Mortgage Underwriting Guide Table of Contents
TABLE OF CONTENTS Table of Contents .................................................................. Error! Bookmark not defined.1 Chapter 1 1.1 Chapter 2 2.1
General Information .................................................................................... 5 Minimum Loan Amount ................................................................................. 5 General Requirements ................................................................................ 6 Eligible Borrowers ......................................................................................... 6 2.1.1 Borrower ........................................................................................... 6 2.1.2 Co-Borrower ..................................................................................... 6 2.1.3 Non-Occupant Co-Borrower .............................................................. 6 2.1.4 Non-Borrower Spouse ....................................................................... 6 2.1.5 Inter Vivos Revocable Trust .............................................................. 6 2.1.6 Non-U.S. Citizen ............................................................................... 7 2.1.7 Non-U.S. Citizen ............................................................................... 7 2.1.8 Permanent Resident Alien (Immigrant) .............................................. 7 2.1.9 Nonpermanent Resident Alien (Non-Immigrant) ................................. 7 2.1.10 Diplomatic Status .............................................................................. 8
2.2
Occupancy ................................................................................................... 8 2.2.1 Primary Residence ............................................................................ 8 2.2.2 Second Home ................................................................................... 8 2.2.3 Investment Property .......................................................................... 9
2.3
Transaction Types ........................................................................................ 9 2.3.1 Purchase .......................................................................................... 9 2.3.2 Refinance ......................................................................................... 9 2.3.3 Rate and Term Refinance ............................................................... 10 2.3.4 Cash Out Refinance ........................................................................ 11 2.3.5 Relief Refinance – Open Access ..................................................... 12
2.4
Title Variations ............................................................................................ 15 2.4.1 Fee Simple ..................................................................................... 15 2.4.2 Leasehold Estate ............................................................................ 15
Chapter 3 3.1
Freddie Mac Loan Prospector .................................................................. 17 Conforming Loans ...................................................................................... 17 3.1.1 Loans with an "Accept" Risk Class .................................................. 17 3.1.2 Norcom will not approve any Loans with a "Caution" Risk Class ...... 17 3.1.3 Loan Delivery Requirements ........................................................... 18
Chapter 4
Conforming Conventional Loans ............................................................. 19
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Mortgage Underwriting Guide Table of Contents
4.1
General Information .................................................................................... 19
4.2
Loan-to-Value Ratios and Occupancy Requirements ................................... 19
4.3
Age of Documents ...................................................................................... 23
4.4
Underwriting Documentation ....................................................................... 24 4.4.1 Direct Written Verifications .............................................................. 24 4.4.2 Additional Documentation ................................................................ 24
4.5
Alternative Documentation .......................................................................... 25 4.5.1 Eligibility Criteria ............................................................................. 25 4.5.2 Acceptable Documentation .............................................................. 25 4.5.3 Fax Copies ..................................................................................... 25 4.5.4 Internet Documentation ................................................................... 25 4.5.5 Re-verification Authorization ........................................................... 26
4.6
Credit ......................................................................................................... 26 4.6.1 Credit History .................................................................................. 26 4.6.2 Credit Score Requirements ............................................................. 26 4.6.3 Credit Score Selection .................................................................... 27 4.6.4 Adverse Credit ................................................................................ 27 4.6.5 Limited or No Traditional Credit History ........................................... 28 4.6.6 Inaccurate Credit History ................................................................. 28 4.6.7 Bankruptcy and Short Sale .............................................................. 28 4.6.8 Foreclosure ..................................................................................... 28
4.7
Long Term Debt .......................................................................................... 29 4.7.1 Pay Down of Debt ........................................................................... 29 4.7.2 Revolving Accounts ......................................................................... 29 4.7.3 Loans Secured by Retirement Accounts .......................................... 29 4.7.4 Open-End Lines of Credit (HELOCS) ............................................... 29 4.7.5 Deferred Payment Accounts ............................................................ 29 4.7.6 Deferred Student Loans .................................................................. 30 4.7.7 Contingent Liabilities ....................................................................... 30
4.8
Down Payment Guidelines .......................................................................... 31 4.8.1 Minimum Down Payment Requirements .......................................... 31 4.8.2 Cash Assets for Down Payment and Closing Costs ......................... 31
4.9
Subordinate Financing ................................................................................ 35
4.10
Qualifying Ratios .................................................................................... 36
4.11
Housing-To-Income Ratio ....................................................................... 36
4.12
Debt-To-Income Ratio ............................................................................. 37
4.13
Standard Qualifying Ratios For Conforming Loans .................................. 38
4.14
Minimum Down Payment Requirements .................................................. 38
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Mortgage Underwriting Guide Table of Contents
4.15
Required Reserves ................................................................................. 39
4.16
Prepaid Costs ......................................................................................... 39
4.17
Total Contribution Limits ......................................................................... 40
4.18
Evaluating Income .................................................................................. 41 4.18.1 Stable Monthly Income .................................................................... 41 4.18.2 Income Documentation .................................................................... 41 4.18.3 Verification of Employment .............................................................. 41 4.18.4 Income Analysis .............................................................................. 42
Chapter 5
Appraisal Standards ................................................................................. 48 5.1.1 Lender Standards ........................................................................... 48 5.1.2 Agency Guidelines .......................................................................... 48 5.1.3 Property Appraisal Requirements .................................................... 49 5.1.4 Appraisal Reporting Forms .............................................................. 51
Chapter 6
Specific Property Types – Eligible Products ........................................... 56
6.1
Properties Subject to Occupancy Restrictions ............................................. 56
6.2
Properties Subject to Age Restrictions ........................................................ 56 6.2.1 Government Housing Programs ....................................................... 56 6.2.2 Age Restrictions - 62 Years of Age or Older .................................... 56 6.2.3 Age Restrictions - Any Age Restriction ............................................ 56 6.2.4 Required Documents for Age Restricted Properties ......................... 57
6.3
Condominium Projects ................................................................................ 57 6.3.1 Site Condos .................................................................................... 58 6.3.2 General Condo Eligibility Requirements .......................................... 58 6.3.3 Ineligible Projects ............................................................................ 58 6.3.4 Completion ..................................................................................... 59 6.3.5 Multiple Ownership ......................................................................... 59 6.3.6 Commercial Use .............................................................................. 59 6.3.7 Right of First Refusal ...................................................................... 60 6.3.8 Adverse Environmental Factors ....................................................... 60 6.3.9 Litigation ......................................................................................... 60 6.3.10 Delinquent HOA Dues ..................................................................... 61 6.3.11 Insurance Requirements ................................................................. 61 6.3.12 Pooled Insurance ............................................................................ 61
6.4
Planned Unit Developments ........................................................................ 62
6.5
Manufactured Housing ................................................................................ 62
Chapter 7 7.1
Government Loans ................................................................................... 63 Eligible Transactions ................................................................................... 63
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Mortgage Underwriting Guide Table of Contents
7.1.1 Credit Score Requirements ............................................................. 63 7.1.2 VA Products .................................................................................... 63 7.1.3 FHA Products ................................................................................. 63 7.1.4 USDA Guaranteed Rural Housing ................................................... 64 7.2
Ineligible Transactions ................................................................................ 65
7.3
FHA Streamline Refinance and VA IRRRL Transactions .............................. 66
7.4
Underwriting Documentation ....................................................................... 67
7.5
Co-Signers ................................................................................................. 67
7.6
Modular Homes .......................................................................................... 67
7.7
Freddie Mac LP Underwritten FHA Loans .................................................... 67
7.8
Freddie Mac LP Underwritten VA Loans ...................................................... 68
7.9
USDA Rural Housing Guarantyeed Underwriting System (GUS) .................. 68
Chapter 8
New Construction ..................................................................................... 70
8.1
Construction-to-Permanent Treated as a Purchase Transaction .................. 70
8.2
Construction-to-Permanent Treated as a Rate-Term Refinance ................... 70
8.3
Construction-to-Permanent Treated as a Cash-Out Refinance ..................... 71
8.4
Acquisition Cost Documentation .................................................................. 72
8.5
Borrower Acted as Contractor ..................................................................... 73
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Mortgage Underwriting Guide General Information Minimum Loan Amount
CHAPTER 1
1.1
GENERAL INFORMATION
MINIMUM LOAN AMOUNT Norcom’s minimum loan amount is $50,000 for conforming loans.
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Mortgage Underwriting Guide General Requirements Eligible Borrowers
CHAPTER 2
GENERAL REQUIREMENTS
Norcom will only lend to individual applicants (borrowers). An applicant is defined as one who applies for a loan secured by real property with the obligation of repaying the loan in full with interest. To be eligible, applicants must conform to certain eligibility requirements. Loans with title or interest held in various forms/legal entities such as Life Estates, NonRevocable Trusts, Guardianships, LLCs, Corporations or Partnerships are not eligible.
2.1
2.1.1
ELIGIBLE BORROWERS
Borrower The borrower is the individual obligated to repay the loan secured by the mortgaged premises. The borrower should be of legal age per local/state jurisdiction. He/she should be able to enter into a binding contract.
2.1.2
Co-Borrower The co-borrower, or joint applicant, is the individual who has applied with the borrower for joint credit. The co-borrower may take title to the mortgaged premises and will sign the Note and Security Instrument.
2.1.3
Non-Occupant Co-Borrower The non-occupant co-borrower applies with the borrower for joint credit and will take title to the mortgage premises, but will not occupy the property. The non-occupant co-borrower will be required to sign the Note and Security Instrument.
2.1.4
Non-Borrower Spouse When a married borrower applies in their name alone, the spouse is referred to as the nonborrower spouse. A non-borrower spouse may have rights as a co-owner of the mortgage premises or due to state community property or marital rights.
2.1.5
Inter Vivos Revocable Trust Norcom will not accept loans in the name of a trust.
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Mortgage Underwriting Guide General Requirements Eligible Borrowers
2.1.6
Non-U.S. Citizen A borrower, who is lawfully residing in the U.S. as a permanent or a nonpermanent resident alien, is eligible for a mortgage on the same terms as a U.S. citizen.
2.1.7
Non-U.S. Citizen Borrowers must have current acceptable documentation from the Bureau of Citizenship and Immigration Services (BCIS) (formerly the Immigration and Naturalization Service (INS)) within the Department of Homeland Security, evidencing the person's legal residency status in the United States.
2.1.8
Permanent Resident Alien (Immigrant) A borrower who has been granted the privilege of residing permanently in the U.S. Also includes refugees and others seeking political asylum. Documentation is commonly referred to as a ‘Green Card'.
2.1.9
Nonpermanent Resident Alien (Non-Immigrant) All non-permanent resident aliens must provide evidence of a valid, acceptable visa. A copy of the unexpired visa must be included in the loan file evidencing one of the following visa classes: Note: all standards for determining stable monthly income, adequate credit history and sufficient liquid assets must be applied in the same manner to each borrower including borrowers who are non-permanent resident aliens.
Table 2 - 1 SYMBOL
CLASSIFICATION
A Series (A-1, A-2, A-3)
These visas are given to officials of foreign governments, immediate family members and support staff. Only those without diplomatic immunity, as verified on the visa, are allowed.
E-1 treaty trader and E-2 treaty investor
This visa is essentially the same as an H-1 or L-1; the title refers to the foreign country’s status with the United States.
G series (G-1, G-2, G-3, G-4, G-5)
These visas are given to employees of international organizations that are located in the United States. Some examples include the United Nations, Red Cross,
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Mortgage Underwriting Guide General Requirements Occupancy
World Bank, UNICEF and the International Monetary Fund. Verification that the applicant does not have diplomatic immunity must be obtained from the applicant’s employer and/or by viewing the applicant’s passport. H-1 (includes H-1B and H-1C)
Temporary worker: this is the most common visa given to foreign citizens who are temporarily working in the United States
L-1, Intra-Company transferee
An L-1 visa is given to professional employees whose company’s main office is in a foreign country.
