Conventional Loan Program Guide Fixed Rate, 5/1 ARM and 7/1 ARM

Transcription

1 Fixed Rate, 5/1 ARM and 7/1 ARM Wholesale Lending December 14, 2015 Program Overview... 5 Credit Philosophy... 5 Ability to Repay and Qualified Mortgage... 5 Program Parameters... 6 Eligible Programs... 6 Ineligible Programs/Options... 6 Program Details... 6 ARM Program Information... 6 ARM Closing Documents... 6 Credit Score Requirements... 7 Loan Limits... 7 Loan to Value (LTV) Matrices... 7 Fixed Rate LTV Matrix /1 and 7/1 ARM LTV Matrix... 9 LTV >95% to 97% - Fannie Mae only... 9 DU Submission/Resubmission Mortgage Insurance Automated Underwriting Systems (AUS) Loan Prospector (LP) Fixed Rate only Desktop Underwriter (DU) Social Security Validation Assets Asset Documentation Business Accounts Borrower s Commission on Subject Transaction Cash Reserves Cash Deposit on Sales Contract (Earnest Money) Credit Card Charges, Cash Advances and Unsecured Lines of Credit Desktop Underwriter (DU) Credit Card Charges, Cash Advances and Unsecured Lines of Credit Loan Prospector (LP)20 Employer Assistance Gift from a Related Person Gift of Equity Gift or Grant from an Agency Ineligible Source(s) of Funds Large Deposits Life Insurance Cash Value Conventional Loan Program Guide - Wholesale Lending Page 1 of 95 12/14/2015

2 Marketable/Publicly Traded Securities (Stocks, Bonds and Mutual Funds) Pooled Funds Proceeds from the Sale of Real Property Rent Credit/Option to Purchase Retirement Accounts Secured / Unsecured Loans Tax Deferred Exchange Trust Accounts Verification of Assets for Non-U.S. Citizens Borrower Contribution from Own Funds Borrowers Age of Borrower Borrower Eligibility Borrower in the Construction Industry Non-Borrowing Spouse Non-Occupying Co-Borrowers Non-U.S. Citizens Separated Borrowers Social Security Number (SSN) Validation Credit / Underwriting Age of Documents Authorized User Accounts Bankruptcy - Multiple Filings Desktop Underwriter (DU) only Borrowers without a Usable Credit Score Collection, Past Due, and Charge-Off Accounts Consumer Credit Counseling (CCCS) Disputed Tradelines Judgments and Garnishments Mortgage Payment History Modified Mortgages Multiple Financed Properties Desktop Underwriter (DU) only Multiple Financed Properties Loan Prospector (LP) only Restructured Mortgages Foreclosure Desktop Underwriter (DU) Mortgage Charge-Off - Desktop Underwriter (DU) Short Sale/Preforeclosure Sale/Deed-in-Lieu of Foreclosure - Desktop Underwriter (DU) Significant Derogatory Credit Tax Liens Collateral General Property Eligibility Requirements Appraisal Requirements Re-use of an Appraisal for a Subsequent Transaction Appraisal Forms Appraisal Transfers Borrower Acknowledgement Escrow Holdback Flip Properties Inspections and Certification Requirements Leaseholds Conventional Loan Program Guide - Wholesale Lending Page 2 of 95 12/14/2015

3 Mixed Use Properties Modular and Panelized Homes Property Affected by a Disaster Property Listed for Sale Property Overlays Resale Restricted Properties Freddie Mac Fixed Rate loans only Unique Property Types Condominiums Documentation Requirements Debt to Income Ratios/Qualifying Qualifying Rate Maximum Debt to Income Ratio (DTI) Higher-Priced Mortgage Loans (HPMLs) and HPML Qualified Mortgages Geographic Restrictions High Balance Loans in Alaska Income and Employment Assets as a Basis for Mortgage Qualification Loan Prospector (LP) only Automobile Allowance Borrower Employed by a Family Member or Party to the Transaction Capital Gains Income Child Support, Alimony, Separate Maintenance Commission Income Continuity of Income Employment Offers or Contracts - Desktop Underwriter (DU) only Employment-Related Assets as Qualifying Income Desktop Underwriter (DU) only Foreign Income Desktop Underwriter (DU) only Foster Care Income Housing or Parsonage Allowance IRS Form 4506-T Use of IRS Tax Transcripts in Lieu of Income Documentation Long-term Disability Income Mortgage Differential Payments Newly Employed Borrowers Non-Taxable Income Notes Receivable Re-entering the Workforce Loan Prospector (LP) only Rental Income Retirement, Government Annuity and Pension Income Desktop Underwriter (DU) only Retirement, Government Annuity and Pension Income Loan Prospector (LP) only Royalty Income Seasonal Employment and Unemployment Compensation Secondary / Part-time Employment Self-Employed Borrowers Significant Increase or Decrease in Income Level Social Security Income Stable Monthly Income Temporary Leave Income Tip Income Unreimbursed Employee Business Expenses Conventional Loan Program Guide - Wholesale Lending Page 3 of 95 12/14/2015

