Purchasing the Loan-Suspended Files 01/07/2014 1

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1 Chapter 8 Files in Suspense / Purchasing the Loan... 3 Legal Name on Documents... 3 Closed Packages... 3 Files in Suspense... 4 Note... 5 Endorsement of Note... 5 Allonge... 6 Subject Property Address Requirements... 6 FKA / AKA Language... 6 Mortgage... 7 Mortgage Riders... 7 Loan Modifications... 8 Assignment... 8 Hazard Insurance Requirements... 9 Deductibles Flood Insurance Requirements Freddie Mac and Fannie Mae Flood Insurance Deductible FHA Deductible Definitions Condominium Associations Cooperative Associations Timeshares Rural Development Loans First Payment / Goodbye Letter Notice of Servicing Transfer form Application Flood Certification Good Faith Estimate HUD Settlement Statement Escrow Holdback Agreement Shared Well / Shared Driveway Agreements SSA-89 Form SSA-3288 Social Security Consent For Release Form Real Estate Tax and Hazard Insurance Payments Name Affidavit Power of Attorney Title Commitments Right of First Refusal (Title Defects and Impediments) W9 Form Right to Cancel/Right of Rescission Security Instrument Loan Modification Lender s Signature Paragraph Instruments who must sign?? Subordination Agreement Mortgage Insurance Certificate Single Pay MI Initial Escrow Account Statement Escrow Waiver Purchasing the Loan-Suspended Files 01/07/2014 1

2 Amount Due Correspondent Disbursing of Funds Automatic Payment Authorization Truth in Lending Manufactured Homes IRS Form 4506-T Instructions for Completing Form 4506-T Revocable Trusts Signatures for Notes and Mortgages with Revocable Trusts Life Estates Proper Correction of Signed Original Documents Forms that CANNOT be altered Forms that CAN be altered Certification and Authorization Form (Required with initial applications taken on or after 7/15/13 bulletin #2013-5) Miscellaneous Hints & Tips From the Purchasing Department Requirements for Verbal Verifications of Employment Completion of Self-Employed Verifications of Employment Purchasing the Loan-Suspended Files 01/07/2014 2

3 Chapter 8 Files in Suspense / Purchasing the Loan Legal Name on Documents The legal name of our institution is Merchants Bank, National Association. Please do not add an apostrophe between the t and the s. We will not accept NA as the abbreviation of National Association. Any documents received in our purchasing department with these variations will be returned for correction. Examples of such documents include the mortgage, assignment, subordination agreements, endorsements, etc. Closed Packages The following address is used to submit the original note and allonge to Merchants Bank for purchase: Merchants Financial Group Operations Center ATTN: Correspondent Purchasing 62 West Third St Plaza Square, Suite 90 Winona, MN Paper loan files will no longer be accepted in the purchasing department on or after 10/14/13. All closed loan packages will need to be electronic submissions to the Virtual Loan Folder. The original note and allonge are still required and should be forwarded to the purchasing department prior to lock expiration to avoid re-price. The closed loan will not be considered complete and received in purchasing until the closing document package has been uploaded to the Virtual Loan Folder in addition to the original note and allonge being received in the purchasing department. Check with your IT department for specific requirements needed to scan your closed loan packages and make sure that any two-sided documents are being captured. Label all uploaded packages in the Virtual Loan Folder as Closing Package. If the full closed loan package has not been uploaded in the correct stacking order, the purchasing department will contact you to make the correction. The loan status will not be considered complete or as Received in Purchasing until this has been completed. If you have sent original documents and uploaded an electronic virtual package but your loan status has not been updated to Received in Purchasing, please check your mail carrier tracking receipt to verify delivery of the original documents. If the original documents have been delivered, please contact the purchasing help desk for further assistance. Purchasing the Loan-Suspended Files 01/07/2014 3