TN, NAFTA visa
Used by Canadian citizens for professional or business purposes.
TC, NAFTA visa
Used by Canadian citizens for professional or business purposes
2.1.10
Diplomatic Status
Applicants possessing diplomatic status are ineligible. All borrowers must have valid and verifiable Social Security numbers. Other forms of taxpayer identification are not allowed.
2.2
2.2.1
OCCUPANCY
Primary Residence A primary residence is where the borrower lives the majority of the year. The residence is occupied by the primary wage-earner; it is in a location relatively convenient to the principal place of employment; and it is the address of record for items such as voter registration, federal income tax reporting, licensing and similar functions. The borrower must occupy the subject within 60 days of closing. If there are multiple borrowers, at least one must occupy and take title to the property.
2.2.2
Second Home A second home is a 1-unit property, including condominiums, and PUDs, that the borrower will occupy for a portion of the year.
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Mortgage Underwriting Guide General Requirements Transaction Types
The property generally is located in a vacation or resort area, but not always, and must be suitable for year round use. A second home should not be in the same local market as the borrower’s primary residence. There can be exceptions such as properties that are located in a recreational area but also part of metropolitan area or properties that are used to minimize the commute to work. There is no specific mileage requirements regarding the distance between a second home and primary residence, but it should make sense that the subject is a second home. Additionally, 2- to 4-unit properties are not eligible. The borrower should not collect rental income from the property. There should be no other occupants besides the borrower(s). The borrower should retain exclusive control over the property and not give a management company control.
2.2.3
Investment Property An investment property is an income-producing property that the borrower does not occupy. The subject can be a 1- to 4-unit property, condominium or PUD.
2.3
TRANSACTION TYPES
2.3.1
Purchase A purchase transaction allows the borrower to use the loan proceeds to finance the purchase of a property. Alternately, the purchase loan proceeds could also pay off the outstanding balance owed on a land contract, or convert an interim construction loan into permanent financing. The borrower should not receive any cash at settlement. The borrower should not be on title to the property prior to the loan closing
2.3.2
Refinance Please refer to specific investor requirements or specific sections of this guide for any variances to the refinance transaction guidelines reflected below:
2.3.2.1
Refinance Transactions with Less Than One Year's Seasoning •
The underwriter should analyze transactions involving the payoff of a first lien that has been seasoned for less than one year.
•
If the first lien being paid off was a purchase transaction, and the original purchase price as stated on the application, is less than the new appraised
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Mortgage Underwriting Guide General Requirements Transaction Types
value the file should contain documentation supporting the increase in value (e.g., appraisal indicates increasing values for the market, appraisal comparable sales support increasing values, documented home improvements, or a copy of the original appraisal showing the original appraised value higher than the original sales price).
2.3.3
•
If the increase in value is unsupported, the underwriter should use the lower of the original purchase price or the new appraised value to determine LTV/TLTV/CLTV.
•
If the underwriter has knowledge that the first lien being paid off was a cash-out refinance transaction with an LTV greater than 80%, the new loan will not be eligible for rate and term refinance parameters.
Rate and Term Refinance A rate and term refinance allows the borrower to pay off the existing mortgage with the proceeds of a new loan secured by the same property. The new loan could lower the interest rate, shorten the term or convert from an adjustable rate mortgage to a fixed rate mortgage. A rate and term refinance allows for minimal cash back to the borrower. The following are generally considered to be a Rate and Term Refinance if the transaction meets the following criteria: •
To be eligible for a rate and term refinance, the last transaction on the property cannot be a cash-out refinance within the last six months. (The new mortgage must be treated as a cash-out refinance. Disbursement date on previous HUD-1 to the new note will be used to calculate the six-month period.)
•
Payoff of the current mortgage to include principal balance plus accrued interest, and any required prepayment penalty, only. (Other costs such as late fees and past-due amounts may not be paid with the new loan proceeds.)
•
If the first mortgage is a Home Equity Line of Credit, a copy of the HUD-1 Settlement Statement from the borrower’s purchase of the subject property must be provided to evidence that the proceeds were fully disbursed on the date of the purchase-money loan and used entirely to acquire the subject property.
•
A copy of the HUD-1 from the borrower’s purchase of the subject property must be provided evidencing that any subordinate financing was used in its entirety to acquire the subject property.
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Mortgage Underwriting Guide General Requirements Transaction Types
2.3.4
•
Standard loan fees (e.g., closing costs on the new mortgage; prepaids, such as interest, taxes, insurance, etc.; and points) may be included in the refinance transaction.
•
Incidental cash to the borrower is allowed, not to exceed the lesser of $2000 or 2% of the principal balance of the new loan amount.
Cash Out Refinance A cash-out refinance transaction allows the borrower to pay off the existing mortgage by obtaining new financing secured by the same property or allows the property owner to obtain a mortgage on a property that is currently owned free and clear. The borrower can receive funds at closing as long as they do not exceed the program requirements. To be eligible for a cash-out refinance the borrower must have owned the property for a minimum of six months prior to the application date. Cash-out refinance transactions must meet the following requirements:
2.3.4.1
•
Any refinance transaction not meeting the requirements for a rate-term refinance is to be considered a cash-out refinance.
•
Continuity of obligation must be demonstrated.
•
Properties listed for sale in the six months prior to application date are limited to 70% LTV/TLTV/CLTV. Properties that were listed for sale must be removed from the market prior to application.
•
To be eligible for a cash-out refinance, the borrower must have owned the property for more than six months, if not the transaction is ineligible. (Disbursement date on the previous HUD-1 to the new note will be used to calculate the six month period.)
PROPERY LISTED FOR SALE If the subject property is currently listed for sale or listed for sale by present owner within the six months immediately preceding the date of the loan application then the loan is ineligible for cash-out refinancing.
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Mortgage Underwriting Guide General Requirements Transaction Types
2.3.5
Relief Refinance – Open Access Key Features: •
125% LTV ratio for Fixed Rate Loans / ARMs may not exceed 105% LTV
•
125% CLTV / HCLTV
•
Must be submitted to Loan Prospector
•
Use of Home Value Explorer (HVE), Freddie Mac’s automated valuation model, to determine property value for certain properties
General Eligibility Requirements The mortgage being refinanced must: •
Be a first-lien, conventional mortgage currently owned or securitized by Freddie Mac.
•
Have a Freddie Mac settlement date on or before May 31, 2009.
•
Be seasoned for at least 3 months.
Borrower Benefit The Relief Refinance Mortgage must result in at least one of the following: •
Reduction in the interest rate of the first lien mortgage.
•
Replacement of an ARM, initial Interest Mortgage (or any mortgage with an interest-only period) or a balloon/reset mortgage with a fixed-rate, fully amortizing mortgage.
•
Reduction in the amortization term of the first-lien mortgage.
•
Reduction in the monthly principal and interest payment of the first-lien mortgage.
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Mortgage Underwriting Guide General Requirements Transaction Types
Eligible Mortgage Products Conventional 15-, 20-, or 30-year fixed rate, fully amortizing mortgages Conventional nonconvertible 5/1, 7/1 or 10/1 fully amortizing ARMs If the mortgage being refinanced is a fixed rate mortgage, the new Relief Refinance Mortgage – Open Access may not be an ARM Eligible Property Types •
Single Family – Primary Residences; 2- to 4-Unit Primary and Second Homes.
•
Condo and PUDs – Primary Residences
•
Condo approval is not required
•
No Condos Allowed in Florida
Refinance Proceeds Relief Refinance Mortgages – the proceeds will pay off the first mortgage (amount includes the UPB and accrued interest through the payoff date); pay related closing costs, financing costs, and prepaids/escrows not to exceed the lesser of 4% of the current UPB of the mortgage being refinanced or $5,000, with cash back not to exceed $250. In the event that there are remaining proceeds from the Relief Refinance Mortgage – Open Access after the proceeds are applied as described below: •
The mortgage amount must be reduced, or the excess amount must be applied as a principal curtailment to the new refinance mortgage at closing and must be clearly reflected on the HUD-1 form or other equivalent closing statement.
•
The proceeds may not be used to pay off or pay down any junior liens. Under no circumstances may cash disbursed to the borrower (or any other payee) exceed the maximum permitted above.
Mortgage Insurance
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Mortgage Underwriting Guide General Requirements Transaction Types
For an LTV ratio greater than 80 percent: If the mortgage being refinanced has mortgage insurance coverage, then the same mortgage insurance coverage percentage must be maintained for the Relief Refinance Mortgage – Open Access. Mortgage Insurance must be re-issued by existing MI Company. If the mortgage being refinanced does not have mortgage insurance, then no mortgage insurance coverage is required for the Relief Refinance Mortgage – Open Access. Underwriting Requirements Relief Refinance Mortgages – Open Access must be submitted to Loan Prospector. Loan Prospector findings must be submitted with GFE. Loan Prospector findings with a risk class of Caution or A-Minus are Ineligible. Collateral Assessment May use HVE or a new appraisal to determine property value. HVE may be used on single family / Condo / PUD – Owner occupied only. To use HVE in lieu of obtaining a full appraisal, Loan Prospector must show the following: •
Message Code Y0 must indicate HVE point value estimate for the subject property
•
Message Code Y1 must indicate a HVE forecast standard deviation for the subject property of .200 or lower
•
Message Code Y2 must indicate a High or Medium confidence level of the HVE point value estimate of the subject property
If using HVE value in lieu of appraisal the file MUST be re-run thru LP using HVE value to determine LTV. Subject Property must be a 1 unit detached or attached dwelling, or a unit in a condominium project or PUD (No Condominiums in Florida). May not be a manufactured home, dwelling on a leasehold estate, or a cooperative unit.
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Mortgage Underwriting Guide General Requirements Title Variations
Copy of Assessor/Field Card from municipality will be required on loans using HVE point value estimate in lieu of appraisal. Secondary Financing Existing junior liens may be refinanced simultaneously with the first mortgage provided the junior lien is being refinanced for one of the following purposes: •
A reduction in the interest rate of the junior lien. To replace an ARM, an interest-only junior lien, or a junior lien with a balloon or call option with a fixedrate, fully amortizing junior lien.
•
A reduction in the amortization term of the junior lien.
•
A reduction in the monthly payment of the junior lien.
The unpaid principal balance of the new junior lien cannot be more than the unpaid principal balance, at the time of payoff, of the junior lien being refinanced. If the junior lien being refinanced is a fixed-rate junior lien, the new junior lien cannot be an ARM. An existing junior lien must be subordinate to the Relief Refinance Mortgage – Open Access, regardless of whether the junior lien is refinanced simultaneously with the first-lien mortgage. An increase in the current unpaid principal amount of any junior lien is permitted for any reason not related to the Relief Refinance Mortgage transaction. No new secondary financing is permitted.
2.4
TITLE VARIATIONS
2.4.1
Fee Simple
Fee Simple is the greatest possible interest a person can have in real estate. The lender must be recorded as the principal on the mortgagor’s estate subject only to liens for taxes and special assessments that are not currently due and payable.
2.4.2
Leasehold Estate A leasehold arrangement is one in which there is a separate owner of the land and the improvements on the land. The landowner grants a lease to the owner of the improvement that gives the right to use the land in exchange for a rental payment. The ownership interest in the
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Mortgage Underwriting Guide General Requirements Title Variations
improvements with the rights granted in the lease to use the loan is called the leasehold interest. The rental payment is called the leasehold payment. The lease or sublease must be valid, in good standing, and in full force. The leasehold must be assignable and/or transferable. All rents must be current. The lease is commonly for a term of 99 years or more and is usually renewable. The remaining term of the lease must extend a minimum of 5 years beyond the maturity date of the mortgage.