4 Trust Income Verification of Employment (VOE) Liabilities Alimony, Child Support or Separate Maintenance Payments Business Debt in Borrower s Name Contingent Liability Debt Secured by Financial Assets Deferred Payments (includes Deferred Student Loans) Installment Debt Lease Payments Open-End (30-day) Accounts Revolving Debt Sale or Conversion of Primary Residence Desktop Underwriter (DU) only Sale or Conversion of Primary Residence Loan Prospector (LP) only Student Loans Unreimbursed Employee Business Expenses Mortgage Insurance (MI) Mortgage Insurance Coverage Requirements Mortgage Insurance Plans Mortgage Insurance Providers Occupancy Primary Residence Second Home Investment Property Property Insurance Secondary Financing Ineligible Subordinate / Second Mortgages Purchase Transactions HELOCs Seller Carried Secondary Financing Refinance Transactions Seller/Interested Party Contributions Transactions Purchase Rate/Term ( No Cash-Out ) Refinance Cash-out Refinance Continuity of Obligation Delayed Financing Land Contract or Contract for Deed Net Tangible Benefit Non-Arm s Length Transactions Purchase of Fannie Mae HomePath (REO) Properties Fannie Mae Only Refinance to Buyout a Co-Owner Miscellaneous Policies Borrower Paid Fees Fees and Services Product Codes Conventional Loan Program Guide - Wholesale Lending Page 4 of 95 12/14/2015

5 Program Overview Conventional Loan Program Guide This Program Guide provides an overview of the conventional products and policies eligible for delivery to for financing consideration. The details are based on the policies outlined in the Freddie Mac Single Family Seller/Servicer Guide ( Freddie Mac Seller Guide ) and/or the Fannie Mae Single Family Selling Guide ( Fannie Mae Seller Guide ). This document also identifies overlay restrictions specific to Pacific Union Financial. Overlay restrictions are indicated by green shading. The guidelines within this document apply to all loans evaluated using LP (Fixed Rate only) or DU unless stated otherwise. Credit Philosophy The Pacific Union Financial philosophy is to offer our products with minimal overlays to our clients. All loans are evaluated in accordance with the following principles: All loans require an Automated Underwriting System (AUS) approval as follows: Conventional Fixed Rate products must be evaluated using DU. Fannie Mae Only products must be evaluated using DU. Freddie Mac Only Fixed Rate products must be evaluated using LP. An LP Accept/Eligible or DU Approve/Eligible recommendation is required. Loans that receive the following recommendations are not eligible: LP Caution Risk Class with or without A-Minus eligibility DU Refer with Caution Loans that are submitted to LP or DU and do not receive credit approval may not be submitted to the other underwriting system. Manual underwriting is not allowed. Each loan is evaluated in accordance with: Freddie Mac or Fannie Mae policies as defined in the applicable Seller Guide. Loan Prospector or Desktop Underwriter feedback/findings. Policies as outlined within this Program Guide. Each loan applicant is underwritten individually, and all credit standards are applied consistently to each borrower. All factors are weighed in when evaluating a loan file. The underwriting decision is not based on any single item or factor. Ability to Repay and Qualified Mortgage Pacific Union is committed to complying with Ability-to-Repay and Qualified Mortgage rules (ATR/QM) by making a reasonable, good-faith determination that borrowers have a reasonable ability to repay the loan in accordance with the policies set forth within Fannie Mae and Freddie Mac guidelines. Factors considered in making this determination include the borrower s income, assets and employment status (if relied on) against the mortgage loan payment, ongoing expenses related to the mortgage loan or the subject property, payments on simultaneous loans secured by the subject property, other debt obligations, and alimony and child-support payments as required by Fannie Mae and Freddie Mac. A borrower s credit history is also considered in the evaluation and must comply with Fannie Mae and Freddie Mac policies. Pacific Union will utilize reasonably reliable third party sources of information. Conventional Loan Program Guide - Wholesale Lending Page 5 of 95 12/14/2015

6 Program Parameters Eligible Programs Conforming Balance and High Balance loan amounts 10, 15, 20, 25 and 30 year Fully Amortizing Fixed Rate 5/1 and 7/1 Fully Amortized LIBOR ARMs (Fannie Mae/Desktop Underwriter only) Ineligible Programs/Options Interest Only Temporary Buydowns Energy Efficient Mortgages Fannie Mae MyCommunityMortgage Fannie Mae HomeStyle Renovation Program Details All programs are fully amortizing. Temporary Buydowns are not permitted. ARM Program Information Index: The index is the average of interbank offered rates for one-year U.S. dollar denominated deposits in the London market ( LIBOR ), as published in the Wall Street Journal. Margin: The base margin is 2.25%. Refer to the rate sheet for applicable margin add-ons. Floor: The margin is the floor. 5/1 ARM caps: 2% at first adjustment (Initial Periodic Cap) 2% at each subsequent adjustment (Subsequent Periodic Cap) 5% over initial note rate (Lifetime Cap) 7/1 ARM caps: 5% at first adjustment (Initial Periodic Cap) 2% at each subsequent adjustment (Subsequent Periodic Cap) 5% over initial note rate (Lifetime Cap) Conversion Option: Not convertible Interest Rate / Payment Change Date: The first interest rate and payment adjustment is at 60 months for the 5/1 ARM and 84 months for the 7/1 ARM. Subsequent adjustments occur every 12 months. The payment change date is the first day of the month following an interest rate change date. It is the date in which a payment change due to an interest rate change becomes effective. Fannie Mae ARM Plan Numbers: Fully Amortized 5/1 ARM with 2/2/5 caps: FM GENERIC, 5 YR Fully Amortized 7/1 ARM with 5/2/5 caps: FM GENERIC, 7 YR ARM Closing Documents Note: Fannie Mae Form 3528 or state specific version Rider: Fannie Mae Form 3187 Non-convertible Fully Amortizing 5/1, 7/1 or 10/1 LIBOR Adjustable Rate Rider. Acceptable ARM disclosure. Conventional Loan Program Guide - Wholesale Lending Page 6 of 95 12/14/2015

