/CLTV/HCLTV Second Home or Investment Property Transaction Type Purchase or Rate/Term Refinance Cash-out Refinance (only if within 6 months of purchase and loan is eligible under the Delayed Financing Exception) Cash-out Refinance (>6 months since purchase) Units 1 1 1 Conforming Balance: • Fixed Rate: 75% High Balance: • Fixed Rate: 65% Conforming Balance: • Fixed Rate: 70% High Balance: • Not eligible Not eligible Minimum Credit Score 720 720 N/A Investment Property Purchase or Rate/Term Refinance 2-4 Cash-out Refinance (only if within 6 months of purchase 2-4 Conforming Balance: • Fixed Rate: 70% High Balance: • Fixed Rate: 65% Conforming Balance: • Fixed Rate: 65% 720 720 Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 32 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC and loan is eligible under the Delayed Financing Exception) High Balance loan amounts: • Not eligible Not eligible Cash-out Refinance (>6 months 2-4 N/A since purchase) • The borrower may not have any history of bankruptcy or foreclosure within the past 7 years. • The borrower may not have any 30-day or greater delinquencies on any mortgage debt within the past twelve months. • Rental income for the subject Investment Property as well as any other properties owned by the Borrower must be documented per Fannie Mae guidelines. See Rental Income. • Tax return transcripts must be included in file if rental income has been reported on the borrower’s tax returns. See IRS Form 4506-T. Fannie Mae Limitations Based on Property Type Type of Property Ownership Property Subject to Limitations? Joint ownership of residential Real Estate (considered to be the same as total ownership of an individual property). Note: Other properties owned or financed jointly by the borrower and co-borrower are only counted once. Ownership of commercial real estate Ownership of multi-family property consisting of more than four dwellings. 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. 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. Ownership in a timeshare Obligation on a mortgage debt for a residential property (regardless of whether or not the borrower is an owner of the property. Ownership of a vacant residential lot 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 25% or more, regardless of the entity (or borrower) that is the obligor on the mortgage. 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. 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 25% or more, and the Yes No No No Yes No Yes No Yes No Yes Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 33 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC financing is in the name of the borrower. Ownership of a manufactured home and the land on which it is situated is titled as real property. Ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home). Yes No Restructured Mortgages • • • • A restructured mortgage is one 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. Additional definition for Loan Prospector (LP) loans: A mortgage that is the result of any subsequent refinance of a Restructured Mortgage is also considered a Restructured Mortgage. A mortgage that is modified through a Freddie Mac modification is not considered to be a Restructured Mortgage. A restructured mortgage is sometimes referred to as a “short pay loan”, a “short pay refinance” or a “short refinance”. See Modified Mortgages, if applicable. Identifying a Restructured Mortgage • • A restructured mortgage may be identified by the following means: The borrowers tax return (if obtained) reflects income from a 1099C from the mortgage lender, mortgage insurance company or third party investor, or The payoff amount is significantly less than the credit report balance or the current monthly payment disclosed on the 1003 varies from the payment reported on the credit report, or The borrower’s credit report reflects verbiage such as “Settled for less than amount owed,” or “Paid in Full - not as agreed.” A copy of the restructured note must be in the loan file. Credit Reporting Restructured mortgages may not be accurately reflected on the borrower’s credit report. If it is known or suspected that the borrower had a previous restructure, the credit report must be updated and the loan re-scored and resubmitted to DU/LP. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 34 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Eligibility Transaction Loan Prospector (LP) Refinance of a Restructured Mortgage • Not allowed regardless of LP approval. Other Restructured Mortgage(s) - Non Subject • Not allowed regardless of LP approval. Desktop Underwriter (DU) • Conventional product: Not allowed regardless of DU approval. • Fannie Mae Only product : Allowed with DU Approval/ Eligible, and Minimum of 24 months paid as agreed under the restructured terms. • Conventional product: Not allowed regardless of DU approval. • Fannie Mae Only product: Allowed with DU Approve/ Eligible, and • Mortgage payment history must be reviewed to insure that there have not been one or more 60, 90, 120, or 150 day delinquencies within the 12 months prior to the report date. Foreclosure – Desktop Underwriter (DU) Effective with loans submitted or resubmitted to DU after August 16, 2014 Foreclosure Message Updates To insure that DU is using the most accurate information pertaining to foreclosures, DU will now allow users to instruct DU to disregard foreclosure information on the credit report in the following (additional) situations: Inaccurate Foreclosure Information When DU identifies a foreclosure on a tradeline and that information is inaccurate, the user may instruct DU to disregard the foreclosure information on the credit report. This can be done by entering “Confirmed CR FC Incorrect" in the Explanation field for question “C” in the Declarations section of the loan application and resubmitting the loan to DU. When DU sees this indication, the foreclosure information on the tradeline will not be used in the eligibility assessment. Foreclosures Due to Extenuating Circumstances When DU identifies a foreclosure on a tradeline and the foreclosure was due to extenuating circumstances, the user may instruct DU to disregard the foreclosure information on the credit report when the user confirms that the mortgage loan meets the applicable timeframes and eligibility requirements for a foreclosure due to Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 35 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC extenuating circumstances. This can be done by entering “Confirmed CR FC EC" in the Explanation field for question “C” in the Declarations section of the loan application and resubmitting the loan to DU. When DU sees this indication, the foreclosure information on the credit report tradeline will not be used in the eligibility assessment. DU Assessment/Messaging In both situations, DU will issue a message stating that the foreclosure information included on the account was not used in the eligibility assessment because DU was instructed by the user to underwrite the casefile without the reported foreclosure information. The user must document that the foreclosure was either: Completed seven years or more from the disbursement date of the new loan; or Not subject to a foreclosure and the loan complies with all applicable Fannie Mae requirements, or Was due to extenuating circumstances, completed at least three years from the disbursement date of the new loan, and that the loan complies with all other Fannie Mae requirements for a foreclosure due to extenuating circumstances. Note: When more than one item needs to be entered in the Explanation field, the items must be separated by a comma as shown below. For example, when the borrower has conflicting foreclosure and preforeclosure sale information on one tradeline, and inaccurate foreclosure information on another tradeline, the user may instruct DU to disregard the foreclosure information on both tradelines by entering “Confirmed CR PFS, Confirmed CR FC Incorrect”. Mortgage Charge-Off - Desktop Underwriter (DU) Effective with loan applications dated on or after August 16, 2014: • Mortgage accounts that have been subject to a charge-off will require a four year waiting period after the charge-off occurred. • DU will now issue a message on mortgage accounts with a manner of payment of “9” specifying that the account was identified as being subject to a charge-off and that the user must confirm the accuracy of the information. • If the mortgage account was subject to a charge-off, users must 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 if the charge-off was due to extenuating circumstances. Short Sale/Preforeclosure Sale - Loan Prospector (LP) LP is not able to identify preforeclosure or short sales in the credit report data. The preforeclosure / short sale requirements in the table below must be manually applied to all loans, regardless of the underwriting recommendation received. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 36 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Short Sale/Preforeclosure Sale/Deed-in-Lieu of Foreclosure - Desktop Underwriter (DU) DU will consider a mortgage or HELOC as one that was subject to a prior deed-inlieu of foreclosure (DIL) or preforeclosure sale (PFS) when certain Remarks Codes associated with that tradeline appear on the credit report. For DIL and PFS tradelines, there is not a date on the credit report specifically related to those events; therefore DU is not able to determine when those events occurred. When DU identifies a DIL or PFS, a message will be issued stating that it was identified and that the accuracy of the information must be verified. The loan file must include documentation showing that the event was completed at least two years prior to the credit report date and that the loan complies with all Fannie Mae requirements for borrowers with a previous DIL or PFS. Conflicting or Inaccurate Foreclosure Information: Because there are often inconsistencies in the credit report data when a DIL or PFS has occurred, DU will disregard the foreclosure information on the credit report when instructed to do so on the on line application. When DU identifies a foreclosure that appears to be one that was subject to a DIL or PFS, DU may be instructed to disregard the foreclosure information by entering “Confirmed CR DIL” or “Confirmed CR PFS” in the Explanation field for question C in the Declarations section of the on line application and resubmitting the loan to DU. When DU recognizes this indication, the foreclosure information in the credit report will not be used. DU will issue a message stating that the foreclosure information was not used in the eligibility assessment because DU was instructed by the user to underwrite the loan without the reported foreclosure information. The loan file must include documentation to show that the account was subject to a DIL or PFS, that the event was completed more than two years prior to the credit report date, and that the loan meets all other requirements specific to a prior DIL or PFS. Short Sales or Preforeclosure Sales – Waiting Periods All references to LTV in the following table apply equally to CLTV and (H)CLTV. Due to Financial Mismanagement Loan Prospector (LP) • Four year waiting period from completion date to application date. • If completed with the last 7 years, eligible only for: Primary Residence purchase transaction with maximum LTV of the lesser of 90% or the maximum allowed per the LTV Matrix, or • Rate/Term Refinance Desktop Underwriter (DU) Loans submitted or resubmitted to DU after August 16, 2014: • Four year waiting period from completion date to the date of the DU credit report. • Standard LTV limits apply. Loans submitted or resubmitted to DU or on before August 16, 2014: • Waiting period from completion of the short sale to the date of the DU credit report: Two years: Maximum 80% Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 37 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Loan Prospector (LP) Additional requirements if due to financial mismanagement • • Requirements if due to extenuating circumstances • Documentation of extenuating circumstances • • • Desktop Underwriter (DU) LTV Four years: Maximum 90% LTV Seven years: Maximum LTV per LTV Matrix The file must contain all of the following: The underwriter’s explanation of the rationale supporting the determination that the financial mismanagement is unlikely to recur and that the borrower’s credit reputation is acceptable. Evidence that the borrower has reestablished an acceptable credit reputation. Evidence on the credit report and other documentation of the length of time since completion of the short sale. Two year waiting period from • Two year waiting period from completion date to application completion of the short sale to date. the date of the DU credit report. If completed with the last 7 Maximum LTV is the lower of years, eligible only for: 90% or the maximum Primary Residence purchase allowed per the LTV Matrix transaction with maximum LTV of the lesser of 90% or the maximum allowed per the LTV Matrix, or Rate/Term Refinance The file must contain all of the following: A written statement form the borrower attributing the cause of the financial difficulties to outside factors beyond the borrower’s control that are not likely to recur. Third-party documentation confirming that the events related by the borrower were an isolated occurrence and significantly reduced the borrower’s income and/or increased expenses and rendered the borrower unable to repay as agreed. The underwriter’s analysis relating the borrower’s explanation and leading to a reasonable conclusion that the events were beyond the borrower’s control and not likely to recur, and that the borrower has reestablished an acceptable credit reputation. Evidence on the credit report and other documentation of the length of time since completion of the short sale. Significant Derogatory Credit LP and DU determine if the applicable waiting period after a significant derogatory event has been met (excluding short sales and preforeclosure sales). If LP or DU determines that the waiting period has not been met based on the credit report used on the initial submission, an updated credit report must be obtained and the loan must be resubmitted to LP or DU after the required waiting period has elapsed. If a mortgage debt has been discharged through bankruptcy, even if the foreclosure action is subsequently completed, the borrower is subject to the bankruptcy waiting period guidelines and not the foreclosure waiting period guidelines. Documentation must be provided to verify that the mortgage debt in question was discharged as part of the bankruptcy. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 38 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Measurement of Waiting Period - Desktop Underwriter (DU) When DU identifies a bankruptcy, foreclosure, preforeclosure sale, deed-in-lieu of foreclosure, or mortgage charge-off, and the user is required to determine if the event meets applicable waiting period requirements, DU will instruct the user that the waiting period is measured from the disbursement date of the new loan, not the credit report date. On loan casefiles where DU measures the waiting period and uses that information in the eligibility assessment, the credit report date will continue to be used as DU does not know the disbursement date of the new loan. For loan casefiles that will have met the waiting period requirement based on disbursement date, but not credit report date, a new credit report may be pulled after the waiting period has elapsed in order to receive an Eligible recommendation. Tax Liens Tax liens must be paid off prior to closing. If the borrower owns delinquent taxes but no lien has been recorded: Taxes may remain unpaid if the borrower has a repayment agreement in place and has made a minimum of three payments as agreed. The regular payment must be included in qualifying ratios. If there is no plan in place or the borrower has not made a minimum of three payments as agreed, the taxes must be paid in full. Mortgage Insurance (MI) providers may require the payment of delinquent taxes. Refer to the MI provider website for guidelines. Collateral General Property Eligibility Requirements The mortgaged property must: Be residential based on the property characteristics, zoning and land use. Be safe, sound, habitable and undamaged by fire or windstorms or other perils. Meet all conditions of the appraisal if the appraisal was made subject to conditions. Represent the highest and best use of the property as improved and the use of the mortgages property must be a legal or legal non-conforming use. Have legal access (ingress and egress). Have year around access. Have utilities that meet community standards. Have mechanical systems that meet community standards. Have property insurance coverage that meets Pacific Union Financial requirements and coverage for any hazards specific to the location of the property. Not be subject to pending legal proceeding for condemnation in whole or in part. Appraisal Requirements Age of Appraisal If the date of the appraisal will be more than 120 days prior to the Note Date, the appraisal is outdated and a new appraisal with at least an exterior–only inspection is Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 39 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC required. Current market data must be reviewed to determine whether the property value has declined since the date of the original appraisal. Loan Prospector (LP) If the appraisal will be dated more than 12 months prior to the Note Date, the appraisal is expired and a new appraisal will be required. The new appraisal may not incorporate any prior appraisal. • An appraisal update is a new appraisal; an appraisal update with an exterior-only inspection is acceptable if the effective date of the original appraisal is no more than 12 months prior to the effective date of the new Appraisal. • If the appraisal