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Mortgage Underwriting Guide Freddie Mac Loan Prospector Conforming Loans
CHAPTER 3
3.1
3.1.1
3.1.2
FREDDIE MAC LOAN PROSPECTOR
CONFORMING LOANS
Loans with an "Accept" Risk Class •
The subject loan must pass all eligibility and underwriting tests performed by Loan Prospector. Any verification messages or approval conditions specified on the Loan Prospector Feedback Certificate must be satisfactorily resolved before delivery to the investor.
•
Terms and conditions of the closed loan, and underwriting information in the loan file must match the data on which the Loan Prospector "Accept" risk class is based.
•
All Delegated Loans submitted under this program may be subject to 100% validation audit (at a minimum to include data integrity) and post-funding audit by Norcom. Any inconsistency in the data will require the loan to be reunderwritten by Loan Prospector and may result in non-fund, suspense, or repurchase notification by the investor.
•
All Non-Delegated Loans submitted must have a validation audit (data integrity) and property/appraisal review by Norcom. Any inconsistencies in the data will typically result in the loan having to be re-underwritten by Loan Prospector and may result in a non-fund, suspense, or repurchase notification by Norcom.
Norcom will not approve any Loans with a "Caution" Risk Class •
Any loans scoring a “Caution” risk class from Loan Prospector are ineligible.
•
Norcom will not accept any loan scoring a “Caution” risk class from LP with the Purchase Eligibility message of “500 Freddie Mac Eligible. LP A-minus offering”.
•
Norcom will not accept manually underwritten loans under a delegated underwriting authority, including contract underwritten loans. Manually underwritten loans are defined as loans that receive one of the following responses due to insufficient or invalid credit only:
•
Freddie Mac LP Response:
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Mortgage Underwriting Guide Freddie Mac Loan Prospector Conforming Loans
3.1.3
o
Invalid - only when significantly inaccurate credit or insufficient/invalid credit.
o
Ineligible - only when significantly inaccurate credit or insufficient/invalid credit.
o
Incomplete - only when significantly inaccurate credit or insufficient/invalid credit.
o
Caution - only when significantly inaccurate credit or insufficient/invalid credit.
o
Loans receiving any of the above feedback responses from LP must be submitted to the investor for Prior Approval Underwriting according to each investor's specific guidelines to be eligible for purchase.
Loan Delivery Requirements •
•
Loans delivered as a Freddie Mac Loan Prospector underwritten loan must include: o
Loan Prospector Feedback Certificate.
o
Credit and appraisal documentation as required by LP to include all credit reports and all Credit Scores generated.
o
The above items should be included in the file. Please include any investor specific loan submission summary form, which should include the LP AUS Key Number.
Follow submission requirements as outlined in Norcom’s “Closed Loan Document Checklist”.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
18
Mortgage Underwriting Guide Conforming Conventional Loans General Information
CHAPTER 4
4.1
CONFORMING CONVENTIONAL LOANS
GENERAL INFORMATION Conventional conforming loans should be underwritten to the standards and guidelines for Freddie Mac unless otherwise indicated.
4.2
LOAN-TO-VALUE RATIOS AND OCCUPANCY REQUIREMENTS Refer to Freddie Mac guidelines for loans with a Loan Prospector® certificate for maximum LTV and CLTV. (Please review specific product and investor guidelines for any applicable Geographic Restrictions to the Loan-to-Value Ratios and Available Products.)
Table 4 - 1 PRIMARY RESIDENCE TERMS OF 30 YEARS OR LESS "PURCHASE MONEY" AND “NO CASH-OUT” REFINANCE TRANSACTIONS
Property Type
Maximum LTV w/out Secondary Financing
Maximum LTV with Secondary Financing
Maximum CLTV
1 Unit Dwelling
95%
90%
95%
95%
2- to 4-Unit Dwelling
80%
75%
80%
80%
Maximum
TTLTV
* Min FICO 620 * Loan Term = 10-‐, 15-‐, 20-‐, 25-‐, 30-‐year fixed
*Loan Term = 3/1, 5/1, 7/1, 10/1 ARM (NO interest o nly) * Lender Paid MI Available * Special Terms for condominium transactions in Florida
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
19
Mortgage Underwriting Guide Conforming Conventional Loans Loan-to-Value Ratios and Occupancy Requirements
Table 4 - 2 PRIMARY RESIDENCE TERMS OF 30 YEARS OR LESS “CASH-OUT” REFINANCE TRANSACTIONS* Property Type
Maximum LTV w/out Secondary Financing
Maximum LTV with Secondary Financing
Maximum CLTV
Maximum TLTV
1 Unit Dwelling
85%
85%
85%
85%
2- to 4-Unit Dwelling
75%
70%
75%
75%
* Min FICO 640
Table 4 - 3 SECOND HOME TERM OF 30 YEARS OR LESS* "PURCHASE MONEY" TRANSACTIONS ONLY Property Type
Maximum LTV w/out Secondary Financing
Maximum LTV with Secondary Financing
Maximum CLTV
Maximum TLTV
1 Unit Dwelling
90%
90%
90%
90%
* Min FICO 620
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
20
Mortgage Underwriting Guide Conforming Conventional Loans Loan-to-Value Ratios and Occupancy Requirements
Table 4 - 4 SECOND HOME TERMS OF 30 YEARS OR LESS "NO CASH-OUT" REFINANCE TRANSACTIONS * Property Type
Maximum LTV w/out Secondary Financing
Maximum LTV with Secondary Financing
Maximum CLTV
Maximum TLTV
1 Unit Dwelling
90%
90%
90%
90%
* Min FICO 620
Table 4 - 5 SECOND HOME TERMS OF 30 YEARS OR LESS "CASH-OUT" REFINANCE TRANSACTIONS * Property Type
Maximum LTV w/out Secondary Financing
Maximum LTV with Secondary Financing
Maximum CLTV
Maximum TLTV
1 Unit Dwelling
75%
75%
75%
75%
* Min FICO 640
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
21
Mortgage Underwriting Guide Conforming Conventional Loans Loan-to-Value Ratios and Occupancy Requirements
Table 4 - 6 INVESTMENT PROPERTIES TERMS OF 30 YEARS OR LESS "PURCHASE MONEY" TRANSACTIONS ONLY Property Type
Maximum LTV w/out Secondary Financing
Maximum LTV with Secondary Financing
Maximum CLTV
Maximum TLTV
1 Unit Dwelling
80%
80%
85%
85%
2- to 4-Unit Dwelling
75%
70%
75%
75%
* Min FICO 620
Table 4 - 7 INVESTMENT PROPERTIES TERMS OF 30 YEARS OR LESS "NO CASH-OUT" REFINANCE TRANSACTIONS Property Type
Maximum LTV w/out Secondary Financing
Maximum LTV with Secondary Financing
Maximum CLTV
Maximum TLTV
1 Unit Dwelling
75%
75%
75%
75%
2- to 4-Unit Dwelling
75%
70%
75%
75%
* Min FICO 620
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
22
Mortgage Underwriting Guide Conforming Conventional Loans Age of Documents
Table 4 - 8 INVESTMENT PROPERTIES TERMS OF 30 YEARS OR LESS CASH-OUT" REFINANCE TRANSACTIONS Property Type
Maximum LTV w/out Secondary Financing
Maximum LTV with Secondary Financing
Maximum CLTV
Maximum TLTV
1 Unit Dwelling
75%
75%
75%
75%
2- to 4-Unit Dwelling
70%
65%
70%
70%
* Min FICO 640
4.3
AGE OF DOCUMENTS Information used to make the credit decision must be current. The maximum age of documents at closing is:
Table 4 - 9
Item
Existing Property
New Construction
Credit Documents
90 days old
90 days old
Appraisal
120 days old*
120 days old*
*At closing, if the appraisal is older than 120 days but is less than one year old, obtain an update from the appraiser indicating that the property value has not declined since the original appraisal date. If the effective date of the appraisal exceeds one year or the value has declined, a new appraisal will be required. For a property located in a Market Classification of 3 or 4 a Collateral Consultation Review (CCR) or the FHLMC Form 1032 will be required in addition to the appraisal update.
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23
Mortgage Underwriting Guide Conforming Conventional Loans Underwriting Documentation
The required CCR Review must be obtained by the Seller from a source acceptable to Norcom.
4.4
UNDERWRITING DOCUMENTATION The application package must contain acceptable documentation to support the underwriting decision. When standard documentation does not provide sufficient information to support the decision, additional explanatory statements or documentation must be provided.
4.4.1
Direct Written Verifications Written verifications for employment, deposit accounts and/or mortgage/rental history (VOE/VOD/VOM) must pass directly between the lender and employer, financial institution, mortgagor/landlord, as applicable, without being handled by any third party. Documentation must not contain any alterations, erasures, and correction fluid or correction tape.
4.4.2
Additional Documentation Tax returns, if required, must be true copies of filed returns and must be signed by all applicants. Do not accept copies that are signed by a tax preparer. Tax preparers only sign the filed original. Do not accept W-2 forms that are marked "Employer Copy". Employers do not distribute their copies. Do not accept handwritten W-2 forms or paystubs. Tax returns must be obtained if computer generated documents are not available. Letters of explanation regarding financial circumstances must specifically address the financial or credit concern presented and must contain a complete explanation in the applicant's own words, and be signed and dated by the applicant.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
24
Mortgage Underwriting Guide Conforming Conventional Loans Alternative Documentation
4.5
4.5.1
ALTERNATIVE DOCUMENTATION
Eligibility Criteria Alternative documentation is allowed for all FHLMC eligible loans.
4.5.2
Acceptable Documentation Alternative documentation provided in lieu of "Verification of Employment" and "Verification of Asset" forms must be legible originals or certified true and exact copies. The documentation cannot contain any alterations, erasures or white-outs. The individual certifying the original must include a signature, which contains at least his/her first initial and full surname.
4.5.3
Fax Copies Fax copies in lieu of original documents or certified copies are acceptable subject to the following:
4.5.4
•
Verification transmitted directly from the loan processor to an employer, depository institution, mortgagee or landlord. The employer, depository institution, mortgagee or landlord must transmit the verification directly back to the loan processor.
•
Photocopies or faxes received by the loan originator or loan processor directly from the borrower are acceptable.
Internet Documentation For conforming conventional loans, Internet documents/downloads of credit reports as well as income, employment and asset verification are acceptable. This allowance for Internet documents does not change the required content or level of documentation needed. The information must be easy to read, understandable, and have no evidence of alterations, erasures or white-outs, and must make sense based on the borrower profile and transaction terms. The following source validation criteria apply to all documents obtained via the Internet: •
Identify the borrower as the employee or owner of the applicable account.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
25
Mortgage Underwriting Guide Conforming Conventional Loans Credit
4.5.5
•
Identify the credit reporting agency, employer, or depository/investment firm's name and source of information.
•
Headers, footers, and the banner portion of the printout of the downloaded web page(s) must reflect the appropriate firm.
•
Display the Internet uniform resource locator (URL) address and the date and time printed.
•
If faxing an Internet download, make sure fax header does not cover URL information.
Re-verification Authorization A Borrower's consent must be evidenced by their signature on the appropriate form in order to allow subsequent re-verification as required by investors.
4.6
4.6.1
CREDIT
Credit History An individual’s credit history is considered to be one of the strongest indicators of future credit performance. People who have maintained a long history of excellent credit can, and do manage personal finances properly. Likewise a borrower who has a history of slow payments or has defaulted in the repayment of debt generally does not change their credit habits. Borrowers are required to have a minimum twelve (12) month credit history.
4.6.2
Credit Score Requirements All conventional loans require a credit score to be established for each borrower. The three major Credit Repositories ("Agencies") offer a product that scores each consumer's credit history using the Fair Isaac model. Trademark names include the Experian "Fair Isaac Credit Score" (FICO), Trans Union "Emperica Score" and Equifax "Beacon Score". All are acceptable and are referred to as the "Credit Score”. The term “Underwriting Score” refers to the overall credit score applicable to a specific mortgage loan transaction as determined by Freddie Mac's "Indicator Score".