7 Credit Score Requirements Loan Prospector (LP) Determined by LP. For LTV >80%, the minimum score required by the MI provider must be met. Desktop Underwriter (DU) Determined by DU, but not less than 620. For LTV>80%, the minimum score required by the MI provider must be met. Loan Limits Conforming Balance and High Balance loan amounts are available as shown below. Maximum and Minimum Loan Amounts Maximum Conforming Balance High Balance 1 Units Contiguous Alaska and Contiguous Alaska and States Hawaii 3 States Hawaii 3 1 $417,000 $625,500 $625,500 $938,250 2 $533,850 $800,775 $800,775 $1,201, $645,300 $967,950 $967,950 $1,451, $801,950 $1,202,925 2 $1,202,925 2 $1,804,375 2 Minimum-Conforming: None Minimum-High Balance: Conforming loan amount plus $1 1. High Balance: Refer to Maximum County Limits (select Fannie/Freddie in Limit Type field) 2. Conventional and Freddie Mac (Fixed Rate only): Maximum $1,000,000 loan amount. 3. HI is not permitted. AK: Refer to Appraisal Forms for High Balance appraisal and field review requirements. Loan to Value (LTV) Matrices The loan to value is the base loan amount divided by the lesser of the appraised value or the purchase price. Fixed Rate LTV Matrix Effective for loan submissions to Desktop Underwriter 9.3. For loan submissions to Desktop Underwriter 9.2, refer to the following: Fannie Mae DU 9.2 LTV Matrix. Fixed Rate Occupancy Primary Purpose Purchase and Rate/Term Purchase and Rate/Term Loan Amount 3 Conforming High Balance $625,500 High Balance High Balance Units Conventional 1 DU Only LTV/(H)CLTV Freddie Mac LP Only LTV/(H)CLTV Fannie Mae 1 DU Only LTV/(H)CLTV 1 95%/95% 95%/95% 97%/97% %/80% 80%/80% 85%/85% %/75% 80%/80% 75%/75% 1 90%/90% 90%/90% 95%/95% 2 75%/75% 75%/75% 85%/85% %/75% 75%/75% 75%/75% Conventional Loan Program Guide - Wholesale Lending Page 7 of 95 12/14/2015

8 Occupancy Second Home Investment Property Purpose Loan Amount 3 Units Fixed Rate Conventional 1 DU Only LTV/(H)CLTV Freddie Mac LP Only LTV/(H)CLTV Fannie Mae 1 DU Only LTV/(H)CLTV Cash-Out Conforming 1 80%/80% 80%/80% 80%/80% %/75% 75%/75% 75%/75% High Balance 1 75%/75% 75%/75% 80%/80% Cash-Out $625,500 High Balance %/65% 65%/65% 75%/75% Purchase and Conforming 1 85%/85% 85%/85% 90%/90% Rate/Term Cash-Out Conforming 1 75%/75% 75%/75% 75%/75% Purchase and Rate/Term Cash-Out High Balance $625,500 High Balance $625, %/80% 80%/80% 90%/90% 1 65%/65% 65%/65% 75%/75% Purchase Conforming 1 85%/85% 85%/85% 85%/85% %/75% 75%/75% 75%/75% Rate/Term Conforming %/75% 75%/75% 75%/75% Cash-Out Conforming 1 75%/75% 75%/75% 75%/75% %/70% 70%/70% 70%/70% High Balance 1 80%/80% 80%/80% 85%/85% Purchase $625,500 High Balance %/70% 70%/70% 75%/75% High Balance 1 75%/75% 75%/75% 75%/75% Rate/Term $625,500 High Balance %/70% 70%/70% 75%/75% High Balance 1 65%/65% 65%/65% 75%/75% Cash-Out $625,500 High Balance %/65% 65%/65% 70%/70% 1. LTV/CLTV and credit score restrictions apply if the subject property is a Second Home or Investment Property and the borrower owns 5-10 financed properties. Refer to Multiple Financed Properties - Desktop Underwriter (DU) only. 2. See LTV >95 to 97% for eligibility requirements. 3. One unit > $625,500 allowed in Alaska. Hawaii is not permitted. Refer to Geographic Restrictions for LTV/CLTV limits. Conventional Loan Program Guide - Wholesale Lending Page 8 of 95 12/14/2015

9 5/1 and 7/1 ARM LTV Matrix Effective for loan submissions to Desktop Underwriter 9.3. For loan submissions to Desktop Underwriter 9.2, refer to the following: Fannie Mae DU 9.2 LTV Matrix. 5/1 and 7/1 ARM Fannie Mae (DU) only Occupancy Purpose Loan Amount Units DU Only LTV/(H)CLTV %/90% Purchase and Conforming and 2 75%/75% Rate/Term High Balance Primary %/65% Second Home Investment Property Cash-Out Purchase and Rate/Term Cash-Out Purchase Rate/Term Cash-Out Conforming and High Balance Conforming and High Balance Conforming and High Balance Conforming and High Balance Conforming and High Balance Conforming and High Balance 1 75%/75% %/65% 1 80%/80% 1 65%/65% 1 75%/75% %/65% %/65% 1 65%/65% %/60% 1. LTV/CLTV and credit score restrictions apply if the subject property is a Second Home or Investment Property and the borrower owns 5-10 financed properties. Refer to Multiple Financed Properties - Desktop Underwriter (DU) only. LTV >95% to 97% - Fannie Mae only Effective with the DU 9.2 Release, Fannie Mae will allow up to 97% LTV on certain purchase and Rate/Term refinance transactions as described below. Allowed on: Fixed Rate Fannie Mae product only. One unit Primary Residence Conforming loan amounts DU Approve/Eligible Purchase transactions: Maximum 97% LTV/CLTV/HCLTV At least one borrower must be a first-time home buyer, as indicated on the loan application (Form 1003) in Section VIII., when at least one borrower responds No to question M regarding ownership interest in a property in the last three years. Rate/Term Refinance transactions: The existing loan must be owned by Fannie Mae. The Fannie Mae Loan Look-Up Table may be used to determine if Fannie Mae owns the loan. A screen print of the results must be included in the loan file. When submitting the loan to DU, Fannie Mae must be entered in the Owner of Existing Mortgage field in DU. Non-occupying Co-Borrowers are not permitted. Conventional Loan Program Guide - Wholesale Lending Page 9 of 95 12/14/2015