provides an “as completed” or “as repaired” opinion of value and a new appraisal is required before the Note Date, an appraisal with an interior and exterior inspection and updated photos is required. The new appraisal can be used to confirm value and can also be used to document that the property is complete. • For loans originated with a PIA, the PIA is valid for 120 days. If the effective date of the Feedback Certificate is more than 120 days before the Note Date, the MAF is expired and the loan must be resubmitted to LP. Desktop Underwriter (DU) If a Form 2075 - Property Inspection Report will be more than 120 days old on the Note Date, the appraiser must prepare a new Form 2075. • If the appraiser indicates that the property value has declined, a new appraisal must be prepared. • If the appraiser indicates that the property value has not declined, the appraiser must provide an update to the appraisal based on an exterior inspection of the property and knowledge of current market conditions. The inspection and the appraisal update must occur within the four months that precede the Note Date. • Appraisal updates may be in the following formats: Form 1004D – Appraisal Update and/or Completion Report, or Form 1004 – Uniform Residential Appraisal Report, or A letter from the appraiser. • The original appraiser should complete the appraisal update; however, substitute appraisers 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 file must include an explanation of why a substitute appraiser was used. Appraisal Forms Pacific Union Financial will accept appraisals or inspections that meet LP or DU requirements, except as shown in the table below. Product Type Desktop Underwriter (DU) Freddie Mac High Balance Loan Amounts Exterior-Only Upgrade Requirements Appraisal Requirements If DU allows a Property Inspection Waiver (PIW) or Form 2075-Property Inspection Report, a minimum of Form 2055 – Exterior Only Inspection will be required. • Form 70/1004 – Uniform Resident Appraisal Report • Form 465/1073 – Individual Condo Unit Appraisal Report • If LP or DU allow for an Exterior-Only Inspection the inspection must be upgraded to a full appraisal when any one or more of the following conditions exist: The appraiser cannot adequately view the property from the street. Apparent adverse deficiencies or environmental Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 40 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Product Type Appraisal Requirements conditions are observed. The appraiser cannot obtain sufficient information about both the interior and exterior physical characteristics of the property from third-party data sources in order to develop an accurate and adequately supported appraisal The appraiser cannot reconcile all significant discrepancies (size, condition, etc.) among data sources The exterior-only inspection does not provide sufficient information to develop an accurate and adequately supported appraisal, including the inability to view the property from the street The property is new construction and has not yet been occupied. The property is undergoing renovation or rehabilitation The data sources used to develop the appraisal (such as the sales contract) indicate the presence of physical deficiencies or an adverse condition, or the appraiser observes apparent physical deficiencies or adverse property conditions during the exterior property inspection The condition rating is C5 or C6 and/or the quality rating is Q6 based on the UAD and the data sources used to develop the appraisal or the appraiser’s observations during the exterior-only property inspection. Loan Prospector - Home Value Models (Form 2070 and Property Inspection Alternative) When eligible, the Loan Prospector Feedback Certificate will indicate a Minimum Assessment Feedback (MAF) of Form 2070 or Property Inspection Alternative (PIA). A print out of the last Feedback Certificate with the 2070 or PIA must be included in the loan file. Form 2070 – LP Condition and Marketability Report: Form 2070 is designed to report the condition and marketability of a 1-unit property. The appraiser provides no estimate of value and the inspection is not considered an appraisal. The appraiser must upgrade from Form 2070 to an appraisal with an interior and exterior inspection if: The appraiser is unable to adequately view the property from the street. The appraiser observes any factor that may have an adverse effect on the marketability of the subject property. The quality or condition of the property appears unacceptable to the typical purchaser in the area in which the property is located. The Condition and Marketability Factors section of the Form 2070 indicates that such an upgrade is required. Investor Feature Identifier (IFI) 903 must be entered for loans using Form 2070. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 41 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC If Fannie Mae Form 2075 is used in lieu of Form 2070, the appraiser must upgrade to an appraisal as stated in Fannie Mae’s requirements governing the use of Form 2075. Property Inspection Alternative (PIA): To be eligible for PIA, the loan must meet all of the following requirements: The property must be owned in fee simple; leaseholds are not eligible The property must be fully completed and occupied as a residence as of the Note Date. Escrow accounts for incomplete items are not allowed The property may not be undergoing rehabilitation or renovation No appraisal or inspection has been performed The lender is not aware of and could not have been aware of any conditions that would adversely affect the market value, condition or marketability of the property The borrower must not be affiliated or related in any way with the builder, developer, or seller of the property If any of the following apply, the mortgage is not eligible for PIA and an appraisal with an interior or exterior inspection is required: There is a home inspection report or other information in the loan file that indicates the presence of adverse conditions and/or marketability factors, or The lender is aware of the presence of any contaminated site or hazardous substance affecting the property or the neighborhood in which the property is located. Resubmissions to Loan Prospector (LP) The following table describes the minimum requirement when a loan is resubmitted to LP after the appraisal is completed and the resubmission receives a different MAF. This table applies only if there is no change to the property, including no change to the property address entered in LP. If the property / property address changes, the new MAF must be obtained. Original LP Minimum Assessment Feedback Appraisal with interior and exterior inspection Appraisal with an exterior-only Inspection Form 2070 or PIA New LP Minimum Assessment Feedback Appraisal with interior and exterior inspection Appraisal with an exterior-only inspection Form 2070 or PIA Appraisal with interior and exterior inspection Appraisal with an exterior-only inspection Form 2070 or PIA Appraisal with interior and exterior inspection Appraisal with an exterior-only inspection Minimum Assessment Level Needed Appraisal update with an exterior-only inspection Appraisal update with an interior and exterior inspection Appraisal update with an exterior-only inspection Appraisal update with an exterior-only inspection Appraisal with an exterioronly inspection Appraisal with an exterioronly inspection Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 42 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Original LP Minimum Assessment Feedback New LP Minimum Assessment Feedback Form 2070 or PIA Minimum Assessment Level Needed Form 2070 or PIA Appraisal Transfers Pacific Union Financial will allow transfer/re-assignment of appraisal reports for Conventional loans provided all investor and appraisal independence policies have been met. Note: Pacific Union Financial reserves the right to accept or deny the appraisal, require a new, full appraisal, or require an AVM or other third party verification, and to complete an internal appraisal review process including, but not limited to a desk review to confirm consistency with regulatory requirements and Pacific Union Financial guidelines. Appraisal Assignment Letter and Acknowledgement Pacific Union Financial will require a letter from the lender transferring the appraisal (Transferring Lender) to certify that the appraisal was obtained in a manner consistent with regulatory requirements. The letter must be completed as follows: Printed on the Transferring Lender’s letterhead. Completed and signed by an authorized officer of the Transferring Lender (i.e., Vice President, Assistant Vice President, etc., but not the loan officer/originator). • Provided to the Broker from the Transferring Lender with the appraisal. Include a certification from the Transferring Lender stating: The Transferring Lender, appraisal management company (AMC), appraiser selection and appraisal ordering policy and process, and the appraiser comply with all Fannie Mae/Freddie Mac Appraiser Independence Requirements (AIRs) and the Dodd-Frank Wall Street Reform Act and Consumer Protection Act (collectively, “regulatory requirements”). The appraiser was engaged directly by the Transferring Lender through its designated authorized AMC. Neither the appraiser nor the AMC had direct, indirect or prospective interest, financial or otherwise, in the property or credit transaction. Transferring Lender’s name appears on the appraisal as the Transferring Lender/Client. The appraisal being transferred is the only appraisal ordered by the lender for this transaction. Refer to the Forms tab in FLOW for an approved sample transfer letter (Appraisal Assignment Letter and Acknowledgement) that may be used by the Transferring Lender. Transferring Lenders are not required to use this form, but the actual letter must include the statements listed above. Appraisal Requirements Appraisals must be transferred to the Broker from the Transferring Lender: In a suitable electronic format (first generation pdf). Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 43 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC With the Submission Summary Report (SSR) for the applicable agency evidencing a successful upload to UCDP, the appraisal submission details, “successful” status of the submission, and a Document File Identifier (Doc File ID). Ownership of the appraisal must be assigned to Pacific Union Financial, LLC without recourse. Note: The AMC and/or the appraiser must not be identified on the most recent Agency or other exclusionary list. Borrower Acknowledgement For purchase money loans using Form 2070 or PIA in lieu of an appraisal, the borrower must sign Freddie Mac Form 1149, Notice About Appraisal of your Property, or a similar notice. The signed notice must be retained in the file. All files that include an appraisal must include one of the following acknowledgements from the borrower: Receipt of the appraisal at least three days prior to closing. Waiver of right to receive appraisal within three days prior to closing. Escrow Holdback Allowed for repairs that do not affect the livability, safety or structural integrity of the property or affect the ability to obtain a Certificate of Occupancy on new or proposed construction. Refer to the Escrow Holdback Policy for detailed guidelines. Flip Properties A property flip refers to a transaction in which a property is purchased and quickly resold for a significant profit. Properties targeted for flips generally include those that can be acquired at a low price and often include REOs, properties subject to a “short sale,” distressed properties or newly constructed properties where the builder or developer must liquidate housing inventory, transactions not involving a realtor, and transactions that include parties affiliated or related by birth or marriage. In some cases, the seller of a flipped property never holds title to the property, but instead sells or assigns their interest in a contract to purchase the property to a third party. Flip transactions require a higher level of review to ensure the property value and the transactions are valid. The following transactions are generally considered acceptable and additional review is not required: • Property sales by: A Government Sponsored Enterprise, state or federally chartered financial institution, mortgage insurer, or federal, state or local government agency. Employers or relocation agencies related to employee relocations. The property seller through inheritance, divorce, or as a result of a legal settlement or proceeding. An administrator or executor of an estate. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 44 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC • • Property sales that have been substantially improved by bona fide and verified renovations since the property was acquired by the property seller in which any increase in sales price over the seller's acquisition costs is representative of the market given the improvements to the home. Sales of properties that the property seller acquired at below market value after purchasing as a result of a distress sale (i.e. REO sale, short sale, tax lien sale, bankruptcy trustee's sale, etc.), where any increase in the sales price over the property seller's acquisition cost can be clearly shown to be a result of the difference (if any) in the market's reaction to distress sales and typical arms-length market sales. Potential Property Flips/Red Flags Pacific Union Financial (Pacific Union) will thoroughly review all transactions for red flags that may indicate that the subject property is a Flip and to determine whether a transaction is acceptable. Any of the following characteristics/red flags may be indicative of a potentially ineligible flip transaction. Should any of these characteristics exist, additional research as outlined in the Best Practices section is required to determine acceptability. • ≤180 days of ownership by property seller from date of purchase contract. • Title to the property has transferred more than two times in the last twelve months. • The property seller or any other party claims that the property was significantly renovated since being acquired but the claimed renovations were not actually performed or cannot be sufficiently documented. • The contract seller is not the current owner of record at the time of the purchase contract. • The sales contract and/or other documentation identify terms that may indicate that there has been assignment or sale of the seller’s interest in a contract or option to acquire the property. • “Double Escrows” are discovered at the time of loan closing. • Purchases with undisclosed secondary financing, in which part of the purchase price is refunded to the buyer, or is quickly followed by a cash-out refinance. • Fraud Detection report indicates a Property Flipping Impact assessment identified. • The appraisal: Lacks sufficient analysis of all pertinent offerings or listing for the property, the contract of sale, and the sales/transfer or listing history of the property and comparable sales. Increases in property value are not supported. See Best Practices/Appraisal topic below. Property seller is not shown as the owner of the subject property. Note: Underwriter discretion will be used, as the above list may not be all inclusive. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 45 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Best Practices If the underwriter’s analysis indicates the subject is a flip and the transaction is not an acceptable scenario, the following additional review is required: • A Desk Review/Collateral Desktop Analysis is required when the seller has owned the property for 180 days or less or when title to the property has transferred more than two times within the most recent 12-month period. The Desk Review/Collateral Desktop Analysis must represent the appraised value within a tolerance not to exceed 10%. • Increases in property value, in whole or part, must be supported by the appraisal, explained, documented, and analyzed as follows: The appraisal must identify, in detail, any changes made and include photographs of the rehabilitation or renovation. Improvements and renovations must be documented and substantiated with receipts, contractor invoices, and building permits. • Regardless of length of ownership, Underwriter reserves the right to obtain a desk review if an unreasonable or unusually large increase in value has occurred within the context of the property’s market. • Documentation must indicate that improvements were completed after the property seller acquired the property. • Confirm that the property seller is the owner of the subject property. • Ensure that the appraisal sufficiently analyzes and provides detail on all pertinent offerings or listings, includes sufficient analysis of the contract of sale, and adequate justification of any significant increase in sales price/value over the seller’s acquisition costs. The analysis must be detailed enough to clearly explain the methodology and rationale used to justify the appraiser’s conclusions on this issue. • Ensure all property flipping impacts as identified in the Fraud detection report are satisfactorily resolved. Inspections and Certification Requirements A property inspection is not required for termite, private well, septic system, or roof unless required in the purchase agreement or when the appraiser recommends an inspection in the appraisal report. Leaseholds Conventional or Fannie Mae Programs: Not allowed on Condos or PUDs. Must be common and accepted in the area where the property is located. The mortgage must be secured by the property improvements and the borrower’s leasehold interest in the land. The leasehold estate and the improvements must constitute real property, must be subject to the mortgage lien, and must be insured by the lender’s title policy. The leasehold estate must not be impaired by a merger of title between the lessor and lessee or by any default of a sub lessor. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 46 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Mixed Use Properties Mixed Use properties have a business use in addition to the residential use. These properties are eligible subject to the following: The subject property must be a one unit dwelling that the borrower occupies or will occupy as a Primary Residence. The borrower must be both the owner and the operator of the business. No more than 20% of the total square footage is devoted to non-residential use. Commercial use should not result in significant alteration to the property or one which could not be easily converted back to residential. The commercial use should generate a minimal amount of traffic noise. Appraisal requirements: Appraisers must provide an adequate description of the mixed-use characteristics of the subject property. The room layout must be reasonable for a residential home. The mixed use of the property must represent a legal, permissible use of the property under the local zoning requirements. The market value of the property is primarily a function of its residential characteristics, rather than of the business use or any special business use modifications that were made. Desktop Underwriter (DU) Fannie Mae requires only that the property be primarily residential. There is no specific percentage of square footage that may be devoted to non-residential use. Modular and Panelized Homes Loan Prospector (LP) • Does not include other types of factorybuilt housing not subject to the National Manufactured Construction and Safety Standards Act, such as modular or panelized housing, in the definition of Manufactured Homes. • These types of factory-built housing are eligible, as long as all other property eligibility requirements are met. Desktop Underwriter (DU) • Factory-built housing (not built on a permanent chassis)—such as modular, prefabricated, panelized or sectional housing—is not considered manufactured housing and mortgage loans secured by such housing are eligible. • Refer to the Fannie Mae Seller Guide for additional restrictions. Property Affected by a Disaster If the Federal Emergency Management Agency (FEMA) declares a major disaster, or when the lender becomes aware of a major disaster, the lender must take appropriate steps to determine the condition of a property located in the disaster area. If the property appraisal was completed prior to the disaster, Pacific Union Financial will require an inspection of the property. The inspection must be completed prior to release of the closing documents and/or funds. Any loans in closing will be given back to the Junior Underwriter for fulfilling these requirements. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 47 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC The cost of this re-inspection will be absorbed by Pacific Union Financial in the event the loan is in closing/funding or the loan has been approved and the appraisal has been received by Pacific Union Financial. Inspection Requirements The inspection must be: Completed on Freddie Mac Form 442/Fannie Mae Form 1004D. Completed by the original appraiser. Contain an exterior photo of the property, evidencing no damage. The appraiser must provide a certification stating: That an interior inspection was completed by the appraiser. The date of inspection was after the end of the disaster period as identified by FEMA. That the property is free from damage and is in the same condition (or better) as when previously inspected and appraised. Appropriate commentary concerning negative conditions which would impact the marketability of the property. The inspection report must be reviewed by a Pacific Union Financial underwriter, and the underwriter must certify the property is not affected prior to loan closing. Pacific Union Financial will not accept re-inspections completed by the broker, loan officers of the broker, and employees of correspondents or internal staff. Re-verification of Hazard Insurance Property insurance coverage should be re-verified to insure that the coverage is adequate to protect against future loss and it insure that it has been obtained or maintained adequately with respect to affected properties. Borrower Certification The borrower must inspect the property after the dates of the end of the disaster and provide the following certification at closing: I have inspected the property located at ______________ on ________________ and find its condition now to be acceptable and will hold the Lender harmless for any damages. Property Listed for Sale Properties listed for sale are eligible subject to the following: • The listing must have been cancelled at least one day prior to the disbursement date of the new loan. A copy of the MLS cancellation meeting this requirement must be included in the loan file. • A signed letter of explanation from the borrower explaining why property was listed for sale and removed, and if Primary Residence, statement of intent to continue to occupy the property. • A final appraised value lower than lowest previously listed sale price. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 48 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Additional Requirements for Cash-Out Refinance Transactions • A property that was listed for sale within the six months prior to the disbursement date of the new loan is limited to the lower of 70% LTV/CLTV/H(CLTV) or the maximum allowed for the transaction. Property Overlays No manufactured homes. No cooperatives. Resale Restricted Properties – Freddie Mac Fixed Rate loans only Freddie Mac will purchase Mortgages secured by properties subject to resale restrictions including, but not limited to, income-based restrictions and age-based restrictions, if the requirements of this section are met and the restrictions are in compliance with all federal, State and local laws, rules and regulations All applicable requirements, including but not limited to, condo and PUD guidelines must be met. Any right of first refusal must run to the enabling authority or jurisdiction that imposed the resale restrictions re, with a time period not exceeding 90 days from the date of written notice to the authority or jurisdiction that the restricted property is being offered for sale. Requirement to send default or foreclosure notice to any third party is not allowed Properties subject to resale restrictions, except for age restrictions, must have effective resale controls for a fixed period of time. The controls must be administered by a duly authorized authority of the State, local or municipal government or an agent of the authority that has established mechanisms to provide applicant screening and processing on an ongoing basis. Resale controls may not be administered by the developer. Agreements or requirements, i.e., enacted ordinances, statutes, published policies or imposed restrictions, must appear in the public land records in a manner that is discoverable by a routine title search. Resale restrictions must terminate upon foreclosure or deed-in-lieu of foreclosure, with the exception of age-restrictions. Deed restrictions that require payments under certain circumstances or repayment of financial subsidies, must state that the payment obligation is subordinate to the first lien. The appraiser must include at least three comparable sales with similar resale restrictions. Condominiums Pacific Union allows Condominium Approval based upon the applicable GSE (Fannie Mae/Freddie Mac) for the subject loan and Condominium Type. The Condominium Approval Method Table below outlines the allowable methods by Condo Type and identifies any Loan Level Restrictions. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 49 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Condominium Approval Methods • • • Conventional and Freddie products require Freddie approval types. Fannie Only products require Fannie approval types. Additional product restrictions are outlined in the Condominium Approval Method Table below. Condominium Approval Method Table For Conventional Products Condo Type Established Project – Attached Established Project – Attached Established Project – Attached New Project – Attached New Project – Attached 2-4 Unit Projects Fannie Mae Approval Methods and Loan Level Restrictions Limited Review Allowed on Fannie Mae products Max LTV/(H)CLTV: • Principal Residence - ≤80% (Florida1 - ≤75%) • Second Home - ≤75% (Florida1 ≤70%) • Investment Property - Not Allowed Condo Project Manager (CPM) Allowed on Fannie Mae products No restrictions except max LTV/(H)CLTV in Florida1: • Principal Residence - Florida - ≤75% • Second Home - Florida - ≤70% • Investment Property - Not Allowed Lender Full Review Allowed on Fannie Mae products No restrictions except Florida overlays1 Condo Project Manager (CPM) Allowed on Fannie Mae products Loan Level Restrictions: Florida1 – New/Newly Converted Attached Not Allowed Project Eligibility Review Service (PERS) – Pacific Union will not submit projects for PERS approval. Eligible projects must already be PERS approved per the Fannie Mae approval list. Allowed on Fannie Mae products No restrictions except Florida overlays1 Limited, CPM, PERS Allowed on Fannie Mae products Refer to details herein. Florida restrictions vary by review type and Pacific Union Florida overlays apply1 Detached Projects Limited Review - Detached Allowed on Fannie Mae products Projects that merit Fannie Project Eligibility Waiver Allowed on Fannie Mae products Freddie Mac Approval Methods and Loan Level Restrictions Streamlined Review Not allowed on Fannie Mae products Max LTV/(H)CLTV: • Principal Residence - ≤90% (Florida1 - ≤75%) • Second Home - ≤75% (Florida1 ≤70%) • Investment Property - Not Allowed Condo Project Manager (CPM) Reciprocal Not allowed on Fannie Mae products No restrictions except max LTV/(H)CLTV in Florida1: • Principal Residence - Florida - ≤75% • Second Home - Florida - ≤70% • Investment Property - Not Allowed Full Lender Review Not allowed on Fannie Mae products No restrictions except Florida overlays1 Condo Project Manager (CPM) Reciprocal Not allowed on Fannie Mae products Loan Level Restrictions: Florida1 – New/Newly Converted Attached Not Allowed Project Eligibility Review Service (PERS) – Reciprocal Not allowed on Fannie Mae products No 2-4 unit projects No restrictions except Florida overlays1 Full Lender Review - 2-4 Unit Projects Florida1 Not allowed on Fannie Mae products No CPM No PERS Streamlined Review – Detached Not allowed on Fannie Mae products Not Allowed Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 50 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Condominium Approval Method Table For Conventional Products Fannie Mae Approval Methods and Loan Level Restrictions Condo Type Mae Approval Consideration All 1. Florida Overlays Freddie Mac Approval Methods and Loan Level Restrictions Special Approval Designation – Not N/A Allowed Attached Florida condos are subject to the following additional restrictions: • Minimum 700 Credit Score • Maximum 45% DTI • No Investment Properties • Miami-Dade-Broward (in addition to Florida restrictions) Only minor adjustments (10% net/15% gross for each comp sale vs. 15%/25% standard) No evidence of declining markets on appraisal Condominium Type/Status Established Project At least 90% of the total units in the project have been conveyed to the unit purchasers; Project is 100% complete, including all units and common elements; Project is not subject to additional phasing or annexation; and Control of the homeowners’ association has been turned over to the unit owners. If Conventional or Freddie Mac, the following additional requirements must be met: Unit owners must be the sole owners of, and have the right to the use of, the Common Elements including all buildings, roads, parking and Amenities. Common elements, including Amenities such as parking and recreational facilities, must not be subject to a lease between the unit owners or the HOA (as lessee) and the developer or any affiliate of the developer (as lessor). Parking or other Amenities provided under commercial leases or permit arrangements with parties unrelated to the developer are acceptable. New Project Fewer than 90% of total units in project have been conveyed to the unit purchasers other than the developer; Project is not fully completed, such as proposed construction, new construction, or the proposed or incomplete conversion of an existing building to a condo; Project is newly converted or is subject to additional phasing or annexation. Detached Condos (otherwise known as Site Condos) Dwellings that are not attached to another unit. Conversion A project that converts an existing building to a condominium. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 51 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Gut rehabilitations are conversions involving renovation down to the shell of the building, including replacement of all heating, air conditioning, and electrical systems. 2 to 4 Unit Condominium Project A condominium project that contains between 2 to 4 units. Ineligible Projects The project must not be ineligible per the table below. Refer to the Freddie Mac or Fannie Mae Seller Guide(s) for additional information on ineligible projects. Feature Condotels Description Projects managed, operated, advertised or that have characteristics of a hotel or motel, inn, lodge, resort or other type of hospitality entity, even though units individually owned. Such projects may be referred to as "Condotels". Features that could constitute an ineligible project include projects that: Have names that include the word "hotel", "motel", "resort", "inn", "lodge" or other hospitality entity. Include registration services and offer rental of units on a daily basis. Restrict the owner’s ability to occupy the unit. Have mandatory rental pooling agreements that require unit owners to Single Entity Ownership Multi-Dwelling Unit Condos Legal but NonConforming Use Litigation, Arbitration, Mediation or Other Dispute either rent their units or give a management firm control over the occupancy of the units. Such agreements may be between HOA or developer and unit owner in return for a share of the revenue generated, and obligate the unit owner to rent the unit on a seasonal monthly, weekly or daily basis, and may include black-out dates, continuous occupancy limitations, and other such use restrictions. Has an affiliation or agreement with a hotel, resort, motel, inn, lodge or similar type of hospitality entity, and the entity offers rental management or registration services for any unit owner of a unit within the project. Projects where a single entity (the same individual, investor group, partnership, or corporation) owns more than 10% of total units in the project. In projects with fewer than 10 units, no single entity may own more than one unit. Calculation of percentage to: Include: units owned by the developer/sponsor that are currently subject to any lease arrangement, which may or may not contain a provision allowing for the future purchase of the unit (including but not limited to lease-purchase or lease-to-own agreements). Not include: units owned by the developer/sponsor that are vacant and being actively marketed for sale. Projects that permit an owner to hold title to more than one dwelling unit, with ownership of all of their owned units evidenced by a single deed and financed by a single mortgage. If project represents a legal, but non-conforming use of the land, and if zoning regulations prohibit rebuilding the improvements to current density in the event of their partial or full destruction. Any project for which the HOA is named as a party to pending litigation, arbitration, mediation or other disputes, 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. Pending litigation that involves minor matters are not considered Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 52 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Feature Description Non-Incidental Business Operations Common Interest Apartments or Community Apartment Projects Timeshare, Segmented or Fragmented Ownership Projects Houseboat projects Financing Structures Continuing Care Retirement Communities Non-Residential Use Fannie Mae Ineligible ineligible, provided they have no impact on the safety, structural soundness, habitability, or function use of the project. The following are defined as minor matters: 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 associations' insurance. The HOA is named as the plaintiff in a foreclosure action, or as a plaintiff in an action for past due HOA assessments. Issues that the FNMA Project Standards team deems to be minor matters. Projects with non-incidental business operations owned or operated by the HOA such as, but not limited to, a restaurant, a spa and a health club. Common interest apartments or community apartment projects are projects or buildings that are owned by several owners as tenants-in-common or by a HOA in which individuals have an undivided interest in a residential apartment building, including the units, and land, and may or may not have the right of exclusive occupancy of a specific apartment in the building. Ownership that is limited to a specific period on a recurring basis such as the 15th week of the year, or ownership that is for a limited period such as for the subsequent five years. A project comprised of boats that have been designed or modified to be used as primarily as a dwelling. New projects where the seller is offering sale/financing structures in excess of FNMA’s or FHLMC’s eligibility policies for individual loans. These excessive structures include, but are not limited to, builder/developer contributions and any contribution not disclosed on the HUD-1. Examples include but are not limited to rent-backs or leasebacks, payments of principal, interest, taxes and insurance (PITI) or HOA assessments for any period of time, and undisclosed contributions. Continuing Care Retirement Communities, also known as Life-Care facilities, which are distinguished from age-restricted communities in that residences contract in advance for a lifetime commitment from the facility to care for them. Projects where more than 20% of the total space is used for non-residential purposes. Any project where Fannie Mae has issued a ‘Guide Ineligible’ determination in CPM or any other project ineligible determination. Project Review Type – Documentation Required Project Review Type Condo Project Approvals – Pacific Union List Project Eligibility Review Services (PERS) Note: Pacific Union will not submit projects for PERS approval. Eligible projects must already be PERS approved per the Fannie Documentation Required Condo Questionnaire2 Appraisal Preliminary Title Report Declaration Page for Master Insurance Policy1 Screen print from Fannie Mae’s web site Condo Questionnaire2 Appraisal Preliminary Title Report Declaration Page for Master Insurance Policy1 Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 53 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Project Review Type Mae approval list. Limited/Streamline Review Documentation Required Condo Questionnaire2 Appraisal Preliminary Title Report Declaration Page for Master Insurance Policy1 Lender Full Review Condo Questionnaire2 Appraisal Preliminary Title Report Declaration Page for Master Insurance Policy1 Budget Condo Project Manager (CPM) Condo Questionnaire2 Appraisal Preliminary Title Report Declaration Page for Master Insurance Policy1 Budget CC&Rs and Bylaws Project Waiver Exception Condo Questionnaire2 Appraisal Preliminary Title Report Declaration Page for Master Insurance Policy1 Budget CC&Rs and Bylaws $200 fee 1. If the Declarations Page of the Master Insurance Policy does not provide sufficient details regarding the project’s insurance coverage, a copy of the original insurance policy with all endorsements must be provided. 