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
26
Mortgage Underwriting Guide Conforming Conventional Loans Credit
4.6.3
Credit Score Selection The following criteria should be used to determine each individual borrower's credit score: •
If there are three valid credit scores for a borrower, the middle score of the three scores is used.
•
If there are three valid credit scores for a borrower but two of the scores are the same, the lower of the two scores is used.
•
If there are two valid scores for a borrower, the lower of the two scores is to be used.
•
If there is one valid score for a borrower, that score is used.
After selecting the appropriate credit score for each borrower, the Underwriting Score must then be determined:
4.6.4
•
If there is more than one borrower, the lowest selected credit score among all borrowers is the Underwriting Score.
•
When there is only one borrower, the selected credit score for that borrower is also the Underwriting Score.
•
If the loan was underwritten through Freddie Mac's Loan Prospector, the system generated score must be reflected on the loan submission form (FHLMC 1008). Additionally, the original credit report must be included in the file showing the score.
Adverse Credit When significant adverse credit is identified in a borrower's credit history, it is underwriter discretion to request documentation evidencing whether the derogatory information was due to extenuating circumstances or financial mismanagement, and that an acceptable credit history has been re-established. Refer to FHLMC Chapters 37-38 for specific credit underwriting guidelines.
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27
Mortgage Underwriting Guide Conforming Conventional Loans Long Term Debt
4.6.5
Limited or No Traditional Credit History Loans manually underwritten due to receipt of unacceptable results from AUS due to insufficient credit history are not saleable to Norcom.
4.6.6
Inaccurate Credit History Loans manually underwritten due to receipt of unacceptable results from AUS due to credit disputes and/or inaccurate credit history are not acceptable. The borrower will have to correct inaccuracies in their credit file and a new corrected report must be obtained. An explanation from the borrower along with the original credit report must be provided in the loan file. Use of a "Credit Repair" company is not acceptable.
4.6.7
Bankruptcy and Short Sale A bankruptcy offers an individual a chance to start fresh by forgiving debts that simply can’t be paid while offering creditors a chance to obtain some measure of repayment based on what assets are available. A short sale is the sale of a property for less than the total amount necessary to satisfy the mortgage obligation. A short sale occurs when the borrower cannot sell the property for the full amount of their indebtedness and the lender accepts a payoff of less than the total amount owed on the mortgage, if accepting less would reduce the loss the lender would have incurred if the property had been foreclosed upon. Financial Negligence: If the bankruptcy or short sale is due to financial negligence or mismanagement, at least four years must have elapsed from the date of discharge closing and payoff to the lender on the short sale to the date of closing of the new transaction.
4.6.8
Foreclosure Foreclosure is a specific legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
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28
Mortgage Underwriting Guide Conforming Conventional Loans Long Term Debt
4.7
4.7.1
LONG TERM DEBT
Pay Down of Debt Installment or mortgage accounts may not be paid down to ten months or less to allow the borrower to qualify. This type of debt must be paid in full. Payoff of revolving accounts in order to qualify the borrower is generally not allowed, depending on the previous use of the revolving accounts and average balances. If the borrower can evidence that the revolving account or accounts do not typically have high balances and are paid in full each month or frequently, then payoff of revolving accounts for qualifying may be acceptable to the underwriter.
4.7.2
Revolving Accounts The monthly payment on every revolving and open-end account with a balance, regardless of the apparent number of payments remaining, must be included in the borrower’s long-term debt and ratio calculation. If the credit report does not reflect a payment on a currently reporting liability, and the actual payment cannot be determined, a minimum payment may be calculated using the greater of $10.00 or 3% of the outstanding balance.
4.7.3
Loans Secured by Retirement Accounts Payments on loans secured by the borrower's 401(k) or SIP (Savings Investment Plan) are not included in long term debt because they are voluntary payments; however, the underwriter should consider these payments in terms of their possible impact on cash flow and debt ratios. The borrower should indicate plans for debt repayment if the inclusion of a 401(k) or SIP loan payment in the monthly debts would result in a very high total debt-to-income ratio or negative cash flow.
4.7.4
Open-End Lines of Credit (HELOCS) If not shown on the credit report, payments on a home equity line of credit with an outstanding balance may be calculated at 1% of the outstanding balance or the current payment reflected on the borrower’s billing statement.
4.7.5
Deferred Payment Accounts Some debts may have deferred payments or be in a period of forbearance. These debts must be included in the qualifying ratios if there are more than 10 months of payments remaining. When payments on an installment debt are not given on the credit report or are listed as deferred, documentation supporting the required payment must be provided.
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29
Mortgage Underwriting Guide Conforming Conventional Loans Long Term Debt
Examples of acceptable documentation include but are not limited to:
4.7.6
•
Direct verification from the creditor
•
Copy of the installment loan agreement
Deferred Student Loans For a deferred student loan, if the actual payment cannot be determined, a payment should be calculated by using 1.5% of the original student loan balance.
4.7.7
Contingent Liabilities Contingent liabilities are debts that the borrower is not currently required to pay but may be required to pay in the future (e.g., co-signed loans, court ordered payments, previous residence sold through assumption of mortgage with no release of liability). Co-Signed Loans: The monthly payment on a co-signed loan may be excluded from long term debt only with evidence of timely payments being made by someone other than the borrowers. Copies of canceled checks for the last twelve months are acceptable documentation. Assumption with No Release of Liability: The debt on a previous residence may be excluded from long term debt with evidence that the borrower no longer owns the property. The following documents are required: •
Copy of documents transferring ownership of the property;
•
The assumption agreement executed by the transferee; and
•
Evidence that the mortgage is current.
Court Order: If the obligation to make payments on a debt has been assigned to another person by court order, such as a divorce decree, the payment may be excluded from long term debt. The following documents are required: •
Copy of the court order or divorce decree
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30
Mortgage Underwriting Guide Conforming Conventional Loans Down Payment Guidelines
For mortgage debt, a copy of the documents transferring ownership of the property; or •
If a transfer of ownership has not taken place, late payments associated with the loan repayment of the debt owing on the mortgaged property should be taken into account when reviewing the borrower’s credit profile.
Lease Payments: The monthly payment associated with a lease must be included in the total monthly obligations regardless of the number of payments remaining until the end of the lease term. If the lease is near the end of its term the new lease payment should be determined and included in the total monthly debts.
4.8
4.8.1
4.8.2
DOWN PAYMENT GUIDELINES
Minimum Down Payment Requirements •
For a primary residence or second home with an LTV of 80.01% or more, gift funds are allowed only after a minimum down payment of at least 5% has been made from the borrower's own funds.
•
Gift funds are not allowed on investment property transactions.
Cash Assets for Down Payment and Closing Costs In addition to standard liquid assets, the following are considered to be cash assets at 100% of the verified amounts: •
A gift or grant from a municipality, nonprofit religious organization, nonprofit community organization, or the borrower's employer.
•
Saving cash to close.
•
Proceeds from the sale of the borrower's personal property.
•
Individual Development Account.
•
Cash assets requiring liquidation:
•
o
Cash value of life insurance.
o
Publicly traded stocks, bonds, mutual funds, U.S. Government securities:
Retirement Accounts:
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
31
Mortgage Underwriting Guide Conforming Conventional Loans Down Payment Guidelines
o
•
•
IRA, SEP IRA, 401(k), KEOGH, 403(b) and other IRS qualified retirement plans may be verified with a copy of the most recent monthly/quarterly statement evidencing the borrower as the owner and the value of the account.
U.S. Savings Bonds: o
A copy of the bond certificate(s) must be provided evidencing the borrower is the owner and the current value of the bonds; or
o
Include a statement from the seller of the bonds or a financial institution attesting to the fact that they have seen the bonds and include a list of the serial numbers of the bonds, dates of maturity, types, amounts, and stating that the borrower is the owner; and
o
A copy of the appropriate U.S. Treasury Table evidencing the current values of the bonds.
Gift from Relatives: A gift letter is required listing the donor's name, address (city, state and zip), relationship to the borrower, and the dollar amount of the gift. The gift letter must be signed by the donor. The donor must be: o
related to; or
o
the fiancé/fiancée; or
o
a domestic partner of the borrower.
When the gift funds are received prior to the initial verification of assets (bank statement balance includes gift funds), the loan file must contain the following documentation: o
Verification of funds in the borrower's account.
o
Verification of the transfer of the gift funds from the donor to the borrower.
When the gift funds are received after the initial verification of assets, the loan file must contain the following documentation: o
Verification of the transfer of the gift funds from the donor to the borrower.
o
Transfer of funds can be verified by a copy of the donor's withdrawal slip and borrower's deposit slip or by a copy of the donor's canceled check and evidence of deposit into borrower's account.
When the gift funds are transferred at closing, the loan file must contain the following documentation: o
Verification of the transfer of the gift funds from the donor to the borrower.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
32
Mortgage Underwriting Guide Conforming Conventional Loans Down Payment Guidelines
o
•
Transfer of funds can be verified by a copy of the donor's check or wire transfer reflecting the donor as the remitter and one line of the settlement statement clearly indicating the exact amount of the gift funds received from the donor.
Gift or Grant from a Municipality, Non-Profit Organization or Employer: A gift or grant from a municipality, non-profit religious organization, nonprofit community organization or the borrower's employer must be evidenced by a copy of: o
The award letter sent to the borrower; or
o
The legal agreement that specifies the terms and conditions of the gift or grant.
o
If the gift or grant is from the borrower's employer, the employer's formal gift program must be verified. Examples of acceptable documentation include, but are not limited to: §
Copy of gift program guidelines from employee handbook
§
Letter from employer's human resources department
•
File must contain evidence of the transfer of the funds.
•
The award letter or the legal agreement must verify all of the following:
•
o
That repayment of the gift or grant is not required;
o
How the funds will be transferred (e.g., to borrower, closing agent, Lender, etc.); and
o
The fact that there will be no lien placed against the property as a result of the gift or grant.
Sale of Personal Property: The following documentation is required to evidence the sale of personal assets for funds to close: o
Personal property previously liquidated: §
Bill of sale reflecting: ¤ Date of sale; ¤ Description of asset sold; ¤ Sales price; ¤ Signatures of buyer and seller; and ¤ Copy of the check from the purchaser of the asset or the borrower's bank statement verifying the deposit of proceeds from the sale.
o
Personal property to be liquidated:
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
33
Mortgage Underwriting Guide Conforming Conventional Loans Subordinate Financing
o
•
§
Document the existence and the borrower's ownership of the asset (e.g., car title);
§
Document the value of the asset through a third party source (e.g., appraisal or blue book); and
§
Letter of intent, contract or other evidence that a buyer exists at the specified price.
Evidence of the actual sale, sufficient proceeds received from the sale, and proof that any outstanding liability owed against the asset was paid in full will be required at closing.
Individual Development Account (IDA): An IDA is a savings account designated by the borrower for the purpose of purchasing a residence and into which the borrower has regularly deposited funds that are matched by funds from a municipality, non-profit or religious organization, the borrower's employer, or a regional Federal Home Loan Bank. Depending on whether the IDA had a provision that requires repayment of the matched funds, the requirements of either Option A or Option B must be met. o
o
Option A (no repayment provision): §
Matching funds may be counted as cash for the full or partial down payment, closing costs, financing costs and prepaid items or escrow deposits;
§
Document the savings plan and regular payments made by the borrower and the matching organization;
§
Allow for up to a 4 to 1 match by the matching organization;
§
Borrower must comply with any vesting requirements of the IDA program.
