Section 5.1: Non-Conforming ARM - Investor 18

Non-Conforming ARM Investor 18 – Retail Only 5.2-A General

5.2-A1 Overview

Non-conforming loans should be underwritten to the following guidelines. SNMC is delegated to underwrite this program. However, the Investor requires a pre-close review of each loan. The loan cannot close until the Investor issues a “Clear to Close”. See Underwriting section 5.2-B for more details. As per SNMC general underwriting guidelines, any loan amount > $650,000 must receive a second underwriting manager signature, and any loan amount > $1,000,000 will require additional corporate underwriting review and approval.

5.2-A2 ATR/QM

Effective for applications dated on or after January 10, 2014, Investor 18 will only purchase loans that meet the Ability to Repay and Qualified Mortgage requirements. Safe Harbor QM loans are eligible for purchase. Rebuttable Presumption QM (HPML) and Non-QM loans are not eligible for purchase. Rebuttable Presumption (HPML) for Jumbo loans is defined as an APR ≥ 1.5% above the APOR.

5.2-A3 Income Analysis Worksheet

The loan file must include a worksheet demonstrating the income calculation methodology and debt considered to qualify each loan in accordance with the ATR/QM Final Rule and the standards in Appendix Q. The Ability To Repay income worksheet in Encompass must be completed and uploaded to the Income-QM/ATR bucket to document the underwriter’s determination of qualifying income along with applicable payment and debt obligations that result in the debt to income ratio of less than or equal to 43%.

5.2-A4 Points and Fees Worksheet

To evidence compliance with QM points and fees, the loan file must include a clear itemization of fees and application of all credits that indicate paid by/to. The SNMC Fee Detail worksheet is required.

5.2-A5 Product Summary

This product description describes product guidelines and requirements for the following loan programs: • Fully Amortizing 5/1, 7/1, and 10/1 LIBOR ARMs

5.2-A6 Product Codes • • •

SNMC

J-A5L-18 J-A7L-18 J-A10L-18

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5.2-A General (cont’d) 5.2-A7 Loan Programs Eligible Loan Terms • Fully Amortizing – 5/1, 7/1, & 10/1 LIBOR ARMs with 15, 20, 25 or 30 year amortization

An adjustable rate mortgage fixed for the ARM program selected, then adjusting to a one (1) year adjustable rate mortgage based on 1-year LIBOR. The initial interest rate adjustment will be 60, 84 or 120 months after the first month following loan closing. Thereafter, the interest rate will be subject to change annually. Index:

•

The index is the average for interbank offered rates for one year US denominated deposits in the London market (“LIBOR”), as published in the Wall Street Journal most recently available 45 days prior to the change date Margin/Floor:

• •

The base margin is 2.25%, the margin is also the floor The margin is added to the index in order to determine the index base rate for adjustments Interest Rate Caps:

• • •

5% cap, up or down on the initial change 2% cap, up or down, on each annual change thereafter 5% lifetime cap only on increases

Assumptions Not assumable.

Interest Only

Interest only is not available.

Negative Amortization

Negative amortization is not available.

Prepayment

There is no prepayment penalty.

5.2-A8 Property Types Acceptable Property Types • Single family detached • PUDs (Fannie Mae eligible only)

SNMC

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Section 5.1: Non-Conforming ARM - Investor 18

5.2-A General (cont’d) 5.2-A8 Property Types (cont’d) Unacceptable Property Types • Condos, Condotels • Cooperatives • Manufactured homes • Log, earth or dome homes • Time-share projects/units • Farms • Properties with less than 750 square feet of living area

5.2-A9 Occupancy Types Owner Occupied • The property is the primary residence that the borrower will occupy the majority of the year.

The property is usually located in the same general area as the borrower’s income source. Typically, this is also the address of record used in filing the Individual Tax Return Form 1040. The borrower must occupy the subject property within 30-60 days of the close of escrow in accordance with the security instrument.

Second Home • Second homes are not allowed Investment • Investment properties are not allowed

5.2-A10 Ineligible Transactions • • • • • • • • • •

1 X construction permanent or modifications of construction loans Cash-out on new construction New construction when borrower acting as builder or in non-arms length relationship between the borrower, seller, and/or developer Refinance on properties listed for sale within 12 months Builder inventory loans Non-occupant co-borrower Temporary buydowns Leaseholds Higher Priced Mortgage Loans Notwithstanding any contrary provision in this Correspondent Manual, all loans must be Qualified Mortgages.

5.2-A11 Minimum Loan Amount Minimum loan amount is $100,000.