2. Pacific Union recommends the PacUnion Condo Certification Questionnaire be used. However, alternative versions permitted provided the questionnaire covers sufficient information for the reviewer to determine the projects eligibility. Florida Condos Attached Florida condos are subject to the following restrictions: Minimum 700 credit score. Maximum 45% DTI ratio. No investment properties Miami-Dade-Broward (in addition to Florida restrictions: Only minor adjustments (10% net/15% gross for each comp sale vs. 15%/25% standard) No evidence of declining markets on appraisal Debt to Income Ratios/Qualifying Qualifying Rate Fixed Rate: Qualify at note rate 5/1 ARM: Qualify at the greater of the note rate plus 2% or the fully indexed rate 7/1 ARM: Loan Prospector (LP) (excluding HPMLs): Qualify at Note Rate. Qualify at the greater of the fully indexed rate or the note rate. In order for the fully indexed rate to be determined, the index and margin must be entered in DU. If the index and margin are not entered, DU loans Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 54 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC will receive an Ineligible recommendation and a message will be issued advising the user that the index and margin must be entered and the loan must be resubmitted to DU. Note: The following states require qualifying at the fully indexed rate on all ARM products. For these states, the 7/1 ARM must be qualified at the greater of the note rate or the fully indexed rate in order to meet both agency and state requirements: Illinois Maryland Minnesota New Mexico Pennsylvania Vermont Maximum Debt to Income Ratio (DTI) Per LP or DU with a maximum of 50%. Loans with LTV >80% must meet Mortgage Insurance provider guidelines. Higher-Priced Mortgage Loans (HPMLs) and HPML Qualified Mortgages HPMLs and HPML Qualified Mortgages (QM) are loans secured by the borrower’s primary residence, second home or investment property that are priced at an Annual Percentage Rate (APR) that exceeds the Average Prime Offer Rate (APOR). Based on the date the interest rate is set (locked or re-locked), the APR must be compared with the APOR index. The loan will be considered an HPML if the APR exceeds the index by 1.5% or more. HPMLs and HPML QMs may be eligible subject to the following: Borrower’s ability to repay is established and income and assets have been fully documented; The qualifying rate for an ARM loan with initial adjustment period within the first seven years of the mortgage are qualified at the higher of the fully indexed rate or the note rate; and An escrow account for taxes and insurance is established. For projects such as condominiums and PUDs where the property insurance is collected as part of the borrower’s HOA fee and remitted by the HOA to the insurance provider, the escrow account must be established for taxes and if applicable any mortgage insurance and any individual homeowner’s insurance policy. Geographic Restrictions Texas Cash-Out: Refer to Texas Home Equity Program Guidelines. Refer to the Geographic Matrix for additional restrictions. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 55 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Income and Employment Income and Employment must be documented in accordance with: Loan Prospector (LP) Feedback Certificate and/or the Loan Prospector Documentation Matrix. Desktop Underwriter (DU) Findings report Freddie Mac or Fannie Mae Seller Guide(s) Specific requirements for certain employment and income types are detailed below. Assets as a Basis for Mortgage Qualification For purchase and Rate/Term refinance transactions only, certain assets may be used to qualify the borrower subject to the following requirements: Allowed on 1 unit Primary Residence and Second Home. Maximum 70% LTV/(H)CLTV. Refer to the table below for eligible asset types and requirements. The borrower must not currently be using the assets as a source of income. Use 70% of the balance of the eligible asset less any funds from the account that are being used for loan closing, divided by 360 (regardless of term of loan). Asset Type Retirement Accounts Lump-sum distribution funds not deposited to an eligible retirement account Assets from the sale of the borrower’s business Requirements • The assets must be in a retirement account recognized by the IRS such as a 401(k) or IRA. • The borrower(s) must be the sole owner of the account. • The account must be immediately accessible in its entirety. • Account funds must not be subject to a penalty • The borrower must be fully vested in the account funds • Lump-sum distribution funds must be derived from a retirement account recognized by the IRS such as a 401(k) or IRA, and must be deposited to a non-retirement brokerage or depository account. • Borrower(s) must have been the recipient of the lump-sum distribution funds. • Parties not obligated on the mortgage may not have an ownership interest in the account that holds the funds from the lump-sum distribution. • The proceeds from the lump-sum distribution must be immediately accessible in their entirety. • The proceeds from the lump-sum distribution must not have been or currently be subject to a penalty. • The borrower(s) must be the sole owner of the proceeds from the sale of the business that were deposited to a non-retirement brokerage or depository account. • Parties not obligated on the mortgage may not have an ownership interest in the account that holds the funds from the sale of the business. • The sale of the business must not have resulted in the following: retention of business assets, existing secured or unsecured debt, ownership interest or sellerheld notes to the buyer of the business. Automobile Allowance The borrower must have a consecutive two-year history of receiving an automobile allowance and the income must be likely to continue for the next three years. The full amount of the auto allowance may be added to the borrower’s qualifying income. When calculating the DTI ratio, the full amount of the monthly automobile financing expense must Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 56 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC be included in the calculation of the monthly DTI ratio. The auto allowance may not be deducted from the monthly automobile financing expense. Desktop Underwriter (DU) Fannie Mae allows two methods of calculating the income associated with an automobile allowance: • Actual cash flow approach: If the borrower reports auto allowances on Employee Business Expense (Form 2106), or IRS Form 1040, Schedule C: Funds in excess of the borrower’s monthly expenditures are added to the borrower’s monthly income, or Expenses in excess of the monthly allowance are included in the borrower’s total monthly obligations. If the borrower used Form 2106 and recognized “actual expenses” instead of the “standard mileage rate”, the “actual expenses” must be used to identify the borrower’s actual lease payments and make appropriate adjustments. • Income and debt approach: If the borrower does not report the allowance on either Form 2106 or Schedule C, the full amount of the allowance is added to the borrower’s monthly income, and the full amount of the lease or loan payment for the automobile is added to the borrower’s total monthly obligations. Borrower Employed by a Family Member or Party to the Transaction If the borrower is employed by a relative, a closely held family business, the property seller, or any party to the transaction, the following documentation is required: Borrower’s signed and completed personal federal tax returns for the most recent two years Written Verification of Employment, and W-2s for the most recent two years Current income reported on the VOE or paystub may be used if it is consistent with W-2 earnings reports on the tax returns. If the income is not reflected on the tax returns or the reported income is substantially lower than the income reflected on the VOE or paystubs, further investigation is needed to determine whether the income is stable. Capital Gains Income Loan Prospector (LP) • Document a two-year history of capital gains income by obtaining copies of the borrower’s signed federal income tax returns (including Schedule D) for the most recent two years. • Requires documentation of sufficient assets remaining after closing to support continuance of the capital gain income, at the level used for qualifying, for at least the next three years. Desktop Underwriter (DU) • Document a two-year history of capital gains income by obtaining copies of the borrower’s signed federal income tax returns (including Schedule D) for the most recent two years. • Develop an average income from the last two years and use the averaged amount as part of the borrower’s qualifying income as long as the borrower provides current evidence that he or she owns additional property or assets that can be sold if extra income is needed to make future mortgage loan payments. • Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring. • Due to the nature of this income, current receipt of the income is not required to comply with Age of Documents Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 57 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC requirements; however, documentation of the asset ownership must meet Age of Documents. Child Support, Alimony, Separate Maintenance May be considered in qualifying income if the income has been received for the most recent six months and the payor is obligated to make the payment for at least the next three years. The income may not be used for qualifying if: Received for less than six months, or Payments have not been received on a consistent basis, Payments have been made in less than the full amount due. Documentation Requirements Copy of divorce decree or separation agreement (if the divorce is not final) indicating payment of alimony or child support and stating the amount of the award and the period of time over which it will be received. or Other type of written legal agreement or court decree describing the payment terms for the income, or Documentation verifying any applicable state law that mandates alimony, child support, or separate maintenance payments, and specifying the conditions under which the payments must be made. Evidence payments have been received for at least 6 months. If a borrower who is separated does not have a legal separation agreement that specifies alimony or child support payments, the income may not be used in qualifying. Commission Income The borrower should have a two-year consecutive history of receiving commission income and the commission income must be likely to continue for the next three years in order to consider the income for qualifying. Employee paid business expenses reflected on the borrower's tax returns must be deducted from the borrower's gross commission income when calculating income. The income must be averaged over the previous two years. Loan Prospector (LP) • Must have a two year consecutive history of receipt to use as qualifying income. To document, obtain the following: Written VOE covering the most recent two years, and Signed individual federal tax returns for the most recent 2 years, OR Most recent YTD paystub documenting at least 30 days of income. W-2s and/or 1099s covering the most recent two years. Complete signed individual federal tax returns for the most recent two years. Desktop Underwriter (DU) • A minimum history of two years of commission income is recommended; however, commission income that has been received for 12 to 24 months may be considered as acceptable income, as long as there are positive factors to reasonably offset the shorter income history. • If the commission income represents less than 25% of the total annual employment income, obtain the following documents: Written Verification of Employment, or Recent paystub and W2’s covering the most recent two years. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 58 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Loan Prospector (LP) • Commission income showing a decrease from one year to the next requires significant compensating factors in order to use the income and if used, must be averaged over the most recent 12 month period. Desktop Underwriter (DU) • If the commission income represents more than 25% of the total annual employment income, obtain the following documents: Personal tax return s for the last two years, and Written Verification of Employment, or Recent paystub and W2’s covering the most recent two years. Continuity of Income Unless there is information to the contrary, if the income does not have a defined expiration date and the history of receipt of the income is documented, it may be concluded that the income is stable, predictable, and likely to continue, and additional documentation to support continuity is not required. If the income source does have a define expiration date or is dependent on the depletion of an asset account or other limited benefit, documentation of the continuation of the income for at least three years is required. The following table will assist in determining whether additional income documentation may be required to support a three year continuance. Assume Continuation of Income Is Likely • • • • • • • • • • • • • • Automobile allowance Base salary Bonus, overtime, commission, or tip income Capital gains income Corporate retirement or pension Disability income (long‐ter m) Foster care income Interest and dividend income (unless provided evidence of depletion) Military income Mortgage credit certificates Part-time job, second job, or seasonal income Rental income Self-employment income Social Security, VA, or other government retirement (excluding SSI benefits paid from another parties account). Provide Defined > 3 ‐Y e • Alimony or child support • Distributions from a retirement account – for example, 401(k), IRA, SEP, Keogh • Mortgage differential payments • Notes receivable • Public assistance • Royalty payment income • Social Security (not including retirement or long term disability) • SSI benefits paid from another parties account • Trust income • VA benefits (not including retirement or long term disability Employment Offers or Contracts – Desktop Underwriter (DU) only If the borrower is scheduled to begin employment after the loan closes, the borrower’s offer letter or contract for employment may be used to underwrite and close the loan. The start of employment and the receipt of the income must be documented prior to the delivery of the loan. The borrower’s employment and income history must be documented per the DU Findings. The file must include a copy of the signed offer or contract for future employment and anticipated income. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 59 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Foreign Income – Desktop Underwriter (DU) only Borrowers who are employed by a foreign corporation or foreign government and are paid in foreign income or foreign currency are eligible subject to the following: The file must include signed copies of the borrower’s federal tax returns for the most recent two years and the foreign income must be reflected on the returns. Income must be documented per standard income documentation requirements. All income must be translated into U.S. dollars. Foster Care Income Loan Prospector (LP) • Foster-care income may be considered qualifying income if the income is received from a state- or county-sponsored organization and the Borrower has a twoyear history of providing foster-care services. Foster care income must be likely to continue for the next three years. • Provide proof of receipt of the income for the most recent two year period. Desktop Underwriter (DU) Income received from a state or county sponsored organization may be considered if the following requirements are met: • Document the income with letters of verification from the organizations providing the income. • Document that the borrower has a two year history of receiving the income. If the borrower has not been receiving the income for two full years, the income may still be used as stable income if: The borrower has at least a 12 month history of providing foster care services, and The income does not represent more than 30% of the total gross income used to qualify for the loan. Housing or Parsonage Allowance Non-military housing or parsonage allowance may be considered in qualifying income if receipt of the income is documented for the most recent twelve months and the allowance is likely to continue for the next three years. The housing allowance may not be used to offset the monthly housing payment. IRS Form 4506-T A fully completed 4506-T is required for all borrowers at application and at closing. Tax return transcripts must be provided for each year of income documentation. Income reported on the transcript must support the income entered in LP or DU. Any major discrepancies between the income verified in the file and tax transcripts must be reasonable and supported by documentation in the file. Long-term Disability Income Social Security disability, VA disability compensation, worker’s compensation, private disability insurance, and other types of long-term disability may be considered in qualifying income with a reasonable expectation of continuance unless there is a pre-determined expiration that is less than three years. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 60 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Pending or current re-evaluation of medical eligibility for benefits is not considered an indication that the benefit payment will not continue. Evidence of the source, amount, insurance or benefit type, and consistent receipt for the most recent two months is required. Mortgage Differential Payments A payment from the borrower's employer for all or part of the interest differential between the borrower's present and proposed mortgage payment may be considered qualifying income if the documentation shows that the payments are pursuant to an established, ongoing and documented employer program. The employer must not be an interested party to the transaction and the payment must be likely to continue for the next three years. For a purchase transaction, a history of receipt is not required for the income to be considered stable. Newly Employed Borrowers If a borrower has less than a two year history of employment and income, the borrower’s income may be considered in qualifying income if the file includes documentation to support that the borrower was either attending school or in a training program immediately prior to the current employment history. Non-Taxable Income If a particular source of regular income is not subject to federal taxes, the amount of continuing tax savings attributable to the non-taxable income source may be added to the borrower's gross income. The tax rate used to calculate last year's income tax for the borrower should be used. If the borrower is not required to file a federal income tax return, the tax rate to use is 25 percent. Notes Receivable Income from Notes Receivable may be considered in qualifying income subject to the following: Copy of Note to establish the amount and length of payment. Evidence that the payment will continue for three years. Documentation of receipt of the payment for the most recent twelve months. Note receivable income received for less than twelve months is not eligible. Re-entering the Workforce – Loan Prospector (LP) only Income from a borrower who is re-entering the workforce and has less than a two year history of employment and income may be considered in qualifying income subject to the following: Borrower must have been with current employer for a minimum of six months, and The file must include documentation of previous employment prior to the borrower exiting the workforce. Freddie Mac program only Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 61 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Rental Income Rental income may be used to qualify the borrower, subject to the following and the requirements of the applicable Seller Guide. Rental income may be generated from: A subject 1-unit Primary Residence. A subject 2- to 4-unit Primary Residence. A subject 1- to 4-unit Investment Property. Investment property owned by the borrower other than the subject property. Refer to the Rental Income Matrix below for requirements when using rental income. If the borrower owned a rental property during the previous tax year, the borrower's individual federal income tax returns must be obtained to determine the net rental income or loss for qualifying. In some instances, the income reported on the borrower's individual federal tax returns may not reflect the property's current rental value (i.e., the tax returns show large one-time expenses or the property was under renovation). In these instances, individual federal tax returns must be obtained. The file must include an explanation of the reasons for not using the income or loss from the individual federal tax returns to determine rental income. See Sale or Conversion of Primary Residence Rental Income from a Subject 1- unit Primary Residence Rental income generated from the borrower’s 1-unit Primary Residence may be used to qualify a borrower with a disability if the rental income is from a live-in aide. Typically, a live-in aide will receive room and board payments through Medicaid from which rental payments are made to the borrower. This income may be considered as stable monthly income if: The borrower has received regular rental payments from a live-in aide for the past 12 months, and The live-in aide plans to continue to reside with the borrower for the foreseeable future. The rental income may not exceed 30% of the total gross income used to qualify the borrower. Rental income from a borrower’s 1-unit Primary Residence or Second Home may not be considered in qualifying income unless it meets the guidelines above. Rental Income Matrix Rental Income from: Topic Rental Income used for Qualifying Subject 2-4 Unit Primary Residence Subject 1-4 unit Investment Property • Use the following to determine and document income: Prior year tax return if reported on Schedule E and borrower has owned the property for at least one year, and Investment Property other than the Subject Property • Use the following to determine and document income: Schedule E of the Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 62 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Rental Income from: Topic Purposes Subject 2-4 Unit Primary Residence Subject 1-4 unit Investment Property Form 216/998, Operating Income Statement Fannie Mae also requires: Form 1007, Comparable Rent Schedule • Rental income must be substantiated with using: Income approach on the appraisal, and Copy of the current lease(s) if applicable • Negative net rental income from Schedule E or negative Net Cash Flow from Form 216/998 must be considered a liability for qualifying purposes. Form 216/998 Positive net rental income from Schedule E of the borrower’s tax returns or positive Net Cash Flow from Form 216/998 may be considered stable monthly income, provided the borrower meets reserve requirements and the income approach on the appraisal and copies of current leases substantiate the rental income used to qualify the borrower. Positive net rental income from Schedule E of the borrower’s tax returns or positive Net Cash Flow from Form 216/998 may be considered stable monthly income, provided the borrower meets reserve requirements and demonstrates at least a 2-year history of managing 1-to-4 unit investment properties and the income approach on the appraisal and copies of current leases substantiate the rental income used to qualify the borrower. Not required if: • Rental income from the subject property is not Not required if: • Rental income from the subject property is not used in qualifying (borrower qualifies with the full PITI plus operating expenses), or Investment Property other than the Subject Property tax returns to determine the net rental income when rental income from other properties owned by the borrower in the previous tax year is reported on the borrower’s individual federal tax returns, or Verified net rental income from signed lease(s) may be used to determine the net rental income for an Investment Property not owned during the previous year if the borrower’s federal income tax returns reflect a two-history of managing investment properties. • 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. • Aggregate net rental loss from Investment Properties and 2- to 4-unit Primary Residences must be considered a liability for qualification purposes. • Not required Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 63 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Rental Income from: Topic Federal Tax Return Appraisal Reserves Rent Loss Insurance Signed Lease(s) Subject 2-4 Unit Primary Residence Subject 1-4 unit Investment Property used in • Borrower has owned the subject qualifying property for at least one year and (borrower reports income on Schedule E. qualifies with the full PITI), or • Borrower has owned the subject property for at least one year and reports income on Schedule E. Required if: • Rental income is used to qualify, and • The borrower has owned the subject property less than one year, and/or does not report rental income on Schedule E. If borrower owned rental property during the previous tax year, provide complete federal income tax returns to determine the net rental income or loss for qualifying. The rental income or loss from the borrower’s individual tax returns must be used unless there are reasons for not using the income or loss from the tax returns to determine rental income (e.g., tax returns show large one-time expenses, or the borrower documents and explains that the property was under renovation). The income approach on the appraisal must substantiate the rental income used for qualifying. See Cash Reserves Not required Required on loans evaluated using LP when rental income is used to qualify. Rent loss insurance is not required if evaluated using DU. Current leases, by themselves, may not be used for documenting stable monthly income for qualifying purposes; however, the leases must support the rental income used to qualify. Investment Property other than the Subject Property Federal Tax Return Not applicable Not required • May be used to document stable monthly income if the borrower did not own the property in the previous tax year. See Rental Income used for Qualifying Purposes for specific requirements. • Signed leases may also be used to substantiate gross rents that are higher than the rental Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 64 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Rental Income from: Topic Experience Managing Rental Properties Subject 2-4 Unit Primary Residence Not required Subject 1-4 unit Investment Property The borrower must demonstrate at least a 2-year history of managing 1to 4-unit Investment Properties if rental income is considered in qualifying the borrower. Investment Property other than the Subject Property income documented on the tax returns; however, no more than 75% of the gross rental income from the signed leases may be used, unless the prior two years’ individual federal tax returns clearly support the use of a higher percentage. Not required (see Note 4 below) Note: Not required if evaluated through DU. Additional Notes: 1. Rental income from the borrower’s 1-unit Primary Residence or Second Home is not considered stable monthly income and may not be used to qualify the borrower. Exceptions permitted for the borrower’s 1 unit Primary Residence if the borrower is disabled and the rental income is from a live-in aide. 2. Positive net rental income may be entered in “Gross Monthly Income” in Section V of Form 65. Aggregate net rental loss must be included as a liability. 3. If borrower is converting a Primary Residence to an Investment Property, refer to topic in the program guidelines for additional requirements. 4. 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, include 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-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. Retirement, Government Annuity and Pension Income May be considered in qualifying income if the file contains evidence of the type and source of the retirement income. Loan file must be documented per LP or DU requirements. Loan Prospector (LP) Obtain the following: • Copy of the award letter, 1099 or equivalent documentation showing income type, source, amount, and • Most recent 2 months bank statements or other equivalent documentation evidencing Desktop Underwriter (DU) • Document regular and continued receipt of the income, as verified by one of the following: Letter from the organization providing the income Copy of retirement award letter(s) Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 65 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Loan Prospector (LP) consistent receipt of the retirement income. Desktop Underwriter (DU) Copy of signed federal tax returns IRS W-2 or 1099 Proof of current receipt • If the retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application. In addition: The borrower must have unrestricted access without penalty to the accounts, and If the assets are in the form of stocks, bonds, or mutual funds, 70% of the value (remaining after any applicable costs for the subject transaction) must be used to determine the number of distributions remaining. Royalty Income Loan Prospector (LP) • May be considered qualifying income if the file contains evidence that the borrower has received payments on a regular basis for the most recent 12 months and the royalty payments are likely to continue for the next three years. • The file must include a copy of the borrower’s most recent tax return, including Schedule E. Desktop Underwriter (DU) • Provide copies of the royalty contract, agreement, or statement confirming amount, frequency, and duration of the income, and • Signed most recent signed tax return, including Schedule E. • Confirm that the royalty payments have been received for at least 12 months and that the payments will continue for a minimum of three years after the application date. Seasonal Employment and Unemployment Compensation Borrower must have a consecutive two year history of receiving income from seasonal employment. The two year history must be with the same employer or in the same line of work. Income from the seasonal employment must be likely to continue for the next three years. Unemployment Compensation from Seasonal Employment Unemployment compensation associated with seasonal employment may be used in qualifying income if the borrower has a two year history of receiving such income, and the income must be likely to continue for the next three years. Income from seasonal employment may not be considered if it is not reported on the borrower’s federal tax return for the last two years. Secondary / Part-time Employment Borrower must have a consecutive two year history of receiving uninterrupted income from a second or additional job. The income trend from a second or additional job must be evaluated. Only income that is likely to continue for the next three years may be used for qualifying. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 66 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC A two year history that includes multiple employers is acceptable provided the secondary income has been stable and uninterrupted. Self-Employed Borrowers A borrower who owns 25% or more of a business is considered self-employed. May be considered if the borrower has been self-employed for two years or more. If self-employed more than 12 months but less than two years, the borrower must have a minimum of two years of employment in the same line of work. A combination of one year of work and formal education or training in the same line of work is also acceptable. Borrowers who have been self-employed for less than one year are not eligible. Borrowers who own more than 25% of a business must be submitted to LP and DU as “self-employed”, regardless of whether income from self-employment is used for qualifying, and the self-employed borrower’s individual tax returns must be provided. If the tax returns reflect a significant business loss, the underwriter must evaluate the impact of the loss on borrower qualification. See Business Accounts for self-employed borrower using business assets for closing/reserves. Loan Prospector (LP) If the Borrower is self-employed and the selfemployment income is not used to qualify, the borrower's individual federal tax returns must be obtained to determine if there is a business loss that may have an impact on the stable monthly income used for qualifying. If a business loss is reported on the borrower's individual federal tax returns, the underwriter may need to obtain additional documentation in order to fully evaluate the impact of a business loss on the income used for qualifying. Desktop Underwriter (DU) When a salaried borrower and a selfemployed co-borrower jointly apply for a mortgage and the self-employed coborrower’s income will not be used for qualifying, the self-employed co-borrower may provide a copy of the first page of his or her latest individual federal income tax return. This documentation will be used to determine whether there was a meaningful business loss. The underwriter may decide that it needs to request additional information about the self-employed coborrower’s business income in order to reach a final underwriting decision. Documentation Requirements • • Refer to the Freddie Mac or Fannie Mae Seller Guide(s) for additional details. Freddie Mac Form 91 (Income Analysis) or Fannie Mae Form 1084 (Cash Flow Analysis) should be completed for all self-employed borrowers. Business Tax Returns Desktop Underwriter (DU) • DU will require two years of the most recent signed personal and two years of the most recent signed business federal income tax returns. Business tax returns do not have to be provided unless the business is a corporation, an S corporation, a limited liability company, or a partnership. • The requirement for business tax returns may be waived if: The borrower is paying the down payment and closing costs from own funds, The borrower has been self-employed in the same business for at least five years, and The borrower’s individual tax returns show an increase in self-employment income over the past two years. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 67 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC • When business tax returns are required, a written analysis of the business income must be included in the file. Form 1088 (Fannie Mae Comparative Income Analysis) may be used for this purpose. Income Calculation If a borrower provides quarterly tax returns, the income analysis may include income through the period covered by the tax filings If the borrower is not subject to quarterly tax returns, or does not file them, the income shown on the Profit and Loss (P&L) statement may be included in the analysis, provided the income stream based on the P&L is consistent with the previous years’ earnings. If the P&L statement shows an income stream greater than what is supported by the tax returns, and the higher income is used in the income calculation, the borrower must provide an audited P&L statement. If the earnings trend for the previous two years is declining and the most recent tax return or P&L is less than the income from the previous year’s tax return, the borrower’s most recent year’s tax return or P&L must be used to calculate his/her income. Significant Increase or Decrease in Income Level When a borrower has a significant increase or decrease income, analysis of qualifying income must focus on the most recent earnings and the income that is most likely to be received at the level used for qualifying. Decrease in Income When the borrower has a significant decrease in income, the income may not be averaged using a previous higher level unless documentation supports a one-time occurrence (such as an injury) that prevented the borrower from working or earning full income for a period of time. Evidence must be provided to show that the borrower has returned to the income amount that was previously earned. Increase in Income When the borrower has experienced a significant increase in income, the higher amount may be used in determining qualifying income only if documentation is provided to support use of the income. Documentation must reflect that the increase is stable and likely to continue, and is not a one-time occurrence. Social Security Income Document regular receipt of payments, depending on the type of benefit and the relationship to the beneficiary, as follows: Loan Prospector (LP) and Desktop Underwriter (DU) Income is from borrower’s Income is from another Type of Benefit own account/work record person’s account/work record Retirement Disability • Award Letter, W-2, or equivalent documentation showing income type, source, • Award Letter, or • The most recent two months bank statements or equivalent Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 68 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC and amount, and • The most recent two months Survivor Benefits Supplemental Security Income (SSI) bank statements or equivalent documentation evidencing current receipt (see Desktop Underwriter notes below). N/A • Award Letter, and • The most recent two months bank statements or equivalent documentation evidencing current receipt. documentation evidencing current receipt, and • Three year continuance (e.g., verification of beneficiary’s age) N/A Loan Prospector: Pending or current re-evaluation of medical eligibility for insurance and/or benefit payments is not considered an indication that the insurance and/or benefit payment will not continue. Desktop Underwriter: • When the borrower is drawing benefits from his/her own record, evidence of receipt of the income is not required provided the loan file includes a current Award Letter, • Social Security Income for retirement or long-term disability that the borrower is drawing from his/her own work record will have a defined expiration date and must be expected to continue. If the benefits are being paid to the borrower as a benefit for a family member, evidence must be provided to confirm that the income will continue for at least three years. Stable Monthly Income Stable monthly income is the borrower’s verified gross monthly income that can reasonably be expected to continue for at least the next three years. In most cases, a two year history of receiving income is required in order to use the income for qualifying. When the borrower has less than a two year history of receiving income, the lender must provide a written analysis to justify the determination that the income that is used to qualify the borrower is stable. Temporary Leave Income Temporary leave may include family and medical leave, short term disability, maternity leave, or other forms of temporary leave, with or without pay. During a temporary leave, a borrower’s income may be reduced or completely interrupted. It must be determined that during and after the temporary leave, the borrower has the capacity to repay the mortgage and all other monthly obligations. The following guidelines apply if the borrower will be on temporary leave at the time of the closing of the mortgage loan and the borrower’s income is needed to qualify: The borrower’s employment and income history must meet standard eligibility requirements. The borrower must provide written confirmation of his/her intent to return to work and the agreed upon date of return. The agreed upon date of return must be documented by the employer or a designee of the employer (such as a third party used to administer employee leave). A verbal Verification of Employment must be obtained. If the employer confirms that the borrower is currently on temporary leave, the borrower is considered to be employed. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 69 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC The borrower’s income must be verified in accordance with standard requirements. The following information must be obtained: The amount and duration of the temporary leave income, which may require multiple documents or sources depending in the type and duration of the leave period, and The amount of the “regular employment income” the borrower received prior to the temporary leave. This may include base pay, commissions, bonuses, overtime, etc. Determining Qualifying Income and Borrower Capacity to Repay For borrowers returning to their current employer as of the first payment due date for the new mortgage, the regular gross monthly income amount that the borrower was receiving prior to the temporary leave may be used for qualifying. For borrowers returning to their current employer after the first payment due date for the new mortgage, the amount of income that will be received when the borrower returns to work must be determined, taking into consideration any temporary reductions in income, as follows: The borrower’s gross monthly income amount that is being received while the borrower is on temporary leave. If the income has been reduced or interrupted, the borrower may be qualified with the monthly reduced income (this may be zero) amount being received for the duration of the leave combined with the borrower’s available liquid assets, as necessary. Available liquid assets may be used as a partial or complete income supplement up to the amount of the income reduction. The total qualifying income may not exceed the gross monthly income that will be received when the borrower returns to the current employer. Assets that are being used for Funds to Close may not be considered as available assets. Documentation Requirements The following documentation is required for borrowers on temporary leave: Verification of the borrower’s pre-leave income and employment, regardless of leave status. Documentation from current employer confirming the borrower’s statutory right to return to work (or the employer’s commitment to permit the borrower to return to work), the confirmed date of return, and the borrower’s post-leave employment and income. Written statement signed by the borrower confirming that the borrower will return to work for current employer and stating the confirmed date of return that has been agreed upon between the borrower and the employer. In addition to the above, the following documentation is required when the borrower will return to work for the current employer after the first mortgage payment due date: Documentation evidencing the amount, duration and consistency of all temporary leave income sources being used to qualify the borrower (such as short-term disability benefits or insurance, sick leave benefits, and temporarily Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 70 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC reduced income from employer) that are being received during the temporary leave. All available liquid assets used to supplement the reduced income for the duration of the temporary leave must meet the requirements of and be verified in accordance with the LP or DU requirements and the Seller Guide(s). A written rationale explaining the analysis used to determine the qualifying income, regardless of the underwriting path. Loan Prospector and Desktop Underwriter: Documentation concerning the timing of the borrower’s return to work may be provided directly by the borrower or by the employer. This documentation may include previous correspondence between the employer (or its designee, if applicable) and is not required to comply with Age of Docs requirements. Trust Income Verify trust income by obtaining a copy of the Trust Agreement or the Trustee’s statement confirming the amount, frequency, and duration of payments. Verify that the trust income will continue for at least three years from the date of the loan application. Loan Prospector (LP) A history of receipt is not required for the income to be considered stable; however, the trust income must be likely to continue for the next three years. Desktop Underwriter (DU) Unless this income is received monthly, documentation of current receipt of the income is not required. Verification of Employment (VOE) • • • • VOEs must be on a standard verification form and must be sent directly from the loan originator to the employer and returned directly from that entity. Faxed verification forms are acceptable if it is clear from the document that the information was sent by fax transmission directly from the source to the originator. The original documents must not contain any alterations, erasures, correction fluid or correction tape. The loan file must include legible copies of the originals. Verbal VOE Verbal VOE must be completed by Pacific Union Financial closer within five business days of closing. Verbal VOE for Self-Employed Income: The existence of the borrower’s business must be verified within 30 calendar days prior to the Note Date as follows: From a third party, such as a CPA, regulatory agency, or the applicable licensing bureau, or By verifying a phone number and address for the business using a telephone book, the Internet, or directory assistance. The source of the information and the name and title of the person obtaining the verification must be documented. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 71 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Desktop Underwriter (DU) Verbal VOE for military personnel • In lieu of a verbal VOE, the following documentation must be obtained: A military Leave and Earnings Statement (LES) dated within 30 calendar days prior to the Note Date, or A VOE through the Defense Manpower Data Center. Liabilities Alimony, Child Support or Separate Maintenance Payments Must be included in debt-to-income ratio if more than ten payments remain. Business Debt in Borrower’s Name A personal debt that appears on the borrower’s credit report but is paid by the borrower’s company may be excluded from DTI ratios subject to the following: The account does not have a history of delinquency, and The business provides acceptable evidence that the obligation was paid out of company funds (such as 12 months canceled checks), and The cash flow analysis of the business took the payment into consideration The account payment does need to be considered as part of the borrower’s individual recurring monthly debt obligations in any of the following situations: The business does not provide sufficient evidence that the obligation was paid out of company funds The cash flow analysis does not reflect any business expense related to the obligation (such as an interest expense—and 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 reasonable to assume that the obligation has not been accounted for in the cash flow analysis. The account reflects a history of delinquency. If the debt is included in the DTI ratios, the net income of the business should be adjusted by the amount of interest, taxes, or insurance expense, if any, that relates to the account in order to avoid counting the debt twice. Contingent Liability If the borrower is a Co-signor or Guarantor on any debt (including mortgage debt), the payment must be included in the monthly debt-to-income ratio, unless: Documentation is provided to show that the other party is making timely payments on the debt. Twelve months cancelled checks or a statement from the creditor must be provided to show that the other party is making the payments. Evidence of timely payments may be provided through verification on the credit report or direct verification with the creditor. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 72 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC If evidence of payments by another party obligated on the debt cannot be provided, or if the payments have not been made in a timely manner over the most recent 12 months, the debt must be included. Desktop Underwriter only: The underwriter may consider a payment history less than 12 months on a case by case basis. If the borrower is listed as the borrower on a mortgage that has been assumed by another party, the file must include documents transferring the property and any assumption agreement by the transferee. As long as the borrower no longer owns the property, the contingent liability may be disregarded, without documenting the most recent 12 month payment history. Court Ordered Assignment of Debt The contingent liability on a secured debt or Mortgage may be disregarded and the documentation of the most recent 12 month’s payment history is not required, if the obligation to make the payments on a debt of the borrower: Has been assigned to another party by court order, such as a divorce decree, and The assignment of debt is documented with applicable pages of the divorce decree or legal separation agreement, and Loan Prospector only: The transfer of title is documented. Debt Secured by Financial Assets Payment on installment debt secured by financial assets, in which repayment may be obtained by liquidating the asset, may be excluded from the monthly debt-toincome ratio for qualifying purposes. The loan secured by the financial asset must have been made by a financial institution. Deferred Payments (includes Deferred Student Loans) • Deferred installment debts, such as deferred student loans, must be included as part of the borrower’s monthly debt obligations. If the borrower’s credit report does not indicate the monthly payment amount at the end of the deferment period, payment letters or forbearance agreements may be provided. Exception: For a student loan, in lieu of obtaining copies of payment letters or forbearance agreements, a monthly payment may be calculated using no less than 2% of the outstanding balance. However, if any documentation is obtained that indicates the actual monthly payment, that figure must be used in qualifying the borrower. Installment Debt Installment debt with less than ten payments remaining may be excluded from debt-toincome ratios. An installment debt with less than ten monthly payments remaining should be considered as a recurring monthly debt if it significantly affects the borrower’s ability to meet credit obligations. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 73 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Lease Payments Automobile lease payments must always be included in qualifying ratios regardless of the number of months remaining on the lease contract. Open-End (30 day) Accounts Open 30-day charge accounts require the balance to be paid in full each month. Loan Prospector (LP) Open-end accounts do not have to be included in the monthly debt payment if the borrower has sufficient funds to pay off the outstanding account balance. The verified funds must be in addition to any funds required for the transaction. Desktop Underwriter (DU) Will not require open 30-day accounts to be included in DTI ratios. Revolving Debt Loan Prospector (LP) In the absence of a stated payment on the credit report or direct verification, 5% of the outstanding balance will be considered to be the required monthly payment. Revolving debt may be paid off in order to qualify. Evidence that the account has been closed is not required. Desktop Underwriter (DU) If the credit report does not show a minimum payment amount and there is no documentation to support a lower payment, a minimum payment of 5% of the outstanding balance must be used. If a revolving debt is provided on the loan application without a monthly payment amount, DU will use the greater of $10 or 5% of the outstanding balance as the monthly payment when calculating the DTI ratios. Revolving debt may be paid off in order to qualify. The loan file must include evidence that the account has been closed. Sale or Conversion of Primary Residence Borrower’s Primary Residence Pending Sale If the borrower’s current Primary Residence is pending sale but will not close prior to the closing of the new loan, the following requirements must be met: The monthly payment on both the property that is pending sale and the new property must be included in the monthly debt-to-income ratio, and The borrower must have reserves equal to six months of PITI for the property pending sale and six months PITI for the new Primary Residence. The required reserves may be reduced to two months of PITI for each property if the following requirements are met: The value of the property pending sale is documented with a new appraisal. The new appraisal must be, at a minimum, an exterior-only appraisal, and The LTV/(H)CLTV ratio for the property pending sale is 70% or less. The monthly payment for the property pending sale may be excluded from the monthly debt-to-income ratio if the following requirements are met: Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 74 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC A fully executed and non-contingent sales contract for the previous residence, and A lender’s commitment to the buyer of the previous residence if the executed sales contract includes a financing contingency, and Evidence that the borrower has reserves equal to six months of PITI for both properties or two months PITI for both properties if the LTV/(H)CLTV for the property pending sale is 70% or less as evidenced by a new appraisal. The new appraisal must be, at a minimum, an exterior-only appraisal and must be dated no more than 60 days prior to the Note Date The monthly PITI payment on the property pending sale may also be excluded from debt-to-income ratios if the borrower has an executed buyout agreement that is part of an employer relocation plan where the employer/relocation company takes responsibility for the outstanding mortgage(s). Borrower Converting Primary Residence to a Second Home If the borrower is converting the current Primary Residence to a Second Home and purchasing a new Primary Residence, the following requirements must be met: The borrower must have reserves equal to six months of PITI for the property pending sale and six months PITI for the new Primary Residence. The required reserves may be reduced to two months of PITI for each property if the following requirements are met: The value of the property pending sale is documented with a new appraisal. The new appraisal must be, at a minimum, an exterior-only, and The LTV/(H)CLTV ratio for the property pending sale is 70% or less. Borrower Converting One Unit Primary Residence to an Investment Property If the borrower is converting the current one unit Primary Residence to an Investment Property and purchasing a new Primary Residence, the following requirement must be met: The borrower must have reserves equal to six months of PITI for the property being converted and six months PITI for the new Primary Residence. The required reserves may be reduced to two months of PITI for each property if the following requirements are met: The value of the property pending sale is documented with a new appraisal. The new appraisal must be, at a minimum, an exterior-only appraisal, and The LTV/(H)CLTV ratio for the property being converted is 70% or less. If the LTV/(H)CLTV is 70% or less as evidence by the new appraisal, rental income may be used to qualify the borrower, subject to the following: The rental income must be documented with a fully executed lease agreement and the receipt of a security deposit from the tenant with evidence of the deposit into the borrower’s designated account. The borrower’s tax returns must evidence a two year history of managing investment properties when a signed lease is used to determine the rental income. No more than 75% of the rental income from the signed lease may be used to qualify the borrower. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 75 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC If the LTV/(H)CLTV of the converted property is higher than 70%, rental income may not be used to qualify the borrower. The borrower’s previous housing payment and the payment on the new mortgage must both be included in the monthly debt-to-income ratio. Borrower Converting 2-4 Unit Primary Residence to an Investment Property If the borrower is converting a 2-4 unit primary residence to an Investment Property and purchasing a new primary residence, the following requirements must be met: If the LTV/(H)CLTV is 70% or less as evidenced by an appraisal, rental income from the unit previously occupied by the borrower may be used to qualify the borrower, subject to the following: The rental income must be documented with a fully executed lease agreement and the receipt of a security deposit from the tenant with evidence of the deposit into the borrower’s designated account. No more than 75% of the rental income from the signed lease may be used to qualify the borrower. • If the LTV/(H)CLTV of the converted property is higher than 70%, rental income may not be used to qualify the borrower. The borrower’s previous housing payment and the payment on the new mortgage must both be included in the monthly debt-to-income ratio. • Rental income for the units not previously occupied by the borrower may be used to qualify, provided the rental income requirements for a 2-4 unit Investment Property are met and the borrower has reserves equal to six months PITI of both properties. Desktop Underwriter (DU) The borrower must have reserves equal to six months of PITI for the property being converted and six months PITI for the new Primary Residence. The required reserves may be reduced to two months of PITI for each property if the following requirements are met: The value of the property being converted is documented with an appraisal. The LTV/(H)CLTV ratio for the property being converted is 70% or less. Ordering the appraisal for converted properties and properties pending sale: The appraisal must be, at a minimum, an exterior-only appraisal and must meet agency age of appraisal requirements. Appraisal should be ordered using Real EC. The appraisal fee may be paid by the borrower, seller or broker; however, the appraisal fee is not a loan fee. Mortgage Insurance (MI) Mortgage Insurance is required on all loans with LTV >80%. Standard coverage per the following chart must be obtained. Pacific Union Financial does not allow Custom or Reduced MI as may be available per the LP Feedback Certificate or DU Findings. Loans with MI must meet the more restrictive of the Pacific Union Financial guidelines or the requirements of the selected MI provider. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 76 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC An MI premium quote must be obtained by the broker or loan officer in order to accurately reflect the monthly MI payment on the initial GFE. Include a copy of the quote in the submission file. Mortgage Insurance Coverage Requirements LTV ≤20 Year Fixed Rate >20 Year Fixed Rate All ARMs >90% to 95% 25% 1 30% >85% to 90% 12% 25% >80% to 85% 6% 12% 1. Standard coverage is required. Custom or Reduced coverage as may be eligible per the LP Feedback Certificate or DU Findings is not allowed. The highest level of coverage required must be obtained. Mortgage Insurance Plans Available Mortgage Insurance options are described below. Refer to the MI Matrix and the MI provider website for additional details. Borrower Paid Mortgage Insurance (BPMI) • • • • Monthly Premium Zero Up-Front Annual Premium Single Premium Note: The Consumer Financial Protection Bureau (CFPB) require the entire nonrefundable upfront mortgage insurance premium and that portion of the refundable upfront mortgage insurance that exceeds the current FHA upfront mortgage insurance premium be included as a fee within the 3% Qualified Mortgage calculation. Loans with fees that exceed 3% as defined by CFPB will not be eligible for financing through PacUnion. As a result, fewer loans may be eligible for upfront MI premiums. Split Mortgage Insurance • Premium is paid in a combination of a single upfront premium and monthly premiums. • The upfront portion may be paid in cash by the borrower or seller. Lender Paid Mortgage Insurance (LPMI) • • • A single premium is paid to the Mortgage Insurance provider. Allowed on: Purchase, rate/term and cash-out refinance One and two unit primary residence Second home Conforming and High Balance The premium is paid by Pacific Union through a pricing increase. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 77 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Mortgage Insurance Providers Radian Genworth United Guaranty Essent National MGIC Florida Hurricane Tax Florida requires an emergency assessment to property and casualty insurance premiums, including mortgage insurance premiums. The assessment is an additional 1.3% of the premium collected. Occupancy Primary Residence • • Must be occupied by the borrower for the majority of the year. Per the security instrument, the borrower must occupy the property within 60 days of the Note Date, and intend to occupy the property for the next 12 months. Desktop Underwriter (DU) The following scenarios may also be treated as a Primary Residence even though the borrower will not occupy the property: • Parents wanting to provide housing for their physically handicapped or developmentally disabled adult child. If the child is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the parent is considered the owner/occupant. • Children wanting to provide housing for elderly parents. If the parent is unable to work or does not have sufficient income to qualify for a mortgage on his or her own, the child is considered the owner/occupant. Second Home Allowed on one unit properties only. See Multiple Financed Properties. The property must be: Owned by an individual and occupied for some portion of the year. Suitable for year-round occupancy. Available for the borrower’s exclusive use and enjoyment. Loan Prospector: The property must be in a location that will function reasonably as a Second Home (i.e. remote in distance from the borrower’s Primary Residence). The property may not be: Subject to timesharing or other shared ownership agreement. An ineligible property (such as a unit in a Condo Hotel). Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 78 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Subject to rental pools or agreements that require the borrower to rent the property, give management control over the occupancy of the property, or involve revenue sharing between the owners and the developer or another party. A 2-4 unit property used as a Second Home is considered an Investment Property and must meet all requirements for Investment Properties. If borrower’s tax returns reflect rental income for the subject property, the loan must be closed as an Investment Property transaction. Special Underwriting Considerations In addition to meeting all Primary Residence requirements, a Second Home transaction must meet the following requirements: For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or related to the builder, developer, or the property seller. The housing expenses related to the borrower’s current Primary Residence must be used in computing the monthly housing expense-to-income ratio. The monthly housing expense for the Second Home must be used in computing the borrower’s monthly debt-to-income ratio. See Cash Reserves. Freddie Mac Program Refinance of a Second Home with Rental Income As a rule, if rental income from a Second Home is reported on the borrower’s tax return, the property must be refinanced as an Investment Property. However, minimal rental income reported on the tax return may be acceptable subject to the following: Tax returns prior to 2011: Schedule E, Part I, Question 2 reads “For each rental income real estate property listed on Line 1, did you or your family use it during the tax year for personal purposes for more than the greater of 14 days or 10% of the total days rented at fair market value?”. If the response to this question is “No”, the property must be treated as an Investment Property. Tax returns from 2011 or later: Schedule E requires the owner to complete the exact number of days that the property was used for personal use and the number of fair rental days. To be considered a Second Home, the property type must be “Vacation/Short-Term Rental”, and the number of personal use days must be more than 14 or more than 10% of the number of days it is rented. Note: Rental income may never be used to qualify on a Second Home. The loan must be evaluated using LP and must be coded and priced as Freddie Mac only. Investment Property All Investment Property mortgages must meet the following requirements: See Multiple Financed Properties when borrower owns more than one 1-4 unit financed property. For newly constructed homes that are purchase transactions, the borrower may not be affiliated with or related to the builder, developer, or the property seller. The housing expenses related to the borrower’s current Primary Residence must be used in computing the monthly housing expense-to-income ratio. The aggregate negative rental income from all rental properties must be treated as an obligation and considered in calculating the borrower’s monthly debt-to-income ratio. Gift funds are not allowed. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 79 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC If rental income is used to qualify, the PITI plus operating expenses must be used in calculating the monthly debt-to-income ratio. See Rental Income See Cash Reserves Property Tax Calculation The 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. Real Estate taxes may (or must in some circumstances) be projected if one of the following can be documented: • 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, 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 five years from the note date. For example: For a municipality with a 10-year abatement, the borrower may be qualified 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 borrower must qualify with the annual taxes that will be required at the end of the 5th year after the first mortgage payment date. Property Insurance All loan files must contain evidence of appropriate hazard, title and flood insurance policies in accordance with Freddie Mac and Fannie Mae policies. A life of loan flood policy is required on all loans.. Secondary Financing Pacific Union Financial will close mortgages that are subject to subordinate financing held by another investor as long as the lien is recorded and clearly subordinate to the first mortgage lien. All loans with subordinate financing must meet the established LTV and (H)CLTV program requirements and the following: Include a copy of the note and fully executed subordination agreement. Provide information that the note’s regular monthly payment covers, at a minimum, the monthly interest due. Provide information that no balloon payment will be due within the next 5 years. Ineligible Subordinate / Second Mortgages Community or Affordable Seconds. Wraparound terms, combining the indebtedness of the first mortgage with the subordinate mortgage. Subordinate mortgages that do not provide for either regular monthly payments Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 80 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC of principal and interest, or interest only (silent seconds, forgivable silent seconds). Negative amortization. Repayment term of fewer than five years. Subordinate liens that are cross-collateralized. Purchase Transactions Secondary financing is permitted subject to the limits shown in the LTV Matrix and the following requirements. General Requirements Terms of any secondary financing must be disclosed to the appraiser and to the MI provider, if applicable. The terms that must be disclosed include, but are not limited to, the Note Rate and the name of the institution or individual providing the financing. The appraiser may not be provided with a value needed to support the transaction, or an expected LTV/(H)CLTV ratio. Payments on the secondary financing must be included in the borrower’s monthly housing expense. The file must include the following documentation: The Note or other evidence of the subordinate lien terms HUD-1 or other equivalent settlement statement For HELOCs, the agreement indicating all fees and costs paid by the borrowers at closing, and the maximum permitted credit advance. Maturity Date For non-HELOC second liens, the maturity date or amortization basis of the second lien may not be less than five years after the Note Date of the first lien, unless the second lien is fully amortizing. Second liens with a balloon or call provision within the five-year period are not allowed. If the secondary financing is an employer assisted or employer subordinated benefit, the terms of the secondary financing must permit the borrower to continue making payments on the loan if the borrower no longer works for the employer, and may not require repayment in full unless: The borrower terminates his or her employments for any reason, or The employer terminates the borrower’s employment for any reason other than long-term disability, the elimination of the employee’s position, or a reduction in workforce. HELOCs The terms of the HELOC may allow a balloon or call option within the first five years of the Note Date of the first lien. Both the full credit line and the drawn/disbursed must be included when submitting the loan to LP or DU. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 81 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Scheduled Payments The terms of the secondary financing must provide for regular monthly payments sufficient to meet the interest due (interest may not accrue). With the exception of HELOCs, variable rate payments, the payment must remain constant for at least 12 months. Seller Carried Secondary Financing Subordinate financing from the property seller (including any property seller or other private party carried financing): Allowed only after the borrower has made a minimum 5% down payment form own funds Only allowed when the CLTV is the lower of 95% or the maximum CLTV per the LTV Matrix. Affects interested party contributions Must be at market rate. If the interest rate is more than 2% below the posted net yield in effect for second mortgages at the time of closing it must be treated as a sales concession and a dollar for dollar reduction to the sales price is required. Refinance Transactions Existing subordinate financing may remain unpaid subject to the limits shown in the LTV Matrix and the following requirements: The existing second lien is subordinated to the new first lien and evidence of the subordination is included in the loan file. The second lien has scheduled payments sufficient to meet the interest due. If a new second lien is originated at the time of the refinance, the new lien and the refinance transaction must meet the above requirements for Purchase transactions with secondary financing. Seller/Interested Party Contributions For all loans, the total of all contributions as a percentage of sales price or appraised value, whichever is less, is limited to the values shown in the table below. Occupancy LTV/CLTV Conforming Loans High‐Balance Maximum Contribution > 90% >90% 3% <=90% ≤ 85% 6% Second Home All LTV/(H)CLTV All LTV/(H)CLTV 3% Investment Property All LTV/(H)CLTV All LTV/(H)CLTV 2% Owner Occupied Interested parties include, but are not limited to, the builder, developer, property seller, and real estate agent. Interested party contributions may include either financing and/or sales concessions. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 82 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Financing concessions are funds that originate from an interested party to the transaction. These funds include, but are not limited to, contributions in any way related to the mortgaged financing costs, closing costs, and/or prepaid items. A gift, or gift of equity, from a related person who is also the property seller is not subject to Seller/Interested Party limits, provided that: The related person is not, or has no affiliation with, the builder, real estate agent, or any other interested party to the transaction, and All requirements for gift funds are met. Funds derived from Premium Pricing may be used by the lender to pay the borrower’s closing costs, financing costs, and prepaids/escrows. Funds from Premium Pricing are not included in the Seller/Interested Party limits. The sales price may not be increased on a finalized purchase contract to cover closing costs. The LTV/CLTV must be based on the lesser of the original sales price or appraised value if there is evidence in the loan file that the sales price was increased to include the borrowers closing costs. Refer to applicable Seller Guide for additional information on financing and/or sales concessions. Transactions Purchase The borrower may not receive cash back, except for the following: Reimbursement of overpayment of fees. Costs paid by the borrower in advance (such as earnest money deposit, appraisal and credit report). If the borrower receives cash back at closing, confirm that the minimum required borrower contribution has been met. Rate/Term (“No Cash-Out”) Refinance Continuity of Obligation requirements must be met. A Rate/Term Refinance is a mortgage for which the proceeds are used to: Payoff the current unpaid principal balance plus accrued interest and any required prepayment penalty. Other costs such as late fees and past-due amounts may not be financed with the new loan. For Construction/Permanent loans, the amount of the Interim Financing secured by the subject property is considered an amount used to pay off the first mortgage. However, paying of unsecured liens or construction costs paid by the borrower outside of the secured Interim Financing is considered “Cash-Out” if it exceeds the lower of $2,000 or 2% of the new loan amount. Pay off any secondary liens secured by the subject property that were used entirely to acquire the subject property. A HUD-1 from the purchase transaction must be provided and must reflect that the entire balance of the second lien was used to acquire the property. If the current mortgage is a HELOC, the HUD-1 from the purchase of the property must reflect that the entire balance was used to purchase the property. If any portion of the HELOC was not used to purchase the property, the loan must be considered a cash-out refinance. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 83 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Pay related closing costs, financing costs, and prepaids/escrows. Disburse cash-out to the borrower (or other payee) not to exceed the lower of $2,000 or 2% of the new loan amount. Pay off the outstanding balance of a land contract or contract for deed if certain requirements are met. Refer to Land Contract and Contract for Deed. The following transactions must be treated as a Cash-out refinance: Financing of real estate taxes into the new mortgage when no escrow account is being established. Financing of real estate taxes that are more than 60 days delinquent. Refinance of a loan that was closed as a Cash-out refinance within the last six months. Use Note Date to Note Date to determine eligibility. If there are remaining proceeds after the funds are applied as described above: The mortgage amount must be reduced, or The excess funds must be applied as a principal curtailment to the new loan at closing and the curtailment must be clearly identified on the HUD1. The principal curtailment may not exceed the lesser of $2,500 or 2% of the loan amount. Existing secondary financing is not required to be paid off if: The second lien remains subordinate to the new first lien, and Evidence of the subordination is provided, and The remaining second lien meets requirements described in the Secondary Financing topic. See Property Listed for Sale. Loan Prospector (LP) When the mortgage being refinanced was a purchase money loan, the mortgage must be seasoned for at least 120 days (the Note Date of the existing mortgage must be at least 120 days prior to the Note Date for the new mortgage). Desktop Underwriter (DU) 120 day seasoning for Rate/Term refinance of a purchase money mortgage is not required. Principal curtailments are allowed only at closing. There is no limit to the amount of the curtailment that may be applied. Cash-out Refinance A cash-out refinance is mortgage in which the use of the loan proceeds is not limited to specific purposes. At least one borrower on the new mortgage must have been on title to the subject property for at least six months prior to the Note Date (LP) or disbursement date (DU). Refer to Continuity of Obligation and Delayed Financing topics for possible exceptions. The following transactions are always considered cash-out refinance: A mortgage placed on a previously free and clear property. A refinance that pays of non-purchase money second lien. A refinance that pays off any portion of a HELOC that was not used to purchase the property. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 84 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC See Property Listed for Sale. Continuity of Obligation • • • Continuity of Obligation is required on all refinance transactions. This requirement is met if at least one borrower on the existing loan is also a borrower on the new loan. 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 property with cash or when the prior mortgage has been paid in full. The following table illustrates additional means in which Continuity of Obligation may be achieved: Loan Prospector (LP) When an existing Mortgage will be satisfied as a result of a refinance transaction, one of the following requirements must be met: • At least one borrower on the existing loan held title to and resided in the subject property as a Primary Residence for the most recent 12 month period, and • The loan file contains documentation evidencing that the borrower, either: Has been making timely Mortgage payments, including the payments for any secondary financing, for the most recent 12-month period; or Is a Related Person to a borrower on the Mortgage being refinanced; or At least one borrower on the refinance Mortgage inherited or was legally awarded the Mortgaged Premises by a court in the case of divorce, separation or dissolution of a domestic partnership Desktop Underwriter (DU) 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 of the new refinance transaction. • 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: the borrower must have been a beneficiary or creator (trust) or a 25% or more owner of the LLC or partnership prior to the transfer, and 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 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: has been residing in the property for at least 12 months, has paid the mortgage for at least 12 months, or can demonstrate a relationship with the current obligor (for example, relative or Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 85 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC domestic partner). Continuity of Obligation Not Met – Desktop Underwriter (DU) Refinance transactions that do not meet Fannie Mae requirements for Continuity of Obligation must comply with the following LTV/CLTV/(H)CLTV restrictions regardless of the occupancy of the property. The LTV/CLTV/(H)CLTV ratios must be based on the current appraised value. Months on Title <6 months ≥6 months to <24 months ≥24 months Eligibility Requirements Ineligible Limited to 50% LTV/CLTV/HCLTV No additional restrictions Delayed Financing If none of the borrowers have been on title to the subject property for at least six months prior to the Note Date (LP) or disbursement date (DU), the following requirements must be met in order to complete a cash-out refinance transaction: The executed HUD-1 from the purchase transaction must reflect that no financing secured by the subject property was used to purchase the property. The preliminary title report for the refinance transaction must reflect the borrower as the owner and must reflect that there are no liens on the property. The source of funds used to purchase the property must be fully documented. If the source of funds to purchase the subject property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC on another property), all cash-out proceeds from the refinance must be used to payoff or pay down the original loan and must be reflected on the HUD-1 Settlement Statement for the refinance transaction. Any payment on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction. The amount of the cash-out refinance mortgage may not exceed the sum of the original purchase price (as evidenced by the HUD-1) and related closing costs, financing costs, and prepaids/escrows subject to the maximum LTV/CLTV/(H)CLTV limits for a cash-out transaction based on the current appraised value. There must be no affiliation or relationship between the buyer and the original seller of the subject property. All other cash-out refinance eligibility requirements must be met, with the exception of Continuity of Obligation, which does not apply to a Delayed Financing transaction. Desktop Underwriter (DU) • The borrower may have initially purchased the property as one of the following: A natural person, An eligible inter-vivos revocable trust, when the borrower is both the individual establishing the trust and the beneficiary of the trust, An eligible land trust when the borrower is the beneficiary of the trust, or An LLC or partnership in which the borrower(s) have an individual or joint ownership of 100% of the property. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 86 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Note: The new loan must be in the borrower’s name. Land Contract or Contract for Deed When the proceeds of a refinance mortgage are used to pay the outstanding balance under a Land Contract or Contract for Deed, the loan may be treated as either a purchase or a Rate/Term Refinance mortgage. A copy of the recorded Land Contract or Contract for Deed must be included in the loan file. Purchase Transaction The Land Contract or Contract for Deed must have been executed less than 12 months prior to the application date of the new loan. All of the proceeds must be used to pay the outstanding balance under the Land Contract or Contract for Deed and no loan proceeds may be disbursed to the borrower. The LTV must be calculated using the lesser of the following: The current appraised value, or The total acquisition cost (the purchase price indicated in the original Land Contract or Contract for Deed, plus any costs the borrower has expended for rehabilitation, renovation, refurbishment, or energy conversation improvements). The file must include sufficient documentation in which to calculate the total acquisition cost. Rate/Term Refinance Transaction The Land Contract or Contract for Deed must have been executed at least 12 months prior to the application date of the new loan. The LTV must be calculated using the current appraised value. The file must include third-party documentation evidencing payments in accordance with the Land Contract or Contract for Deed for the most recent 12 month period. The loan must meet all other requirements for a Rate/Term Refinance transaction. Net Tangible Benefit All refinance transactions must contain a net tangible benefit ( N T B ) to the borrower. These include but are not limited to: Moving from an ARM loan to a fixed rate loan. Shortening the term of a fixed rate loan (e.g., from 30 years to a 15 or 20 year. fixed) Fixed Rate: Reducing the interest rate by 0.25% or more. ARM: Reducing the interest rate by .025% or more based on the fully indexed rate. Providing cash in hand. Reducing overall monthly payments (paying off debt). Additionally, all state required NTB policies must be met. Brokers are responsible for knowing the net tangible benefit requirements for their lending areas. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 87 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Non-Arm’s Length Transactions A non-arm’s length transaction is one in which there is a direct relationship between the borrower and another interested party to the transaction. Interested parties may include the builder, developer, seller, mortgage broker, real estate agent or realtor, appraiser, closing or settlement agent, or an employee or employer of the seller. Not permitted on Delayed Financing. Loan Prospector (LP) For newly constructed properties, the borrower may not be affiliated with or related to the builder, developer, or property seller. Desktop Underwriter (DU) Fannie Mae 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. Refinance to Buyout a Co-Owner Defined as a cash-out refinance where the owner of a property uses the proceeds of a refinance transaction to buy out the equity of a co-owner. All Continuity of Obligation requirements must be met. All parties must sign a written agreement stating the terms of the property transfer and the disposition of the loan proceeds. The loan file must include evidence that the subject property was jointly owned by all parties for the 12 months preceding the Note Date. Evidence of 12 months of joint ownership is not required if the parties recently inherited the property. The borrower who retains sole ownership of the property may not receive any proceeds from the refinance transaction. The party buying out the other party’s interest must be able to qualify for the mortgage. Loan Prospector (LP) Loan is treated as a Cash-out refinance and must meet the maximum LTV/(H)CLTV limits for cash-out transactions per the LTV Matrix. The loan amount may not exceed the amount needed to buy out the equity of the coowner, which may include: Paying of the first mortgage, regardless of age. Paying off any secondary financing secured by the subject property (not required if the second lien is subordinated). Payment of related closing costs, financing costs, and prepaids. Desktop Underwriter (DU) Loan is treated as a Rate/Term refinance and must meet all Fannie Mae requirements Rate/Term refinances. The borrower may not receive any of the proceeds from the refinance transaction. Pricing and Fees Refer to the daily rate sheet for current pricing. Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 88 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender Conventional Loan Program Guide Pacific Union Financial, LLC Fees and Services Charges related to services performed by a third party, the amount paid by the borrower must be limited to the actual charge of that third party. Borrower Paid Fees The borrower may never pay any fee on behalf of the seller. These types of fees include, but are not limited to: Finder or consulting fees Payoffs amounts for second lien holders Agent commissions Delinquent taxes or HOA dues Moving expenses Program Codes Product 10 Year Fixed Rate 15 Year Fixed Rate 20 Year Fixed Rate 25 Year Fixed Rate 30 Year Fixed Rate 5/1 ARM (2/2/5 caps) 7/1 ARM (5/2/5 caps) Conventional Conforming High Balance Balance Freddie Mac Conforming High Balance Balance Fannie Mae Conforming High Balance Balance CC10 CC10HB CFH10 CFH10HB FNMA 10 FNMA 10 HB CC15 CC15HB CFH15 CFH15HB FNMA 15 FNMA 15 HB CC20 CC20HB CFH20 CFH20HB FNMA 20 FNMA 20 HB CC25 CC5HB CFH25 CFH25HB FNMA 25 FNMA 25 HB CC30 CC30HB CFH30 CFH30HB FNMA 30 FNMA 30 HB CC51L CC51L HB CFH51L CFH51LHB N/A N/A CC71L CC71L HB CFH71L CFH71LHB N/A N/A Pacific Union Financial, LLC 2014 Conventional Loan Program Guide Page 89 of 89 10/20/2014 For business and professional use only. Not for consumer distribution. This document is not an advertisement as defined in 12 CFR 226.2 (a) (2). All products are subject to credit and property approval. Other restrictions and limitations may apply. #NMLS2221, Pacific Union Financial, LLC. Subject to change without notice. All rights reserved. Equal Housing Lender
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