Option B (repayment provision): §
All matching funds may be included as a gift or grant after the borrower has made the initial down payment from his own funds as required by the specific program;
§
Document the savings plan and regular payments made by the borrower and the matching organization;
§
Allow for up to a 3 to 1 match;
§
Borrower must comply with any vesting requirements of the IDA program.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
34
Mortgage Underwriting Guide Conforming Conventional Loans Subordinate Financing
4.9
SUBORDINATE FINANCING Subordinate financing is permitted on most loan programs. The repayment terms for most types of subordinate financing must provide for regular payments that cover at least the interest due so that negative amortization will not occur, and must permit prepayment at any time without penalty. The terms of the subordinate financing should require interest at a market rate and the repayment terms for subordinate financing must provide for a fixed payment amount. There are two types of subordinate financing: 1) Home Equity Lines of Credit (HELOC) is an open-end credit line secured by a 1- to 4family dwelling that allows for multiple advances according to the provisions of the note and financing agreement, and is typically in a subordinate lien position. 2) A Closed End mortgage provides for a single advance of funds at the time of loan closing and does not allow for future draws. •
Terms: For transactions that include subordinate financing, the following requirements apply for both HELOC and Closed End Loans: o
The subordinate financing must be recorded and clearly subordinate to the first mortgage.
o
The maximum LTV/TLTV/CLTV may not exceed the guideline limits for the product and occupancy type shown in the Loan-to-Value Ratios and Occupancy Requirements Sections.
o
If there is or will be an outstanding balance at the time of closing, the monthly payment for the subordinate financing must be included in the calculation of the borrower's debt-to-income ratio(s).
o
If the subordinate financing is from the borrower’s employer, it does not have to require regular payments of either principal and interest or interest only. Employer subordinate financing may be structured in any of the following ways: §
Fully amortizing level monthly payments;
§
Deferred payments for some period before changing to fully amortizing level payments;
§
Deferred payments over the entire term; or
§
Forgiveness of the debt over time;
§
The financing terms may provide for the employer to require full repayment of the debt if the borrower’s employment is terminated (either voluntarily or involuntarily) before the maturity date of the subordinate financing.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
35
Mortgage Underwriting Guide Conforming Conventional Loans Qualifying Ratios
o •
The terms of a HELOC may provide for a balloon or call option within the first five years after the Note date of the first Mortgage.
Acceptable Documentation: o
The terms of any subordinate financing must be verified. The following sources of verification are deemed acceptable: §
Existing Subordinate Financing: ¤ A copy of the credit report; or ¤ A copy of the loan statement; or ¤ A direct verification from the lender; and ¤ A copy of the mortgage note and security instrument.
§
New Subordinate Financing: ¤ A copy of the mortgage note; or ¤ A direct verification from the lender; or ¤ A copy of the commitment letter from the lender.
Note: If the alternative documentation does not include sufficient information to evidence compliance with requirements listed above, a copy of the subordinate lien's security instrument should be provided.
4.10
QUALIFYING RATIOS Debt ratios are calculations used to determine whether the borrower will be able to meet expenses involved in home ownership. There are two ratios to assess the borrower’s eligibility – housing-to-income ratio and debt-to-income ratio. Both ratios may not always be considered and could be determined by AUS requirements.
4.11
HOUSING-TO-INCOME RATIO The monthly housing expense includes the following: •
Principal and interest for the mortgage that is secured by the borrower’s principal residence
•
Monthly amounts for: o
Subordinate financing on the subject
o
Hazard insurance
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
36
Mortgage Underwriting Guide Conforming Conventional Loans Debt-To-Income Ratio
4.12
o
Real estate taxes
o
Mortgage insurance premiums
o
When applicable: §
Homeowners association dues
§
Optional credit insurance
§
Monthly cooperative fees
§
Leasehold payments
§
Special assessments
§
Flood insurance fees
§
Tax abatements
DEBT-TO-INCOME RATIO Monthly debt-to-income ratio is the sum of the monthly housing-to-income ratio plus the following: •
Payments on revolving debt
•
Installment debt with more than 10 months remaining
•
Monthly PITIA for any additional properties owned by the borrower including second homes and investment properties that are non-income producing
•
If rental income is not used to qualify the subject investment property, PITIA plus operating expenses
•
Current real estate and taxes on properties owned free and clear
•
Child support, alimony and separate maintenances with more than 10 months remaining
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
37
Mortgage Underwriting Guide Conforming Conventional Loans Standard Qualifying Ratios For Conforming Loans 4.13
STANDARD QUALIFYING RATIOS FOR CONFORMING LOANS Typically applies to all Conforming Loans. Refer to product/program specific guidelines for complete parameters.
Table 4 - 10 Underwriting Method
Total Debt-to-Income Ratio
Occupant Borrower’s Ratio w/ Non-occupant Co-borrower
LP Accept/DU Approve
45%
45%
Table 4 - 11 ADJUSTABLE RATE MORTGAGES* Product
Qualifying Rate for Calculating Ratios
Conforming – 3/1 ARMs
LP users follow Freddie Mac published guidelines
Conforming - 5/1, 7/1 & 10/1 ARMs
Note rate
*ARM products with Interest-Only features must be qualified at the fully indexed rate as well as the fully amortizing payment.
4.14
MINIMUM DOWN PAYMENT REQUIREMENTS For a primary residence or second home with an LTV in excess of 80%, gift funds are allowed only after a minimum down payment of at least 5% has been made from the borrower's own funds. Gift funds are not allowed on investment property transactions.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
38
Mortgage Underwriting Guide Conforming Conventional Loans Required Reserves
4.15
REQUIRED RESERVES For 2- to 4-unit primary home transactions, cash reserves equal to six months PITI for the subject property are required when rental income from the units is used for qualifying. For all 1- to 4-unit investment property transactions, cash reserves equal to six months PITI for the subject property are required, and cash reserves equal to two monthly payments of PITI for each other financed second home or investment property in which the borrower has an ownership interest or on which the borrower is obligated. The reserve requirement may not be waived.
4.16
PREPAID COSTS •
Prepaid settlement costs that are normally paid by the borrower, are classified as: o
Per diem interest charges from the date of disbursement through the end of the month
o
Real estate taxes covering any period after the date of settlement
o
Hazard insurance premiums and reserves toward future premiums
o
Escrow accruals required for the renewal of the MI premium
•
The amount the property seller may pay toward prepaid items must be included in total contribution limits.
•
The amount that the borrower's employer pays towards the prepaids is not included in total contribution limitations.
•
The property seller (or the borrower's employer) may pay the following prepaids: o
Interest charges from date of disbursement through the end of the month
o
Real estate taxes covering any period after the date of settlement
o
Hazard insurance premiums and reserves toward future premiums
o
The escrow accruals required for the renewal of the MI premiums
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
39
Mortgage Underwriting Guide Conforming Conventional Loans Total Contribution Limits
•
4.17
The amount the lender or seller may pay toward prepaid items must be included in the total contribution limits.
TOTAL CONTRIBUTION LIMITS The maximum allowable contributions from interested parties based on the lesser of the purchase price or appraised value are:
Table 4 - 12 Property Type
LTV/ CLTV
Maximum Contribution
Primary Residence
> 90% > 75 ≤ 90% ≤ 75%
3% 6% 9%
Second Home
> 90% > 75 ≤ 90% ≤ 75%
3% 6% 9%
Investment Property
All LTV/TLTV/CLTVs
2%
Note: Seller contributions for HOA dues must be paid directly to the Association
HUD-1 review: •
To ensure that all fees, disbursements and charges reflected on the settlement statement were fully disclosed in the purchase agreement and available to the appraiser for consideration in determination of the property’s market value, review of both the borrower’s and seller’s side of the HUD-1 is required.
•
Disbursements on the seller side of the HUD-1 to the borrower or an entity controlled by the borrower, or to a company owned by the seller, require additional consideration.
•
Real estate commissions must include all commissions on page two of the HUD-1 (700 series section), as well as any non-lien related disbursements such as: o
Marketing expenses;
o
Administration fees;
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
40
Mortgage Underwriting Guide Conforming Conventional Loans Evaluating Income
•
4.18
o
Finder’s fees;
o
Referral fees;
o
Consulting fees; or
o
Assignment of sale fees.
Any combination of the above disbursements exceeding 8% of the sales price must be treated as a sales concession and deducted dollar-for-dollar from the sales price for purposes of calculating the LTV/TLTV/CLTV.
EVALUATING INCOME
4.18.1
Stable Monthly Income
Establishing stable monthly income is based on the type of income received, the length of time received and whether or not the income is likely to continue. In addition, for salaried applicants, considerations in determining stable income are length of time employed in current position and length of time employed in a current profession.
4.18.2
Income Documentation
Depending on the type of employment, various documentation requirements may be applied based on full documentation or alternative documentation methods, and considerations as to whether the borrower is salaried, commissioned or self-employed, etc. Refer to FHLMC Ch. 37.13 for establishing stable income and required documentation.
4.18.3
Verification of Employment
Employment and income for a salaried employee may be verified by obtaining all of the following documentation in lieu of a "Verification of Employment" (VOE): •
Pay stubs covering a 30-day period
•
The borrower's W-2 forms for the past two years
•
The W-2 forms must be complete and legible
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
41
Mortgage Underwriting Guide Conforming Conventional Loans Evaluating Income
4.18.4
Income Analysis
Conventional Loans should be underwritten to the underwriting guidelines published by Freddie Mac unless indicated otherwise in this section. •
Verbal Verification of Employment: o
•
A verbal verification of employment is required for all borrowers, within 10 days prior to closing. This policy applies to all income types with the exception of passive income.
Employment by Relatives or Transaction Participants: o
If the borrower is employed by a relative, a closely held family business, the property seller, real estate agent, or any party to the real estate transaction, the following documentation must be obtained: §
Borrower's signed and completed personal federal income tax returns for the most recent one-year period, and
§
Verification of Employment form (VOE); or
§
Pay stub(s) with W-2 form(s).
•
Current income reported on the VOE or pay stub may be used if it is consistent with W2 earnings reported on the tax returns. If the tax returns do not include W-2 earnings or income is substantially lower than the current VOE or pay stub, further investigation is needed to determine whether income is stable.
•
Child Support, Alimony or Maintenance Income: o
•
In order to be used as income, child support, alimony or maintenance payments must reasonably be expected to continue for at least a three-year period. The following documentation is required: §
Copy of the final divorce decree, legal separation agreement or court order; and
§
Copies of court records, bank statements or canceled checks evidencing a minimum of six months’ receipt of payments.
Foreign Income:
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
42
Mortgage Underwriting Guide Conforming Conventional Loans Evaluating Income
•
o
Foreign Income is acceptable only if income can be verified on U.S. personal tax returns for the last two years.
o
Foreign income should be paid in U.S. currency; however, income paid in foreign currency may be considered on a case-by-case basis if it's converted into U.S. currency.
Notes Receivable, Installment Sales and Land Contracts: o
Secured: §
o
Unsecured: §
•
Evidence of receipt for the last 12 months of income from notes receivable or installment sales or land contracts is required in addition to a copy of the note verifying payment amount and remaining term of at least three years.
Evidence of receipt for the last 12 months of income from unsecured notes receivable is required in addition to a copy of the note verifying payment amount and remaining term of at least three years.
Sale or Conversion of Primary Residence: o
If the borrower's current Primary Residence is pending sale and the sale will not close before the Mortgage Note Date, or for Construction Conversion and Renovation Mortgages, the Effective Date of Permanent Financing, the following requirements must be met:
o
The amount of both the housing payment on the residence that is pending sale and the amount of the payments on the subject Mortgage must be included in the monthly debt payment-to-income ratio in accordance with the requirements in Freddie Mac Chapter 37.16, and
o
The borrower must have reserves equal to six monthly payments of principal, interest, taxes and insurance (PITI) for the new Primary Residence and six monthly payments of PITI for the current Primary Residence pending sale. The required reserves can be reduced to two monthly payments of PITI for the new Primary Residence and two monthly payments of PITI for the property pending sale if the following requirements are met:
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
43
Mortgage Underwriting Guide Conforming Conventional Loans Evaluating Income
§
The Seller documents the value of the property pending sale by obtaining a new appraisal with at least an exterior-only inspection that meets Freddie Mac requirements and is dated no more than 60 days prior to the Note Date, or for Construction Conversion and Renovation Mortgages, the Effective Date of Permanent Financing, and
§
The loan-to-value (LTV)/total LTV (TLTV)/Home Equity Line of Credit (HTLTV) ratio for the property pending sale is less than or equal to 70%.