SNMC

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5.2-A General (cont’d) 5.2-A12 Maximum Loan Amounts Purchase/Rate Term Refinance Primary Residence 1 Unit

LTV/CLTV Loan Amount 80/80 to $750,000

Minimum Credit Score 720

1 Unit

75/75 to $1,000,000

1 Unit 1 Unit

DTI

Reserves

41

6 Mos. PITI

720

43

6 Mos. PITI

70/70 to $1,000,000

700

43

6 Mos. PITI

60/60 to $1,000,000

680

43

9 Mos. PITI

Cash-Out Refinance – Maximum Cash Back $50,000 Primary Residence 1 Unit

LTV/CLTV Loan Amount 75/75 to $750,000

Minimum Credit Score 720

1 Unit

70/70 to $1,000,000

1 Unit 1 Unit

DTI

Reserves

41

6 Mos. PITI

720

43

6 Mos. PITI

65/65 to $1,000,000

700

43

6 Mos. PITI

55/55 to $1,000,000

680

43

9 Mos. PITI

LTV Ratio Calculation • The LTV is equal to the first lien loan amount divided by the Property Value • If the property was purchased between 6 - 12 months of the application date, Property Value is

equal to the lower of sales price or appraised value minus sales concessions. If the property was purchased more than 12 months prior to the application date, property value is equal to appraised value.

5.2-B Underwriting

SNMC is delegated to underwrite this program. However, the investor requires a pre-close review of the loan. Each SNMC branch has specific underwriters assigned to underwrite jumbo loans. Once the loan has been underwritten by an SNMC underwriter, the loan must be uploaded to the investor for review. The investor does not re-underwrite the loan. The loan cannot close until the investor reviews the loan and provides a “Clear to Close”. Turn time for the review process can be 2 to 3 days. Plan closings accordingly. To upload the file, a log-in is required, along with a signed registration form which can be found in Section 5.3 Miscellaneous. If the loan is not registered, contact the SNMC Secondary department. The loan must be uploaded as one document with the registration form on top.

SNMC

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5.2-B Underwriting (cont’d) 5.2-B1 DTI Ratio • •

• •

The Debt to Income Ratio must be calculated in accordance with 12 CFR 1026.43 and “Appendix Q to Part 1026- Standards for Determining Monthly Debt and Income”, as it may be amended or modified from time to time. Additionally, for the purpose of calculating the monthly payment of mortgage-related obligations, the Seller must use: o The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due; and o Periodic payments of principal and interest that will repay either:  The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum “five year” interest rate set forth above, assuming the consumer will have made all required payments as due prior to that date; or  The loan amount over the loan term. If current residence is for sale, must include full PITI in DTI ratio. Cannot offset by rent or relocation contracts. Two months reserves for current residence in addition to reserve requirement for subject. If PITI is more than doubling, 9 months reserves are required.

5.2-B2 Loan Purpose

Purchases, rate/term refinances, and cash-out refinances are eligible, provided that such loans are Qualified Mortgages.

Rate/Term Refinances •

• • •

Proceeds from a rate/term refinance may be used to pay off the following: o Principal balance of an existing first mortgage lien, regardless of age; o Related closing costs, discount points, pre-paids, and/or; o Subordinate mortgage liens that have been seasoned for a least one (1) year If a subordinate lien (including equity lines) is to be paid off in the refinance transaction, it must be seasoned for at least one (1) year; otherwise, the transaction will be considered a “cash-out” refinance If secondary financing is not seasoned, it may be included in the refinance if the second lien was incurred at the original purchase of the property (evidenced by a copy of HUD-1 from the original purchase) For two-time construction permanent transactions use the as-completed appraised value

Cash-Out Refinances •

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SNMC

Seasoning of at least twelve months since prior finance or date of purchase is needed to be eligible for cash-out Any loan where the borrower receives in cash an amount greater than the lesser of 1% of the loan balance is a cash-out refinance The LTV ratio for refinances on free and clear properties is based on: o Greater than 12 months ownership – LTV is based on the current appraised value o Texas Home Equity loans are ineligible

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5.2-B Underwriting (cont’d) 5.2-B2 Loan Purpose (cont’d) Continuity of Obligation

All refinance transactions must meet the following continuity of obligation requirements: • • • •

At least one borrower is obligated on the new loan who was also a borrower obligated on the existing loan being refinanced The borrower has been on title and residing in the property for at least 6 months and has either paid the mortgage for the last 6 months or can demonstrate a relationship (e.g. relative, domestic partner, etc.) with the current obligor. The loan being refinanced and the title to the property are in the name of a natural person or a LLC where the borrower is a member of the LLC prior to transfer. Transfer of ownership from a corporation to an individual does not meet these requirements. Borrower has recently inherited or was legally awarded the property