10 DU Submission/Resubmission Loans may be submitted to DU effective with the DU 9.2 release. If the 97% option is desired on an existing DU loan, a new casefile must be created and the loan must be submitted to DU 9.2 as a new loan. Mortgage Insurance 35% MI coverage is required. LPMI is not allowed. Refer to the MI Matrix or MI provider website as some MI providers have credit score overlays for 97% LTV loans. Automated Underwriting Systems (AUS) Loan Prospector (LP) Fixed Rate only Loans submitted to Loan Prospector (LP) must receive an Accept/Eligible Risk Class. Loans that receive a Risk Class of Caution, with or without A-Minus eligibility, are not eligible. Loans that do not receive credit approval through DU may not be resubmitted to LP. Loans that are evaluated using LP must be coded and priced as Freddie Mac Only. Loan Prospector guidelines within this program guide apply to Fixed Rate loans only. ARM loans may not be underwritten through Loan Prospector. Note: Loans may not be resubmitted to Loan Prospector after the loan has closed. Disputed Tradelines When LP issues a message stating that multiple disputed tradelines have been identified on the borrower s credit report, the accuracy of disputed tradelines must be confirmed. If it is determined that the information is accurate, ensure that the disputed tradelines are considered in the credit risk assessment by obtaining a new credit report with the tradeline(s) no longer reported as disputed and resubmitting the loan casefile to LP. If LP does not issue the disputed tradeline message, no further investigation is required. However, if the account does belong to the borrower, ensure that the monthly payment, if any, has been included in the DTI ratios. Documentation Levels Loans may be documented in accordance with LP Findings. Loans approved by LP will receive either a Streamlined Accept or Standard documentation level and must be documented based on requirements indicated on the Feedback Certificate. Sections and of the Freddie Mac Seller Guide provide more information regarding these documentation levels. Invalid, Ineligible, or Incomplete Evaluation Status Loans that receive an evaluation status of Invalid, Ineligible, or Incomplete are not eligible. If a loan receives one of these evaluation statuses, an attempt should be made to resubmit the loan with new and/or corrected information. If the loan continues to receive an Invalid, Ineligible, or Incomplete evaluation status, it is not eligible. Conventional Loan Program Guide - Wholesale Lending Page 10 of 95 12/14/2015

11 Maximum Number of Borrowers Conventional Loan Program Guide Loan Prospector cannot evaluate more than five borrowers on a single application. Minimum Assessment Feedback (MAF) The Minimum Assessment Feedback (MAF) shown in the LP Feedback Certificate indicates the least comprehensive appraisal or inspection report required for the submitted loan. The MAF also indicates whether a loan is eligible for Property Inspection Alternative (PIA). A more comprehensive appraisal or inspection report may be obtained if desired. Refer to the Collateral topic. Resubmission Requirements The final Risk Class and Documentation Level must be based on submission of accurate data to LP prior to the closing of the Mortgage. Resubmission to LP prior to the closing of the Mortgage is required if: Information on the previous submission was not true, complete or accurate. The most recent submission (including the date of the LP credit report) will be more than 120 days prior to the Note Date. Any information used by LP changes; however, a change from the previous submission involving the following does not require resubmission. Debts/Income: The monthly debt payment (including monthly housing expense) decreases. The income for any borrower increases. The income for any borrower decreases and/or the monthly debt payment (including monthly housing expense) increases, and The total difference does not change the total debt-to-income ratio by more than 3%, and The total debt-to-income ratio on the previous submission did not exceed 45%. Assets/Reserves: The amount of verified assets increases. The amount of verified reserves increases. The amount of verified reserves decreases by no more than 10% Effective with submissions or resubmissions on or after 7/26/2015: The amount of verified reserves decreases to an amount that is no less than the reserves required to be verified by LP. Loan Amount: The loan amount decreases by no more than 1% on a refinance transaction and at the time of the most recent LP submission mortgage insurance is not required on the Mortgage. The loan amount decreases by no more than 1% on a refinance transaction and at the time of the most recent LP submission mortgage insurance on the Mortgage is required, and The change does not impact the amount of the mortgage insurance coverage, and The amount of the mortgage insurance premium collected is based on the new loan amount and a new mortgage insurance certificate is obtained. Any other changes in the information used by Loan Prospector require resubmission. For example The borrower's monthly debt payment (including the monthly housing expense) decreases, the borrower's income decreases and the total debt-to-income ratio on the previous Conventional Loan Program Guide - Wholesale Lending Page 11 of 95 12/14/2015