The Seller does not need to include the amount of the payment on the property pending sale in the monthly debt payment-to-income ratio when the Mortgage file contains all of the following documentation: •
The borrower's executed 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 the borrower has reserves equal to six months’ PITI for both mortgages or two months’ PITI for both mortgages if the LTV/TLTV/HTLTV ratio for the current Primary Residence is less than or equal to 70% as evidenced by at least an exterioronly inspection that meets Freddie Mac requirements, dated no more than 60 days prior to the Note Date, or for Construction Conversion and Renovation Mortgages, the Effective Date of Permanent Financing.
The Seller does not need to include the amount of the payment on the property pending sale in the monthly debt payment-to-income ratio or meet the reserve requirement when the Mortgage file contains the following documentation: •
An executed buyout agreement that is part of an employer relocation plan where the employer/relocation company takes responsibility for the outstanding Mortgage(s). o
If the current primary residence is pending sale but will not be closed prior to the closing date of the new residence or will convert to a Second Home and at least 30 percent equity in the current primary residence cannot be documented.
If the borrower is converting a Primary Residence to a second home, and purchasing a new Primary Residence, the following requirements must be met: •
The amounts of both the housing payment of the residence being converted to a second home and the subject Mortgage must be included the monthly debt payment-toincome ratio in accordance with the requirements in Freddie Mac Chapter 37.16, and
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
44
Mortgage Underwriting Guide Conforming Conventional Loans Evaluating Income
•
The borrower must have reserves equal to six monthly payments of PITI for the new Primary Residence and six monthly payments of PITI for the property being converted. The required reserves can be reduced to two monthly payments of PITI for the new Primary Residence and two monthly payments of PITI for the property being converted if the following requirements are met: o
The Seller documents the value of the property being converted by obtaining a new appraisal with at least an exterior-only inspection that meets Freddie Mac requirements and is dated no more than 60 days prior to the Note Date, or for Construction Conversion and Renovation Mortgages, the Effective Date of Permanent Financing, and
o
The LTV/TLTV/HTLTV ratio for the property being converted is less than or equal to 70%.
Borrower converting 1-unit Primary Residence to an Investment Property •
If the borrower is converting their 1-unit Primary Residence to an Investment Property and purchasing a new Primary Residence, the following requirements must be met: o
The borrower must have reserves equal to six monthly payments of PITI for the new Primary Residence and six monthly payments of PITI for the property being converted. The required reserves can be reduced to two monthly payments of PITI for the new Primary Residence and two monthly payments of PITI for the property being converted if the following requirements are met: §
The Seller documents the value of the property being converted by obtaining a new appraisal with at least an exterior-only inspection that meets Freddie Mac requirements and is dated no more than 60 days prior to the Note Date, or for Construction Conversion and Renovation Mortgages, the Effective Date of Permanent Financing, and
§
The LTV/TLTV/HTLTV ratio for the property being converted is less than or equal to 70%.
§
If the LTV/TLTV/HTLTV ratio of the property being converted is less than or equal to 70% as evidenced by an appraisal with at least an exterior-only inspection that meets Freddie Mac requirements as described above, the Seller can use rental income to qualify the borrower provided that the requirements of Freddie Mac Chapter 37.14(d) are met, including the requirement that the borrower's federal income tax returns must reflect a two-year history of managing investment properties when a signed lease is used to determine the net
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45
Mortgage Underwriting Guide Conforming Conventional Loans Evaluating Income
rental income. The rental income must be documented with a copy of the fully executed lease and, in addition, the receipt of a security deposit from the tenant with evidence of the deposit into the borrower's designated account. §
If the LTV/TLTV/HTLTV ratio is greater than 70% for the Primary Residence being converted to an Investment Property, the Seller cannot use rental income to qualify the borrower. The borrower's previous housing payment and the payments on the subject Mortgage must both be included in the monthly debt payment-to-income ratio in accordance with the requirements in Freddie Mac Chapter 37.16.
Borrower converting 2- to 4-unit Primary Residence to an Investment Property If the borrower is converting their 2- to 4-unit Primary Residence to an Investment Property and purchasing a new Primary Residence, the following requirements must be met: •
The borrower must have reserves equal to six monthly payments of PITI for the new Primary Residence and six monthly payments of PITI for the property being converted. The required reserves can be reduced to two monthly payments of PITI for the new Primary Residence and two monthly payments of PITI for the property being converted if the following requirements are met: o
The borrower documents the value of the property being converted by obtaining a new appraisal with at least an exterior-only inspection that meets Freddie Mac requirements and is dated no more than 60 days prior to the Note Date, or for Construction Conversion and Renovation Mortgages, the Effective Date of Permanent Financing, and
o
The LTV/TLTV/HTLTV ratio for the property being converted is less than or equal to 70%.
o
Rental income from the unit previously occupied by the borrower may be used to qualify the borrower, provided that the LTV/TLTV/HTLTV ratio of the 2- to 4unit property being converted is less than or equal to 70% as evidenced by an appraisal with at least an exterior-only inspection that meets Freddie Mac requirements as described above. In such event, the Seller may use up to 75% of the gross rental income from a fully executed lease on the unit previously occupied by the borrower, as long as the Seller obtains proof of receipt of a security deposit from the tenant and maintains evidence of the deposit into the borrower's designated account in the Mortgage file. If the LTV/TLTV/HTLTV ratio is greater than 70% for the Primary Residence being converted to an
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46
Mortgage Underwriting Guide Conforming Conventional Loans Evaluating Income
Investment Property, the Seller cannot use rental income for the unit previously occupied by the borrower to qualify. o
Rental income for the units not previously occupied by the borrower may be used to qualify the borrower, provided that the rental income requirements for a 2- to 4-unit Investment Property in Freddie Mac Chapter 37.14(d) are met and the borrower has reserves equal to six months PITI for both Mortgages.
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47
Mortgage Underwriting Guide Appraisal Standards Evaluating Income
CHAPTER 5
5.1.1
APPRAISAL STANDARDS
Lender Standards All appraisals must comply with the Office of the Comptroller of the Currency (OCC) Interagency Statement on Independent Appraisal and Evaluation Functions (OCC AL 2003-9). Additional commentary concerning this Statement can be found in the “Frequently Asked Questions” Bulletin (OCC Bulletin 2005-6). The appraiser must not have a direct or indirect interest, financial or otherwise, in the property or in the transaction. Selection criteria should ensure that the appraiser is independent of the transaction and is capable of rendering an unbiased opinion. An appraisal prepared by an individual who was selected or engaged by a borrower, property seller, real estate agent or other interested party is not acceptable. "Re-addressed appraisals" or appraisal reports that are altered by the appraiser to replace any references to the original client with the lender's name are not acceptable. Additionally, the borrower, property seller, real estate agent or other interested party is not allowed to select an appraiser from an approved appraiser list. Effective internal controls should require that only qualified and adequately trained underwriters, who are not involved in the loan production process, review appraisals. To maintain independence, the underwriter should not directly report to someone involved in loan production. Norcom expects the underwriting review to include confirming the independence of the appraiser in addition to a comprehensive technical review of the appraiser's analysis prior to making a final credit decision. Any exceptions or red flags should be escalated accordingly.
5.1.2
Agency Guidelines Freddie Mac Loan Prospector (LP) may allow an alternative to a full URAR appraisal using either a Minimum Assessment Feedback (Form 2070) or a PIA (Property Inspection Alternative). These options are acceptable provided a copy of the final LP Feedback Certificate allowing a Minimum Assessment Feedback (Form 2070) or PIA is included with the loan file and provided the applicable product guideline is not more restrictive. Refer to Freddie Mac Single Family Seller Guide Chapter 44 for additional information on using a Minimum Assessment Feedback or Property Inspection Alternative. Loans with a PIA will be subject to an additional delivery fee as stated on the LP Feedback. Norcom, including its authorized Third Party Originators, represents and warrants the following when using any alternative to a full URAR appraisal as described above:
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48
Mortgage Underwriting Guide Appraisal Standards Evaluating Income
•
The Mortgage is an LP Accept mortgage meeting the requirements of applicable sections of the Freddie Mac or Fannie Mae Selling Guide, and
•
All data entered into LP on which the final LP Feedback Certificate was based were true and accurate and remained unchanged as of the closing date of the Mortgage, and
•
The property address on the final LP Feedback Certificate is the correct address for the Mortgaged Premises, and
•
The subject property has been occupied as a residence, is an existing building, and is not undergoing renovation.
That each appraisal or appraisal alternative submitted to Norcom in connection with a Mortgage Loan was reviewed under Norcom’s established review procedures and was found to be acceptable in accordance with the standards set forth within this guide and any other related standards published by Norcom.
5.1.3
5.1.3.1
Property Appraisal Requirements
Conventional Purchase Transactions •
The property Seller must have taken title to the subject property more than 90 days prior to the contract date on the sale of the property to the applicant.
•
Evidence of required seasoning must be submitted in the underwriting file. Underwriters must verify that the property seller on the purchase contract is the owner of record.
•
Appropriate documentation must be submitted and cleared prior to closing. Documentation may include, but is not limited to, a property sales history report, a copy of the deed of conveyance, a copy of a property tax bill, a computer generated print-out from the assessor's website or the title commitment or binder indicating the legal ownership of the property.
•
Appraisals must indicate required sales history information as required by regulation.
•
Property Sales involving any of the following entities as property seller are exempt from these seasoning requirements:
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
49
Mortgage Underwriting Guide Appraisal Standards Evaluating Income
5.1.3.2
o
Norcom
o
HUD
o
VA
o
USDA
o
Fannie Mae
o
Freddie Mac
o
Approved Correspondent Lender
o
Property acquired through inheritance or divorce
Conventional Refinance Transactions •
The applicant must have taken title to the subject property more than 180 days prior to the loan application date for any cash-out refinance transactions.
•
A rate-term refinance transaction on loans where the borrower has taken title to the subject property at least 30 days prior to the loan application date is typically acceptable if there is a reasonable relationship between the acquisition cost and the current appraised value.
•
Increased values as a result of improvements to the subject property by the current owner may be acceptable with adequate documentation regarding the improvements.
•
If the property has been acquired within 120 days of the application date, consider the lower of the documented acquisition cost or the new appraised value for determining LTV/TLTV/CTLTV.
•
A new appraisal will be required for all transactions regardless of the date of the original appraisal.
•
The prior purchase transaction must be documented with one or more of the following:
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
50
Mortgage Underwriting Guide Appraisal Standards Evaluating Income
5.1.4
5.1.4.1
o
HUD-1 Settlement Statement
o
Conveyance Deed (with Sales Price Information)
o
Proof of Paid Real Estate Transfer Taxes (with Sales Price Information)
o
Chain of Title (with Transfer Dates and Sales Price Information)
•
Inherited properties are exempt from these requirements.
•
Evidence of required seasoning must be submitted in the underwriting file. Underwriters must verify borrower is the owner of record.
•
Appraisals must indicate required sales history information as required by regulation.