4 A completed Closed Loan File Order Checklist must be included in each file. This checklist is used to submit the closed files in the proper document stacking order. The checklist may be found in the Forms Chapter of this manual. A completed New Loan Setup Sheet is required in each file. This form may be found in the Forms Chapter of this manual. The information listed on this form is used to set up the loan in Merchants Bank servicing system once the loan is purchased. An incomplete New Loan Setup Sheet may result in your loan being suspended for purchase until such time that the missing information is received. Note: Final documents (original recorded mortgage, original recorded assignment, final title policy) should be sent to the attention of our Trailing Documents Department along with a Final Documents Transmittal to ensure proper tracking by Trailing Documents. Files in Suspense Documentation that is missing and/or incorrect is identified during the pre-purchase review process conducted by our correspondent purchasing area. If your file has any deficiencies, the purchasing area will send a message via Residential Connection advising you that a Suspense Status Sheet has been uploaded, which will contain what items/issues need to be addressed. A follow-up message will also be sent every three business days until all suspense items have been cleared. If a correspondent has any questions, they should contact the purchasing help desk via or phone. If a correspondent does not receive a Suspense Status Sheet within 72 hours of delivering the closed package to Merchants Bank, he/she may refer to their pipeline in Residential Connection which will indicate the current status. Received in Purchasing The closing package has been received by Merchants Bank, however it has not yet been reviewed by the Purchasing Department. Purchasing Suspense The closing package has been reviewed by the Purchasing Department, and a Suspense Status Sheet has been uploaded for the correspondent to review. Purchased No further items are required from the correspondent, and a Purchase Advice has been uploaded for the correspondent to review. Merchants Bank lists all conditions, including documents that are missing, incomplete or in need of correction on the Suspense Status Sheet. Any unsatisfied at-close underwriting conditions are listed as well. All conditions must be satisfied before Merchants Bank will purchase the loan. If an original document, or a document with an original signature, is required, a facsimile is not acceptable to clear the suspense condition. Any issues appearing on the Suspense Status Sheet will need to be resolved by the deficiency cure deadline date to avoid extension fees or repricing. The deadline date is either thirty calendar days after the date of the suspense notification or the rate lock expiration date, whichever is later. Purchasing the Loan-Suspended Files 01/07/2014 4

5 Note Purchasing will require an original note to be forwarded to the purchasing department and uploaded to the Virtual Loan Folder. Below is an example of items the Purchasing Department will review on the note: The city and state above the subject property address are listed at the top of the note. The closing date and first payment date are correct. The late fee section reflects 5% late fee after 15 days, and no other late fee information is included. The payment address matches the originating bank s address. Borrowers names are signed as typed, and borrowers names are typed the same on the note, mortgage preamble, mortgage signature line, mortgage notary section, signature line of any applicable riders, and assignment of mortgage. A Fannie Mae / Freddie Mac Uniform Instrument was used. The P&I amount matches the feedback o The note may be.01 less than the findings or up to $1.00 over for Fannie Mae. o There is no tolerance for Freddie Mac. The loan closed prior to the feedback expiration date. Loan origination organization (initial applications taken on or after 1/10/14) NMLS ID for the organization (initial applications taken on or after 1/10/14) Loan originator (initial applications taken on or after 1/10/14) NMLS for the originator (initial applications taken on or after 1/10/14) Endorsement of Note The note endorsement should read: PAY TO THE ORDER OF MERCHANTS BANK, NATIONAL ASSOCIATION WITHOUT RECOURSE CORRESPONDENT BANK NAME (exactly as it appears on page 1 of the note) (Authorized Signature) TYPED NAME OF AUTHORIZED SIGNER TYPED TITLE OF AUTHORIZED SIGNER If the endorsement of the note does not appear as stated above, an original Allonge will be required before the loan will be purchased. An example of an Allonge may be found in the Forms Chapter of this manual. Purchasing the Loan-Suspended Files 01/07/2014 5

6 Allonge The Purchasing Department will review the Allonge to ensure the following criteria have been met: The allonge may only be 1 page or must clearly indicate Page 1 and Page 2 or Continued. The borrower s name must appear exactly as it does on the signature line of the note, including any FKA, AKA POA, or trust language). o If there are two borrowers the allonge must read Borrower 1 AND Borrower 2 (not OR ). Property address is completed and matches the note. Loan amount is completed and matches the note. Note date is completed and matches the note. Pay to the order of Merchants Bank National Association without recourse. Lender s signature, title, typed name, and bank location as it appears on page 1 of the note are all completed. Subject Property Address Requirements Please review the submitted address and the standardized address for discrepancies. o If there are no discrepancies, the loan documents should match both addresses. o If the submitted and standardized addresses do not match, the first page of the appraisal must match the standardized address and there must be an addendum to the 1004 showing the submitted address and language stating the two addresses are one in the same. The LPS flood certificate must show a determination address that matches the standardized address. The hazard insurance must match the submitted address. The note, mortgage, and all remaining closing documents must match the submitted address. FKA / AKA Language FKA or AKA language is not required to be used if an Affidavit of Same Name / Common Identity is provided; however, it must be used if the name is completely different on the closing documents vs. how title is held and is not just a variation. A Quit Claim Deed may also be executed in lieu of the FKA / AKA language. If the FKA or AKA language is used, it must be used on the signature lines of the note and mortgage, the preamble to the mortgage, the notary section of the mortgage, and the assignment of mortgage. Purchasing the Loan-Suspended Files 01/07/2014 6