12 submission was 38%. Based on the revised monthly debt payment and income figures, the total debt-to-income ratio increased by 4%. This Mortgage must be resubmitted to LP because the borrower's income decreased and the change in the debt payment-to-income ratio was more than 3%. If the only change in the Mortgage had been a decrease in the monthly debt payment (including the monthly housing expense), resubmission would not have been required. If a Mortgage is resubmitted to LP, the Risk and/or Documentation Classes might change. However, LP minimizes the number of times that the Documentation Class will change, even if the Risk Class changes. Documentation must comply with the requirements of the last Feedback Certificate. Significant Inaccurate Information If it is determined that the repository file used to create the borrower(s) credit report contains significant inaccurate information, the LP decision must be determined to be Invalid, and the loan will not be eligible. Desktop Underwriter (DU) Loans submitted to Desktop Underwriter (DU) must receive an Approve/Eligible recommendation. Loans that receive a Refer with Caution or Approve/Ineligible recommendation are not eligible. Loans that do not receive credit approval through LP may not be resubmitted to DU. Fixed Rate loans evaluated using Desktop Underwriter (DU) may be coded and priced under the Conventional or Fannie Mae program. Note: Loans may not be resubmitted to Desktop Underwriter after the loan has closed. Retirement of DU Version 9.1 DU Version 9.1 has been retired. Existing loan applications and DU Underwriting Findings reports that were created in DU Version 9.1 will continue to be available for viewing only. If an updated DU underwriting recommendation is required, a new casefile must be created and submitted to DU. Disputed Tradelines When DU issues a message stating that DU identified a disputed tradeline and that tradeline was not included in the credit risk assessment, the accuracy of disputed tradelines reported on the borrower's credit report must be confirmed. Effective for loans submitted or resubmitted to DU on or after April 18, 2015: DU will issue a disputed tradeline message only when the credit report reflects disputed tradelines with delinquencies that occurred within two years of the credit report date. Only the disputed tradelines listed in the DU message must be addressed. If it is determined that the disputed tradeline information is accurate, ensure that the disputed tradelines are considered in the credit risk assessment by obtaining a new credit report with the tradeline no longer reported as disputed and resubmitting the loan casefile to DU. If DU does not issue the disputed tradeline message, no further investigation is required. However, if the account does belong to the borrower, ensure that the monthly payment, if any, has been included in the DTI ratios. Conventional Loan Program Guide - Wholesale Lending Page 12 of 95 12/14/2015

13 Documentation Requirements Conventional Loan Program Guide Pacific Union Financial will accept loans documented as outlined in the DU Findings. DU indicates the minimum verification documentation requirements required. While DU may offer a reduced level of documentation, a more comprehensive level of documentation is acceptable when circumstances in the loan file warrant it. Errors in Credit Data If the credit report contains derogatory information, and DU does not recognize or consider the derogatory information and does not reflect the derogatory information in the Underwriting Findings Report, the DU decision must be determined to be Invalid, and the loan will not be eligible. High Balance Loan Requirements Effective for new loan submissions or resubmissions to Desktop Underwriter 9.3, Desktop Underwriter will attempt to standardize the subject address in order to determine the county to use when applying the loan limit. When DU is able to standardize the address, a message will be issued specifying the county used to determine the loan limit that was applied to the loan casefile. When DU is not able to standardize the subject address, or the address standardization returns an incorrect county, the lender may provide the Federal Information Processing Standard (FIPS) code on the online loan application and resubmit the loan to DU. The FIPS code is a unique code assigned to all geographic areas by the U.S. Census Bureau. The county can be identified by using the complete 11-digit FIPS code for the area in which the property is located, where the first two digits are the state number, the next three are the county number, and the last six are the census tract number. The census tract is provided on the appraisal, and can also be found using other geocoding technology (i.e. the Census Geocoder on the U.S. Census Bureau website). When the FIPS code entered on the loan application is used to derive the county and loan limit used to determine the loan s eligibility, DU will issue a message requiring the lender to document the subject is located in the specified county. When the FIPS code is provided and DU is not able to find a corresponding FIPS code in the loan limit file, a message will be issued indicating that the FIPS code provided on the loan application is invalid. DU will then attempt to standardize the address and use the county obtained. If DU is not able to standardize the address, DU will use the state loan limit and issue a message stating that DU could not verify the submitted subject property address in order to determine the county in which the property is located so the state loan limit was used. Maximum Number of Borrowers Desktop Underwriter cannot evaluate more than four borrowers on a single application. Non-Applicant Debts/Accounts When DU encounters possible non-applicant accounts on the credit report, DU will include the accounts in the credit risk assessment, and will issue a message in the DU Underwriting Findings report regarding the existence of the accounts. If the debts are on the loan application, DU will also include them in the DTI ratio. If documentation is provided to support that the debts do not belong to the borrower, the debt(s) may be removed from the loan application, and the loan may be resubmitted to DU in order for the DTI to be updated to exclude the non-applicant debts. Conventional Loan Program Guide - Wholesale Lending Page 13 of 95 12/14/2015

14 Out of Scope Recommendations Conventional Loan Program Guide An Out of Scope recommendation indicates that DU is unable to underwrite the particular product, mortgage, or borrower submitted. Any mortgage that receives an Out of Scope recommendation is not eligible. Property Fieldwork Recommendation DU will recommend the use of one of three levels of property fieldwork: an appraisal based on an interior and exterior property inspection; an appraisal based on an exterior-only property inspection; or an exterior-only property inspection. Refer to the Collateral topic for Pacific Union Financial requirements. Potential Red Flag Messages DU provides a number of potential red flag messages designed to help detect inconsistencies in the loan casefile as well as potentially fraudulent transactions. Neither the presence nor absence of these messages changes the responsibility to ensure accurate information in all areas of the loan process or otherwise comply with applicable law, including the Fair Credit Reporting Act. The appearance of these messages does not affect the underwriting recommendation from DU. The messages are to be used as an aid in detecting inconsistencies and potentially fraudulent transactions. The absence of any of these messages does not indicate or imply Fannie Mae s acceptance of the data submitted to DU, including the appraised value. Potential red flag messages include: Rapid appreciation: Help to identify purchase and refinance transactions with subject property values that, according to a recent prior sale, appear to have an excessive rate of appreciation. Quality control: Identifies transactions that have risk characteristics that historically have been found to contribute to an inflated property valuation. Excessive Resubmissions: Alert provided when an unusually high number of loan resubmissions may be the result of data manipulation. Excessive value: Helps identify refinance transactions where the initial value estimate appears to be excessive. Refer to DU Potential Red Flag Messages for additional information. Resubmission Requirements The final DU recommendation must reflect the loan as it was closed, including occupancy type, product type, amortization, loan term, property type, loan purpose, sales price, and appraised value. Verification documents must be reviewed and the verified values compared to the data submitted to DU. The terms of the closed loan must match the terms of the final loan casefile submission to DU or fall within the following tolerances. Data Attribute and Description Interest rate increase Discrepancies between the credit report payments and balances and those listed on the loan application, including the presence of debt that Trigger The changes cause the debt-toincome (DTI) ratio to: Exceed 45%, or Increase by 3% or more (if the recalculated DTI ratio is less than 45%) Action Required Loan must be resubmitted to DU Conventional Loan Program Guide - Wholesale Lending Page 14 of 95 12/14/2015