Appraisal Reporting Forms
Freddie Mac Form 70: Uniform Residential Appraisal Report Used for 1-unit properties, units in planned unit developments and condominium projects that consist solely of detached dwellings (site condominium). The appraiser must, at a minimum: •
Perform a visual inspection of the interior and exterior areas of the subject property
•
Inspect the neighborhood
•
Inspect each of the comparable sales from at least the street
•
Research, verify and analyze data from reliable public and/or private sources
•
Report their analysis, opinions and conclusions
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
51
Mortgage Underwriting Guide Appraisal Standards Evaluating Income
5.1.4.2
Freddie Mac Form 2055: Exterior-Only Inspection Report Used to appraise 1-unit properties including a unit in a planned unit dwelling for Agency loans. The appraiser must, at a minimum:
5.1.4.3
•
Perform a visual inspection of the exterior areas of the subject property from at least the street
•
Inspect the neighborhood
•
Inspect each of the comparable sales from at least the street
•
Research, verify and analyze data from reliable public and/or private sources
•
Report their analysis, opinions and conclusions
Freddie Mac Form 465: Individual Condominium Report Used to appraise a unit in a condominium project or a condominium unit in a PUD based on an interior and exterior of the subject property. The appraiser must, at a minimum: •
Perform a visual inspection of the interior and exterior areas of the subject property from the street
•
Inspect and analyze the condominium project
•
Inspect the neighborhood
•
Inspect each of the comparable sales from at least the street
•
Research, verify and analyze data from reliable public and/or private sources
•
Report their analysis, opinions and conclusions
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
52
Mortgage Underwriting Guide Appraisal Standards Evaluating Income
5.1.4.4
Freddie Mac Form 466: Exterior-Only Inspection, Individual Condominium Unit Used to appraise a unit in a condominium project or a condominium unit in a PUD based on an exterior-only of the subject property. The appraiser must, at a minimum:
5.1.4.5
•
Perform a visual inspection of the exterior areas of the subject property from at least the street
•
Inspect and analyze the condominium project
•
Inspect the neighborhood
•
Inspect each of the comparable sales from at least the street
•
Research, verify and analyze data from reliable public and/or private sources
•
Report their analysis, opinions and conclusions
Freddie Mac Form 72: Small Residential Income Property Appraisal Report Used for all two- to four-unit properties, including two- to four-unit properties in a planned unit development. The appraiser must, at a minimum: •
Perform a visual inspection of the interior and exterior areas of the subject property
•
Inspect the neighborhood
•
Inspect each of the comparable sales from at least the street
•
Research, verify and analyze data from reliable public and/or private sources
•
Report their analysis, opinions and conclusions
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
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Mortgage Underwriting Guide Appraisal Standards Evaluating Income
5.1.4.6
Freddie Mac Form 1000: Single Family Comparable Rent Schedule A Single Family Comparable Rent Schedule is required with one-unit investment properties. The form, which is prepared by the appraiser, is designed to present the information needed to determine the market rent for a single-unit investment property.
5.1.4.7
Freddie Mac Form 998: Operating Income Statement This form is used to determine the amount of operating income that can be used in evaluating the borrower’s credit. The underwriter will use the second page of the form to calculate monthly operating income and net cash flow for the property, and to explain any adjustments made to the applicant’s figures.
5.1.4.8
Freddie Mac Form 72: Market Conditions Addendum to the Appraisal Report Form is intended to provide the lender with a clear and accurate understanding of the market trends and conditions prevalent in the subject neighborhood. The form provides the appraiser with a structured format to report the data and to more easily identify current market trends and conditions. The appraiser’s conclusions are to be reported in the “Neighborhood” section of the appraisal report.
5.1.4.9
Freddie Mac Form 2070 This form is not an appraisal report. Freddie Mac Form 2070 – Loan Prospector Condition and Marketability Report When Loan Prospector recommends Form 2070, they have determined the reasonableness of the sales price or estimated value submitted to the AUS as adequate collateral for the mortgage loan. A property appraisal is not required for these transactions . The following are required with all appraisals (except for Forms 2075/2070): •
A street map that shows the location of the subject property and all comparable sales the appraiser used.
•
A sketch of the building improvements or condominium/cooperative unit with dimensions and calculations used to estimate for gross building area.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
54
Mortgage Underwriting Guide Appraisal Standards Evaluating Income
•
Clear, descriptive photos that show the front and rear of the subject, and a street scene.
•
Clear, descriptive photos that show the front of each comparable sale.
•
Photos should include any improvements, amenities, conditions and external influences that materially impact market value or marketability.
•
Any other data necessary to provide an adequately supported opinion of market value.
•
Interior appraisals should also include clear, descriptive photos that show: o
The kitchen, all bathrooms, and the main living area
o
Examples of physical deterioration, if present
o
Examples of recent updates such as restoration, remodeling and renovation, if present.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
55
Mortgage Underwriting Guide Specific Property Types – Eligible Products Properties Subject to Occupancy Restrictions
CHAPTER 6
SPECIFIC PROPERTY TYPES – ELIGIBLE PRODUCTS
The following are general acceptable guidelines; however, please refer to specific investor requirements to determine eligibility of specific property types.
6.1
PROPERTIES SUBJECT TO OCCUPANCY RESTRICTIONS Reasonable local, state or federal restrictions on the maximum number of occupants permitted to occupy a dwelling unit are acceptable as long as such limitations are applied to all occupants and do not operate to discriminate on the basis of race, color, religion, sex, national origin, handicap or familial status. If any restriction is noted in the purchase contract, appraisal, title commitment, or in the project covenants/restrictions, legal counsel should be consulted to determine the risk and your ability to make the loan.
6.2
PROPERTIES SUBJECT TO AGE RESTRICTIONS If a housing development has an age restriction, it must comply with one of the following Fair Housing Act exemptions:
6.2.1
Government Housing Programs The prohibitions against discrimination on the basis of age or familial status do not apply with respect to dwellings provided under any STATE OR FEDERAL PROGRAM specifically designed and operated to assist the elderly or to house elderly persons. The Secretary of HUD must determine that the development meets this exemption.
6.2.2
Age Restrictions - 62 Years of Age or Older The prohibitions against discrimination on the basis of age or familial status do not apply with respect to dwellings intended for, and solely occupied, by persons 62 years of age or older.
6.2.3
Age Restrictions - Any Age Restriction The prohibitions against discrimination on the basis of age or familial status do not apply with respect to dwellings intended and operated for occupancy by persons 55 years of age or older provided that all of the following apply: •
At least 80% of the occupied units are occupied by persons 55 years of age or older; and
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
56
Mortgage Underwriting Guide Specific Property Types – Eligible Products Condominium Projects
6.2.4
•
The housing facility or community publishes and adheres to policies and procedures that demonstrate the intent to provide housing to persons 55 years of age or older; and
•
The housing facility or community can provide documentation for verification of occupancy, by means of: o
Reliable surveys and affidavits;
o
Examples of published written policies and procedures for determination of compliance with the Fair Housing Act.
Required Documents for Age Restricted Properties When it is determined that a housing development is subject to age restrictions, the Homeowners Association must complete and sign the form Housing Developments Subject to Age Restrictions (Form 38). By signing this form the association certifies that the housing development is in compliance with the Fair Housing Act. The fully executed form must be included in the underwriting package.
6.3
CONDOMINIUM PROJECTS In addition to the condo review options reflected in this section, Freddie Mac published project guidelines are acceptable. Freddie Mac’s project acceptance processes are permitted per the terms of Freddie Mac’s Seller/Servicer Guide Chapter 42.11 for Conforming LP Loans. These guidelines must not be applied to Non-Conforming Loans (refer to Freddie Mac Loan Prospector for exceptions available under AU Options for Non-Conforming loans). FHAapproved projects are also acceptable for conventional loans per the terms of Freddie Mac published parameters. This section provides guidelines for evaluating new and existing condominium projects. The intent of the project review is to assess the marketability and long-term stability of the project. Current market conditions and comparable sales on the appraisal provide information on the subject property's marketability. The following condominium project guidelines and documentation requirements are applied in addition to the standard property appraisal review guidelines.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
57
Mortgage Underwriting Guide Specific Property Types – Eligible Products Condominium Projects
6.3.1
Site Condos Site condo projects, i.e., those that consist of single family detached dwellings follow standard property guidelines for single family residences. No project analysis is required.
6.3.2
General Condo Eligibility Requirements The following guidelines apply to all condominium projects. Project information may be reported by the appraiser, disclosed by the homeowner's association or developer, shown on the purchase contract, or obtained through review of the Homeowners Association Certificate as well as from other types of condominium documents. Above 90% LTV will require a full project review.
6.3.3
Ineligible Projects Ineligible projects are as defined by Freddie Mac and reference to that Agency’s published guidelines should be made for specific details. The following are characteristics within resort destination areas that should be utilized to identify projects that are ineligible: §
Voluntary or mandatory revenue sharing agreements.
§
Mandatory rental pool agreements.
§
Occupancy restrictions mandated by the zoning.
§
Timeshare, live/work or segmented ownership projects.
§
Transactions under which the borrower will own more than one unit in the project.
§
Multiple units within the project are less than 600 sq. ft.
§
The project name includes “hotel”, “motel”, “inn”, “resort” or “lodge”.
§
The project shares facilities with a hotel or motel.
§
The project is in an area zoned primarily for transient accommodations.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
58
Mortgage Underwriting Guide Specific Property Types – Eligible Products Condominium Projects
6.3.4
§
The unit is in a building that functions like a traditional condominium, yet the project contains additional resort type amenities or other buildings with resort type amenities.
§
The unit is fully furnished.
§
The unit does not have a full kitchen.
§
The project provides any of the following services: o
Management Desk
o
Bellman
o
Daily Maid Service
o
Food Service
o
Telephone Service
o
Centralized Utilities (e.g., central telephone or cable)
o
Centralized Key System not in Negotiated Terms
Completion All common areas and amenities within the project (or subject phase) must be complete. All condominium projects having incomplete items are not eligible for the HOA Certification.
6.3.5
Multiple Ownership A maximum of 10% of the units may be sold to or owned by one party.
6.3.6
Commercial Use Commercial use within the project may not exceed 20% of the total square footage for the project and should be compatible with residential use.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
59
Mortgage Underwriting Guide Specific Property Types – Eligible Products Condominium Projects
6.3.7
Right of First Refusal Any right of first refusal in the project’s constituent documents will not impair the rights of a first mortgagee to:
6.3.8
•
Foreclose or take title to a condominium unit pursuant to the remedies contained within the security instrument.
•
Accept a deed in lieu of foreclosure in the event of default by a mortgagor.
•
Sell or lease a unit acquired by the mortgagee.
Adverse Environmental Factors Any adverse environmental factors affecting the condominium project must be addressed by the appraiser. Any factors affecting safety, habitability or marketability of the unit or project will render the project ineligible.
6.3.9
Litigation If the HOA is involved in any litigation, arbitration, mediation or other dispute resolution process, obtain the details from the HOA. This information should be verified with an attorney’s letter, insurance information, structural report, and/or other documentation. The following types of litigation generally pose little or no risk to the project and are generally acceptable: •
HOA is suing individual owners for unpaid dues.
•
HOA is being sued for a “slip and fall” liability issue and project has adequate liability insurance to cover the damages being sought by the plaintiff.
•
Other suits filed by the HOA that do not impact the value or livability of the project.
The following types of litigation may impact the project's marketability and are generally not acceptable:
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
60
Mortgage Underwriting Guide Specific Property Types – Eligible Products Planned Unit Developments
•
HOA suing the developer for structural defects or other property deficiencies that impact health and safety. The project may be acceptable if the defects have been corrected and the project is financially sound and marketable.
•
Suits filed against the HOA in which the damages exceed or are not covered by the HOA's insurance.
Projects involved in pending litigation (lawsuit has not yet been filed) may be approved when the risk to the project is assessed and it is determined that:
6.3.10
•
HOA insurance will cover potential damages; or
•
HOA is in a position to benefit from the lawsuit.
Delinquent HOA Dues
If more than 15% of the units are delinquent on their HOA dues, the project is ineligible for financing. In the event the mortgagee acquires a unit through foreclosure or deed-in-lieu, the mortgagee may not be responsible for more than 6 months of delinquent HOA dues.