5.2-B3 Borrower Eligibility Eligible • •

All borrowers must have a valid Social Security Number or Taxpayer ID (ITIN) Permanent resident aliens (eligible with lawful proof of permanent residency)

Ineligible • • • • •

Non-occupant co-borrowers Borrowers without credit score Borrowers who are not natural persons such as corporations, partnerships, and trusts Foreign nationals Borrowers with more than 4 financed properties including the subject property

5.2-B4 Credit Requirements Credit Score • • • •

Tri-merged credit for all borrowers Middle of three credit score used When there are two borrowers, the loan credit score is the lower of the two borrower scores. When there are more than two borrowers, the loan credit score is the lowest of the borrower scores. All credit inquiries reported within the prior 90 days must be investigated. The borrower must provide a written explanation for the inquiries that includes a statement that no additional debt was obtained as a result of those inquires.

Credit History • •

• • • SNMC

No 30-day late payments in the last 24 months on any mortgage or rental accounts. There cannot be any major adverse credit reported in the last 24 months on revolving or installment accounts. Minimum 3 trade-lines reported for at least 24 months, and one in the last 36 months. The borrower cannot have been a party to a loan that was modified within the last 24 months. The borrower cannot have been party to a short sale within last 36 months. Page |6

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5.2-B Underwriting (cont’d) 5.2-B4 Credit Requirements (cont’d) Bankruptcy • • •

Chapter 7 Bankruptcy - at least seven years must have elapsed since the bankruptcy discharge Chapter 13 Bankruptcy - at least five years must have elapsed since the bankruptcy discharge, seven years since dismissal The borrower must have re-established a satisfactory credit history and show the ability to manage his/her financial affairs since the time of the discharge

Foreclosure/Other •

The borrower cannot have had a foreclosure, deed in lieu of foreclosure, judgment or tax lien within the five year period prior to the loan application.

Prior Bankruptcy, Foreclosure, Short Sales, and Deed-In-Lieu Require • • •

A letter of explanation indicating that the negative report was due to an unavoidable hardship Re-established credit with at least 3 new trades No lates in the prior 24 months for any credit account

Judgments, Collection Accounts, Garnishments, or Liens •

•

•

All of the following must be paid in full by or at closing: judgments, charge-offs, collection accounts, garnishments, or liens Borrowers with current or previous past due child support must provide evidence that all past due payments are current unless the borrower is making payments according to a court approved plan. In this case, the borrower must demonstrate that payments are current according to the plan. No prior consumer credit counseling

5.2-B5 Income Documentation Required • •

All income documentation (excluding tax returns) must be dated within 90 days of the date the note is signed. An IRS Form 4506-T signed and transcripts obtained for each borrower, regardless of income source and AUS findings.

IRS Form 4506-T Completion Requirements - The most recent version of the Form 4506-T as posted on the irs.gov website is required and must include the following information for funding: Line Item # Information Required Line 5 Acceptable names to be entered on Line 5 are: If the Seller enters their name or an approved affiliate’s name, they must include “its successors and/or assigns” (it is acceptable to enter this as the acronym “ISAOA”) – NO exceptions.

SNMC

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5.2-B Underwriting (cont’d) 5.2-B5 Income Documentation Required (cont’d) • • • • • •

• • •

All income documentation must evidence a consistent prior two years earning history. Most recent 2 YTD paystubs W-2s from the most recent 2 years Verbal VOE not more than 7 business days prior to the note date. Self-employed borrowers must be verified within 30 days of the note date by a third party such as a CPA, regulatory agency or licensing bureau. Most recent 2 years tax returns (including all schedules) required if borrower uses income to qualify from another source other than salary (capital gain, rental income, royalties, etc.). No extensions allowed. Proof of continuance for the next 3 years is required. Self-employed borrowers – most recent 2 years personal & business returns including all schedules required. Beginning April 16th, when the previous year’s tax returns have not been filed, the income cannot be used for qualifying and the following documentation is required: o Evidence that an acceptable extension has been filed with the IRS and that the required payments have been made o Previous year transcript “No Record of Return Filed” required o A P&L for the previous year to analyze income trends is also required. o Previous 2 years personal & business returns including all schedules Cannot use income from another country No employment contracts, offers of employment or trailing spouse income allowed Any additional documents required to verify income and debt in accordance with Appendix Q