15 Data Attribute and Description is not on the credit report but is on the application Additional debt(s) disclosed by the borrower or identified by the lender during the mortgage process Verified income is less than the income on the loan application submitted to DU Trigger Conventional Loan Program Guide Action Required Loan Amount increase or decrease Interest rate on fixed-rate and adjustable rate mortgages Assets Funds required to close Assets Reserves required to be verified The loan amount may increase by the lesser of $500 or 1% of the loan amount. The loan amount may decrease by 5% of the loan amount. The above loan amount tolerances are permitted provided the new LTV/CLTV does not result in: Changes to the amount of required MI coverage, or Different loan-level price adjustments, or Changes to the loan eligibility. Interest rate decreases, not as a result of a permanent interest rate buydown Interest rate decreases as a result of a permanent interest rate buydown The actual amount of the assets required to close the transaction exceeds the amount of Funds Required to Close per the DU findings Due to changes in the actual amount of assets required to close the transaction, the verified amount of reserves is less than the Reserves Required to be Verified per the DU Underwriting Findings report Loan must be resubmitted to DU No resubmission required Loan must be resubmitted to DU If sufficient liquid assets to cover the actual amount of assets required to close the transaction has been documented, no resubmission required Otherwise, loan casefile must be resubmitted to DU If the lender has documented reserves that equal at least 90% of the Reserves Required to be Verified per the DU Underwriting Findings report, no resubmission required Otherwise, loan casefile must be resubmitted to DU Conventional Loan Program Guide - Wholesale Lending Page 15 of 95 12/14/2015

16 Social Security Validation Conventional Loan Program Guide DU may identify data integrity issues pertaining to the borrower s Social Security number, including numbers not issued, borrower age/issue date discrepancies, or Social Security numbers not associated with the borrower. If the DU messaging is received and the Social Security issue is not resolved, the borrower would not be eligible for financing with Pacific Union Financial. If Social Security number inconsistencies cannot be resolved: Lenders must validate the Social Security number with the Social Security Administration (SSA). Direct validation with SSA by a third party is acceptable. SSA Form 89 must be used for this purpose. Lenders must ensure that when utilizing thirdparty vendors, the vendors are going directly to the SSA to validate the Social Security numbers. It is important to note that most standard vendor reports are not direct SSA validations and do not satisfy Fannie Mae s requirements. If the Social Security number cannot be validated with the SSA, the loan is not eligible for delivery to Fannie Mae. Assets The borrower must have sufficient cash assets to cover the minimum down payment, closing costs, and any required reserves. Requirements for certain asset types are detailed below. Refer to the Freddie Mac or Fannie Mae Seller Guide(s) for additional information on eligible sources of borrower funds guidelines not addressed in this section. Asset Documentation Assets must be documented in accordance with LP or DU requirements. Loan Prospector: Refer to the LP Feedback Certificate and/or the Loan Prospector Documentation Matrix. Desktop Underwriter: The DU Findings will identify the funds that require verification. DU requires, at a minimum, asset statements covering the most recent full two-month period of account activity (or, if account information is reported on a quarterly basis, the most recent quarter). Verification of Deposit (VOD) VODs must be on a standard verification form and must be sent directly from the loan originator to the financial institution and returned directly from that entity. Faxed verification forms are acceptable if it is clear from the document that the information was sent by fax transmission directly from the source to the originator. The original documents must not contain any alterations, erasures, correction fluid or correction tape. The loan file must include legible copies of the originals. The VOD form must identify all of the following, when applicable: The name of the financial institution Account number Account owner(s) Type of account Account open date Current account balance Average balance for the previous two months Outstanding loans If a securities account, the specific stocks/securities Conventional Loan Program Guide - Wholesale Lending Page 16 of 95 12/14/2015