6.3.11
Insurance Requirements
The lender must review the entire condo project insurance policy to ensure coverage requirements are met. The master or blanket policy must cover all of the general and limited common elements that are normally included in coverage, including fixtures, building service equipment and common personal property and supplies belonging to the homeowners’ association. The policy also must cover fixture, equipment and replacement of improvements and include betterment coverage to cover any improvements that the borrower may have made. If the master or blanket insurance policy does not provide coverage of the interior improvements of the unit, the borrower will be required to obtain a “walls in” coverage policy, also known as HO-6 policy. If required, the HO-6 insurance policy must provide coverage in an amount as determined by the insurer that is sufficient to repair the condo unit to its condition prior to a loss claim.
6.3.12
Pooled Insurance
Any project identified with a pooled insurance policy is ineligible. Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
61
Mortgage Underwriting Guide Specific Property Types – Eligible Products Planned Unit Developments
6.4
PLANNED UNIT DEVELOPMENTS A Planned Unit Development (PUD) is a parcel of land that contains common elements and improvements that are owned and maintained by a homeowner's association, corporation or trust. The common elements are for the benefit and use of the individual homeowners within the PUD. The housing units may be attached or detached. The pre-sale and owner occupancy requirements that apply to condominium projects do not apply to PUDs provided the appraiser does not indicate marketability problems. If the appraiser indicates marketability problems, a review of the project should be performed to determine whether there may be an adverse impact on the value or marketability of the subject unit. Multi-dwelling unit PUD projects that permit an owner to hold title to more than one dwelling unit, with ownership of all his or her units evidenced by a single deed and mortgage are ineligible.
6.5
MANUFACTURED HOUSING Norcom accepts Manufactured Housing pursuant to Freddie Mac guidelines chapter H33 and any references or amendments thereto. •
Only owner occupied purchase or refinance transactions are eligible.
•
Investment transactions are not eligible.
•
Maximum financing for all loan types for manufactured housing is 75%.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
62
Mortgage Underwriting Guide Government Loans Eligible Transactions
CHAPTER 7
7.1
GOVERNMENT LOANS
ELIGIBLE TRANSACTIONS All FHA, VA and USDA loans must conform to applicable agency one- to –four-family housing requirements. All Loans must be insurable by FHA or eligible for guaranty by VA or USDA, as applicable.
7.1.1
Credit Score Requirements Regardless of AUS decision minimum Underwriting Score requirements for all FHA and VA loans is 620. For loans with FICO scores of 620 – 639, maximum allowable ratios are 33/43, with no credit late payments in the last 12 months. For FHA and VA loans with FICO scores of 640 and above, max allowable DTI is 50.
7.1.2
VA Products Loans guaranteed by VA under Sections 3710 and 3720 of title 38, U.S. Code and the VA Loan Guaranty Standards.
7.1.3
•
Fixed Rate Loans
•
3/1 and 5/1 ARMs with 1/1/5 Caps
FHA Products Loans insured by the FHA under any combination of the following:
Table 7 - 1 Section of the Act
Brief Description
203(b)
Fixed Rate Loan
203(b)
ARM Loan
203(b)
Temporary Buy Down - Fixed Rate Loan
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
63
Mortgage Underwriting Guide Government Loans Eligible Transactions
203(b)
$50,000 Loan and Under (3% Down)
203(k)
FHA Streamline 203k*
234(c)
Fixed Rate Condominium
234(c)
ARM Condominium
234(c)
Condo — $50,000 loan and under (3% down)
234(c)
Condo — Temporary Buy Down
* 203k Streamlines allowed for one project with one contract (i.e. roof, furnace, driveway). Kitchen and bath remodels are not allowed. Two quotes required for all projects. Comprehensive information related to FHA Single Family may be found at:
7.1.4
•
Mortgage Credit Analysis for Mortgage Insurance
•
Lender's Guide to Single Family Mortgage Insurance Processing
•
203(k) Handbook Rehabilitation Home Mortgage Insurance
•
Mortgagee Letters - 2012
USDA Guaranteed Rural Housing USDA Rural Housing guarantees purchase or rate-and-term refinance transactions with terms of 30 year fixed, fully amortized only. USDA RH loans may be used in conjunction with other financing programs including other locally sponsored “silent second” programs. 2/1 buy down borrowers qualify at note rate and ratios do not exceed 29/41%. The following minimum credit score requirements apply regardless of AUS decision: •
620-639 (all borrowers) o
Minimum 2 scores required
o
Maximum Ratios 29/41%.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
64
Mortgage Underwriting Guide Government Loans Ineligible Transactions
•
640 or greater (all borrowers) o
Minimum 2 scores required
o
Maximum Ratios 39/47%
Comprehensive information related to USDA Guaranteed Rural Housing may be found at:
7.2
•
Administrative Notices
•
Part 1980, Subpart D
INELIGIBLE TRANSACTIONS The following transactions are ineligible for most investor purchases: •
FHA and VA loans with any Section 50(a)(6) financing
•
VA Indian leasehold properties
•
FHA Section 8 loans
•
FHA Military Impact Area Loans
•
FHA loans to non-profit organization borrowers
•
HOPE for Homeowner’s Program
•
HUD 184 Program - Indian Reservations
•
FHA and VA loans on manufactured homes
•
FHA cash out loans with CLTV >85%
•
VA Rate-Term and Cash out refinances with LTVs or CLTVs greater than 90%
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
65
Mortgage Underwriting Guide Government Loans FHA Streamline Refinance and VA IRRRL Transactions 7.3
FHA STREAMLINE REFINANCE AND VA IRRRL TRANSACTIONS FHA Streamline Refinances and VA Interest Rate Reduction Refinance Loan (IRRRL) loans must be current and have no 30-day or greater mortgage late payments in the most recent 12-month period. The following documentation is required to be in the loan file: •
All loan submissions require a 3 bureau merged credit report reflecting credit scores.
•
Evidence the existing loan is current.
•
All loan submissions require a 3 bureau merged credit report.
•
If a current mortgage payment history is not reported, a separate mortgage payment history for the most recent 12 months must be provided.
•
If the loan is seasoned 12 months or more, evidence that the existing loan has not had any 30-day or greater mortgage late payments in the past 12 months.
•
If the loan is seasoned less than 12 months, provide documentation evidencing that: o
The existing loan has no 30-day or greater mortgage late payments since the inception of the loan; and
o
No 30-day or greater mortgage late payments for any other first mortgage loans associated with the property and borrower(s) in the most recent 12 months.
VA IRRL: Norcom requires an appraisal on VA Interest Rate Reduction Refinance Loans. Max 100% financing on VA Interest Rate Reduction Refinance Loans. For FHA Streamlines: •
Minimum FICO of 660
•
AVM with 80% confidence score required
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
66
Mortgage Underwriting Guide Government Loans Underwriting Documentation
•
7.4
7.5
125 max LTV / CLTV based on AVM value
UNDERWRITING DOCUMENTATION •
The application package must contain acceptable documentation to support the underwriting decision.
•
When standard documentation does not provide sufficient information to support the decision, additional explanatory statements must be provided.
•
Verification forms must pass directly between lender and creditor without being handled by any third party.
•
Documentation must not contain any alterations, erasures, and correction fluid or correction tape. Copies must be stamped, "Certified, True and Exact Copies of the Original."
•
Certificates of Eligibility for VA loans must be updated when issued more than 12 months prior to the date of application. However, it is the underwriter's discretion to require a more recent update if there is information in the file that could lead them to believe there is another outstanding VA loan.
CO-SIGNERS Individuals applying for a loan that will not take title are considered guarantors or co-signers and are ineligible. All borrowers must be in title.
7.6
MODULAR HOMES FHA and VA loans financing modular homes are eligible for purchase by most investors. As with all loans, the modular home must be of investment quality and meet the appropriate Agency guidelines.
7.7
FREDDIE MAC LP UNDERWRITTEN FHA LOANS •
FHA loans may be underwritten through Freddie Mac's Loan Prospector.
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
67
Mortgage Underwriting Guide Government Loans Freddie Mac LP Underwritten VA Loans
•
7.8
7.9
LP files must include: o
Loan Prospector Feedback Certificate
o
All documents as indicated by the Loan Prospector Feedback Certificate, including all conditions
o
Indication of 'Freddie Mac LP' on the completed loan submission summary report.
FREDDIE MAC LP UNDERWRITTEN VA LOANS •
VA loans may be underwritten through Freddie Mac's Loan Prospector.
•
LP files must include: o
Loan Prospector Feedback Certificate
o
All documents as indicated by the Loan Prospector Feedback Certificate, including all conditions
o
Indication of 'Freddie Mac LP' on the completed loan submission summary report
USDA RURAL HOUSING GUARANTYEED UNDERWRITING SYSTEM (GUS) The purpose of GUS, like all automated underwriting systems, is to provide consistent and efficient loan file reviews and underwriting recommendations. GUS will consider waivers of the basic standards, based on the applicant's strengths, and provide approvals for applications that require certain waivers. The GUS underwriting recommendations allow the loan officer and the underwriter to quickly review and verify loan data to arrive at responsible lending decisions. Underwriting Recommendations The underwriter findings report details all underwriting and eligibility findings for the lender through an analysis of risk and Guaranteed Loan Program regulations. GUS also provides
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
68
Mortgage Underwriting Guide Government Loans USDA Rural Housing Guarantyeed Underwriting System (GUS) the required lender and agency conditions and documentation requirements for final submission, conditional commitment, closing and loan guarantee. Documentation through GUS Review the GUS Findings Report and Underwriting Analysis for feedback messages regarding the results of the GUS underwriting recommendation and the credit report(s). Permanent Case File Documentation Requirements In keeping with the standards of the mortgage loan industry, the Norcom Mortgage permanent case files will include documents to verify: •
Credit history
•
Annual Income – determined for program eligibility
•
Stable and Dependable Income – determined for repayment and qualifying purposes o
GUS does not determine stable and dependable income.
o
It remains the responsibility of the approved lender to determine stable and dependable income outside of the GUS evaluation.
•
Assets – for income calculation and compensating factor analysis
•
Collateral requirements
•
Any other documentation supporting the mortgage loan request
Stable and dependable income will be documented in accordance with Section 1980.345(c), of RD Instruction 1980-D. Assets are not required for the SFHGLP. However, the presence of assets and cash reserves after closing can influence the outcome of the GUS underwriting recommendation. If assets are considered in a GUS transaction, the Norcom Mortgage permanent case file must document the borrower’s assets. Net family assets as defined in section 1980.302(a) that total $5,000 or greater must be considered in the annual income calculation per section 1980.347(d)(3)(iii).
Copyright © 2009 – 2013 Norcom Mortgage and its licensor. ALL RIGHTS RESERVED. Without the prior written permission of Norcom Mortgage and its licensor, no part of this work may be used, reproduced or transmitted in any form or by any means, by or to any party outside of Norcom Mortgage
69
Mortgage Underwriting Guide New Construction Construction-to-Permanent Treated as a Purchase Transaction
CHAPTER 8
NEW CONSTRUCTION
The following construction-to-permanent financing guidelines apply to most investor quality loans. Consult specific investor guidelines for individual requirements or variances to the guidelines listed below. Conforming loans should follow standard Freddie Mac requirements.
8.1
CONSTRUCTION-TO-PERMANENT TREATED AS A PURCHASE TRANSACTION The origination of long-term financing in order to make a single disbursement to a builder/contractor or other party for the purchase of a completed property is considered to be a purchase-money transaction and is subject to guidelines for purchase transactions in addition to the following:
8.2
•
Acquisition cost must be documented.
•
The maximum LTV/TLTV/CLTV is subject to purchase transaction LTV/TLTV/CLTV limits.
•
The LTV/TLTV/CLTV is based on the lesser of: o
The current appraised value of the lot plus documented construction costs; or
o
The purchase price of the lot plus documented costs of construction; or
o
The appraised value of the property at the time the permanent mortgage is made.
CONSTRUCTION-TO-PERMANENT TREATED AS A RATE-TERM REFINANCE
Table 8 - 1 Lot owned