Assets/Reserves/Source of Funds to Close • •

• • • • •

All asset documentation must be dated within 60 days of the date the note is signed. All assets used to satisfy reserve requirements or funds to close must be owned by the borrower(s) and be proven to be liquidated if needed. 3% maximum seller contributions allowed for closing costs only. All deposits that are significantly higher than the verified average cash assets for the borrower(s) must be verified. Stocks, bonds and mutual funds may be used as reserves using 60% of the value. Acceptable retirement funds are 50% of stated vested value of IRA’s, 401K’s, Keoghs or annuities (less any loans). Unacceptable funds are value of unused credit lines, property equity, gifts, future or deferred income and business assets. If PITI is more than doubling, 9 months reserves are required.

Sales and Financing Concessions •

• •

SNMC

Sales concessions including vacations, furniture, automobiles, securities or other give-away items must be deducted from the property value before calculating the LTV / CLTV Financing Concessions are not permitted. This includes any reduction in the mortgage payment, financing costs or closing costs, including any prepaid amounts. All interested party contributions or concessions must be documented in the Mortgage Loan File and be clearly shown on the HUD-1.

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5.2-B Underwriting (cont’d) 5.2-B6 State Restrictions

There are no restricted states. However, the LTV is reduced by 5% for Michigan properties.

5.2-C Property 5.2-C1 Appraisal Requirements •

• • • • • • • •

For first lien loans, Seller must disclose to the borrower in writing the borrower’s right to receive an appraisal no later than three business days after the Seller receives an application. Additionally, Seller must send appraisals to the borrower promptly upon completion of such appraisal but in any event no later than three business days prior to closing. All appraisals must comply with the Interagency Appraisal and Evaluation Guidelines (12/2/2010). Full 1004 appraisal including a 1004MC (Market Conditions Addendum) All appraisers must be state certified or licensed and a copy of the license must be submitted with the appraisal Appraisals must be dated within 120 days of the note date All appraisals obtained during the loan origination and underwriting processes must be included in the loan file On purchase transactions the appraiser must be provided a copy of the sales contract Evidence of a 36-month chain of title Resale of properties obtained through foreclosure, deed-in-lieu or short sale are to be >/= 12 months from date of last sale

5.2-C2 Title Requirements •

•

• • • • •

•

SNMC

The title insurance policy must be written on an American Land and Title Association (ALTA) 2006 Form with appropriate endorsements issued by a title insurer qualified to do business in the in the jurisdiction in which the mortgaged property is located The title insurance policy must insure the mortgagee and its successors and assigns as to the first priority lien of the mortgage in the amount at least equal to the outstanding principal balance of the mortgage loan The title policy must have correct information regarding the insured’s name, loan number and amount of coverage Property Reports, Ownership and Encumbrance Reports, Attorney’s Opinions are not acceptable Any existing tax or mechanic’s liens must be paid in full through escrow Taxes must be collected if due within 30 days of closing, regardless of the establishment of an impound account In Texas, the following language must be included in the Title Insurance Policy: Schedule B must state: “Possible defect in lien of the insured mortgage because of the insured’s inclusion of reserves or impounds for taxes and insurance in the original principal of the indebtedness secured by the insured mortgage” P-39 standard language must state: “Company insures the Insured against loss, if any, sustained by the Insured under the terms of this Policy by reason of a final, non-appeasable judgment of a court of competent jurisdiction that divests the Insured of its interest as Insured because of this right, claim, or interest. Company agrees to provide the defense to the Insured in accordance with the terms of this Policy if suit is brought against the Insured to divest the Insured of its interest as Insured because of this right, claim or interest”.

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5.2-C Property (cont’d) 5.2-C3 Hazard Insurance •

•

Homeowner’s insurance coverage is required on all properties. If the Insurable Value, as designated by the property insurer, is less than the unpaid principal balance then the required coverage is the Insurable Value. Otherwise, the coverage amount is equal to the greater of 80% of the Insurable Value or the unpaid principal balance. The original declaration page from the homeowner’s insurance policy must be included in the loan file. Flood insurance is required on properties if all or parts of the improvements are located in a federally designated Special Flood Hazard Area. The minimum amount of flood insurance is the lower of 100% of the replacement cost of the dwelling as determined by the hazard insurance policy or the maximum insurance available from the National Flood Insurance Program (currently $250,000). The original flood certificate must be included in the loan file.

5.2-C4 Well and Septic Tank Inspections •

SNMC

Well and Septic Tank inspections are required on new construction

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