17 The title, signature, and phone number of the individual completing the VOD. Funds must be properly sourced when an account is opened within 90 days of the VOD and/or when the current account balance is significantly greater than the average balance. If a portion of the borrower's funds were to be saved by the borrower between the date of the loan application and the date of the loan closing, the loan file documents must show that funds were accumulated and on deposit prior to closing. Electronic Asset Verification An electronic verification is a computer generated document, accessed and printed from an Intranet or Internet, and may include on-line bank statements or investment account statements. Electronic verifications are acceptable provided the on-line statement reflects all of the following: URL from which the statement was obtained Date obtained Financial institution Borrower s name and account number Account balance Last activity date Business Accounts When business assets are used for down payment, closing costs, financing costs, prepaids/ escrows, and/or reserves, the assets must be verified per LP or DU documentation requirements and must be related to a documented borrower owned business. The borrower must be listed as an owner of the business account. Because the withdrawal of assets from a sole proprietorship, partnership or corporation may have a negative impact on the ability of the business to continue operating, the impact of the withdrawal must be considered in the analysis of the borrower s self-employed income. A cash flow analysis must be documented using individual and/or business tax returns, as applicable. The cash flow analysis may be in any format that allows a determination that the withdrawal of the funds will not have a detrimental effect on the business. The cash flow analysis must be included in the loan file. Borrower s Commission on Subject Transaction The following guidelines apply when the borrower is a real estate agent and is earning a commission on the subject transaction: Desktop Underwriter (DU) The funds may be used only to pay closing costs and/or prepaids. The funds may not be used to meet any applicable reserve requirements. Fannie Mae treats these funds as an Interested Party Contribution (IPC); therefore, the funds must be submitted to DU as such and must be considered when determining if the transaction meets IPC guidelines. The funds must be shown as a credit on the Closing Disclosure. Loan Prospector (LP) The funds may not be used to meet the assets required for down payment, closing costs, prepaids, or reserves. The funds must be shown as a credit on the Closing Disclosure, but only after the required funds have been submitted to LP and documented per LP requirements. Conventional Loan Program Guide - Wholesale Lending Page 17 of 95 12/14/2015

18 Cash Reserves Conventional Loan Program Guide See Sale or Conversion of Primary Residence - Loan Prospector (LP) only. See Multiple Financed Properties. Minimum Reserve Requirements Units/Occupancy Desktop Underwriter (DU) Loan Prospector (LP) One unit Primary Residence Determined by DU None unit Primary Residence Determined by DU Six months 2 Second Home Determined by DU Two months 2 Investment Property Determined by DU Six months 2 Reserve Requirements for Multiple Financed Properties Two to Four Financed Two months for each additional financed Desktop Properties Second Home or Investment Property Underwriter 1 (DU) 3 Five to Ten Financed Six months for each additional financed Properties 3 Second Home or Investment Property 1 Two to Four Financed Two months for each additional financed Properties Second Home or Investment Property Loan 1 Five to Six Financed Two months for each additional financed Prospector Properties (LP) 4 Second Home or Investment Property 1 Five to Ten Financed Properties 4 Not allowed 1. In addition to reserves required for the subject transaction, as determined by the AUS. 2. Represents the minimum reserve requirements; however, all reserves required by Loan Prospector must be verified and documented. 3. Effective for submissions or resubmissions to DU on or after October 26, 2015, the borrower may own or be obligated on up to six financed properties for the Conventional Fixed Rate product. 4. Effective for submissions or resubmissions to LP on or after October 26, 2015, the borrower may own or be obligated on up to six financed properties. Determination of Monthly Housing Expense (PITI) The following expenses must be included when determining the monthly housing expense to be used in calculation of reserve requirements: Principal and interest (P&I) Hazard, flood, and mortgage insurance premiums (as applicable) Real estate taxes Leasehold payment or ground rent Special assessments Homeowner s association dues (including utility charges that are attributable to the common areas, but excluding any utility charges that apply to the individual unit) Any subordinate financing payments on mortgages secured by the subject property. Assets Considered in Cash Reserves Checking or savings accounts. Vested portion of retirements accounts. Stocks, bonds, mutual funds, Certificates of Deposit, money market funds, U.S. Government Securities and other securities that are traded on an exchange or marketplace generally Conventional Loan Program Guide - Wholesale Lending Page 18 of 95 12/14/2015

19 available to the public (NYSE, NASDAQ, etc.). The value of the funds or securities must be readily verified through financial publications, and documentation of the borrower s ownership of the securities must be provided. Cash Value of vested life insurance. The borrower must be the owner of the policy, and not the beneficiary. Borrower s portion of undistributed trust funds. Assets Not Considered in Cash Reserves Funds in which the borrower is not vested. Funds that cannot be withdrawn under circumstances other than the account holder s retirement, employment termination, or death. Non-financial assets such as collectibles, coins, stamps, and art work that would require appraisal and/or liquidation. Stocks issued by, or notes/loans receivable from, a privately held company. Stock options (Loan Prospector) Non-vested restricted stock and non-vested stock options. Proceeds from a cash-out refinance transaction on the subject property. Personal unsecured loans. Interested Party Contributions. Retirement accounts (subject to limitations). See Retirement Accounts. Cash Deposit on Sales Contract (Earnest Money) The funds for the earnest money deposit must be from an eligible source and must be documented per the topics within this section of the program guide or the applicable Seller Guide. Ensure that the funds are not counted twice in the evaluation of the mortgage loan by deducting the amount from funds to close and including the funds as an asset. Desktop Underwriter (DU) When earnest money is entered in Section VI Assets, DU does not consider it liquid. Therefore, in order to give the borrower credit for earnest money that is not reflected in a liquid account, the earnest money must be entered as follows: If the earnest money has not cleared the borrower s bank account, the amount may be included in the depository account balance. If the earnest money has cleared the borrower s bank account and verification is included in the loan file, the amount may be entered as Other Credit in Section VII. Credit Card Charges, Cash Advances and Unsecured Lines of Credit Desktop Underwriter (DU) The amount charged by the borrower on a credit card, or a cash advance taken by the borrower on a revolving credit card account or unsecured line of credit, may be considered in borrower funds when the funds are used to pay fees related to the mortgage process. Use of these funds is subject to the following: The amount charged may not exceed 2% of the loan amount. The amount charged or advanced must be included in the borrower s total outstanding debt and the repayment of such amount must be included when determining the borrower s monthly debt-to-income ratio. A payment of 5% of the new balance on the credit card or unsecured line of credit must be included in the borrower s DTI ratios, unless direct verification of the new payment amount is obtained; or The borrower must have sufficient verified liquid funds to pay these fees (in addition to the funds needed for the down payment, prepaids, other closing costs, financing costs and Conventional Loan Program Guide - Wholesale Lending Page 19 of 95 12/14/2015

20 reserves as required); however, the borrower is not required to pay off these charges at closing. A copy of the credit card receipt must be included in the loan file. This policy must be applied manually, by either: Including the fees charged to the borrower s credit card on line f of the Details of Transaction and removing any Borrower Paid Fees entered in the Other Credits section of the Details of Transaction for the fees paid outside of closing; or By increasing the monthly credit card payment in the liabilities section of the loan casefile submitted to DU to include the charges if not reflected in the credit report. The Closing Disclosure must reflect a paid outside closing (POC) credit to the borrower for the amount charged. Credit Card Charges, Cash Advances and Unsecured Lines of Credit Loan Prospector (LP) Effective for submissions or resubmissions to LP prior to October 26, 2015: The amount charged by the borrower on a credit card, or a cash advance taken by the borrower on a revolving credit card account or unsecured line of credit, may be considered in borrower funds when the funds are used to pay fees related to the mortgage process. Use of these funds is subject to the following: The amount charged may not exceed the higher of 2% of the loan amount or $1,500. The amount charged or advanced must be included in the borrower s total outstanding debt and the repayment of such amount must be included when determining the borrower s monthly debt-to-income ratio. A payment of 5% of the new balance on the credit card or unsecured line of credit must be included in the borrower s DTI ratios, unless direct verification of the new payment amount is obtained. The borrower must have sufficient verified liquid funds to pay these fees (in addition to the funds needed for the down payment, prepaids, other closing costs, financing costs and reserves as required); however, the borrower is not required to pay off these charges at closing. A copy of the credit card receipt must be included in the loan file. Effective for submissions or resubmissions to LP on or after October 26, 2015: The amount charged by the borrower on a credit card, or a cash advance taken by the borrower on a revolving credit card account or unsecured line of credit, may be considered in borrower funds when the funds are used to pay fees related to the mortgage process. Use of these funds is subject to the following: The amount charged may not exceed the higher of 2% of the loan amount or $1,500. The amount charged or advanced must be included in the borrower s total outstanding debt and the repayment of such amount must be included when determining the borrower s monthly debt-to-income ratio. A payment of 5% of the new balance on the credit card or unsecured line of credit must be included in the borrower s DTI ratios, unless direct verification of the new payment amount is obtained; or The borrower must have sufficient verified liquid funds to pay these fees (in addition to the funds needed for the down payment, prepaids, other closing costs, financing costs and reserves as required); however, the borrower is not required to pay off these charges at closing. A copy of the credit card receipt must be included in the loan file. Employer Assistance A borrower of a mortgage loan secured by a principal residence may use funds provided by an employer to fund all or part of the down payment or closing costs subject to the Conventional Loan Program Guide - Wholesale Lending Page 20 of 95 12/14/2015

21 minimum borrower contribution requirements. Employer assistance can also be used for financial reserves for all types of assistance with the exception of unsecured loans (which may only be used for the down payment and closing costs). Employer assistance funds are not allowed on a Second Home or an Investment Property. Borrower must meet minimum contribution requirements from own funds. See Borrower Contribution from Own Funds. The employer assistance may be in the form of: A grant, A direct, fully repayable second mortgage or unsecured loan, A forgivable second mortgage or unsecured loan, or A deferred-payment second mortgage or unsecured loan. Funds must come directly from the employer. This may include an employer-affiliated credit union. If the assistance is in the form of a secured second mortgage or unsecured loan, the transaction must meet the requirements for loans with subordinate financing. If the secured second mortgage or unsecured loan does not require regular payments of either principal and interest or interest only, a payment does not need to be included in the monthly DTI ratios. Gift from a Related Person Allowed on Primary Residence and Second Home. If LTV is >80%, the borrower must make a minimum 5% down payment from own funds. See Borrower Contribution from Own Funds for exceptions: Desktop Underwriter: One-unit Primary Residence Conforming Balance only. Loan Prospector: One-unit Primary Residence only. Gift funds may be provided only by an immediate family member, spouse, fiancé, fiancée, or domestic partner of the borrower. A letter signed by the donor, evidence of the donor s ability to provide the gift, and documentation of the gift funds per the table below is required. Brokers are encouraged but not required to use the Pacific Union Financial Gift Letter. DONOR(S) MUST PROVIDE EVIDENCE OF THEIR ABILITY TO DONATE GIFT FUNDS AND EVIDENCE OF RECEIPT OF THOSE GIFT FUNDS FROM THE DONOR S ACCOUNT MUST BE PROVIDED PER THE FOLLOWING. If the gift funds... Then the required documentation is... Are in the borrower s account and the loan is AUS approved Are to be provided at closing AND In the form of a certified check from donor s account Are to be provided at closing AND Are in the form of a cashier s check, money order, official check, or other type of bank check Are to be provided at closing AND Document according to AUS findings Bank statement showing the withdrawal from the donor s account disclosed in the gift letter, AND Copy of the certified check made payable to escrow company Have the donor provide a withdrawal document or cancelled check for the amount of the gift, evidencing that the funds came from the donor s personal account disclosed in the gift letter, AND A copy of the check, AND Borrower s deposit slip or bank statement that shows the deposit and new balance OR the check may be given directly to the Title Company or Realtor who must provide written acknowledgment identifying the specific check received & being held in escrow by the Title Company Have the donor provide documentation of the wire transfer from donor s account disclosed in gift letter, AND Conventional Loan Program Guide - Wholesale Lending Page 21 of 95 12/14/2015