7 Mortgage A signed certified copy of the mortgage must be included in the uploaded closing package. The following items are reviewed for by the purchasing department: (Please note this list is not all inclusive) Closing date matches the date on the note. No MERS language is included All pages of the mortgage must be included. The marital status of the borrowers must appear in the preamble (section B). Mortgage is on the correct form (Fannie / Freddie Uniform Instrument) for the correct state (state in which the subject property is located) Correct box is checked for any applicable rider. Names are typed consistent throughout the mortgage, and match how they were typed on the note. State and county in the notary section must be completed. The notary section is signed and dated. Loan origination organization (initial applications taken on or after 1/10/14) NMLS ID for the organization (initial applications taken on or after 1/10/14) Loan originator (initial applications taken on or after 1/10/14) NMLS for the originator (initial applications taken on or after 1/10/14) Mortgage Riders The signature lines must include the typed name of the borrower(s) as they appear on the signature lines for the mortgage and the address of the subject property must match how it appears on the note. A sample of each Rider is available in the Forms Chapter of this manual. You may also visit Condominium Rider A Condominium Rider is part of the Security Instrument detailing the additional terms of a mortgage secured by a condominium. The Condominium Rider is required for all condominiums. Please note the name of the Condominium Association must be included on this form. 1-4 Unit Rider A 1-4 Unit Rider gives a lender the rights to all rents collected on the property if the borrower defaults on the loan. A 1-4 Unit Rider is required on all investment and 2-4 unit properties. Purchasing the Loan-Suspended Files 01/07/2014 7

8 PUD Rider A PUD Rider is part of the Security Instrument detailing the additional terms of a mortgage secured by a Planned Unit Development (PUD). A PUD Rider is required for all Planned Unit Developments. Please note the name of the PUD project must be completed on this form. Second Home Rider A Second Home Rider is part of the Security Instrument detailing the additional terms of a mortgage secured by a second home. This rider is required on all second homes. ARM Rider An ARM Rider is a required part of the Security Instrument for all ARM products. Leasehold Rider For properties secured by a leasehold property, a Leasehold Rider is required that is in compliance with Fannie Mae requirements for leasehold estates. Balloon/Reset A Balloon Rider is a required part of the Security Instrument for all Balloon products including second mortgages. Loan Modifications A signed certified copy of the loan modification must be included in the uploaded closing package, as well as a copy of the recorded original mortgage as well as all recorded interim modifications. The final loan modification must be on FNMA form 3179 Providing for Fixed Rate, and it must include the recording information from the original mortgage as well as all interim modifications. The borrowers names must be typed exactly as they appear on the original mortgage. Assignment A signed certified copy of the assignment must be included in the uploaded closing package. The assignment should be transferable to: Merchants Bank, National Association, 102 East Third Street, Winona, MN or PO Box 248, Winona, MN The date on the assignment and the loan amount must match the note and mortgage, and the name of the borrower(s) must also match the note and mortgage. In the event that a loan modification was utilized, the assignment must include the recording information from the original mortgage, all interim modifications, and the final modification. **PLEASE NOTE** Merchants Bank is not a Mortgage Electronic Registration System (MERS) lender. Purchasing the Loan-Suspended Files 01/07/2014 8

9 Hazard Insurance Requirements Hazard insurance protects against loss cause by fire, vandalism and some natural causes depending on the terms of the policy. Merchants Bank requires that all borrowers have hazard insurance coverage from a reputable carrier. Every file must have evidence of hazard insurance. 1. Either the Homeowners Association or at least one of the borrowers must be listed as the insured. 2. The property address must match the appraisal and automated underwriting findings, including the unit number of the condominium. 3. The estimate for the annual premium and deductible amount must be shown on the declaration page. 4. The insurance must be in place on or before the date of closing. Hazard insurance coverage must fit the following guidelines based on the replacement value as determined by the property insurer: 1. If the loan amount is higher than the replacement value, the minimum coverage amount is the higher of the replacement value or the value of the buildings. To calculate the value of the buildings: subtract the site value and site improvement value from the appraised value. 2. If the loan amount is between 80% to 100% of the replacement value, the minimum coverage amount is the loan amount. 3. If the loan amount is < 80% of the replacement value, the minimum coverage amount is 80% of the replacement value. The lender must provide the declaration page and a paid receipt for one year on a purchase transaction, or show the annual premium being paid at closing on the HUD. The first year s premium is required to be paid in full regardless of whether or not the borrower chooses to escrow. Loans that are currently serviced by Merchants Bank are reviewed by the Purchasing Department in the same manner as loans that are not currently serviced by Merchants Bank. Please note the closing package must contain the hazard insurance binder or declarations page showing the policy was in effect at the time of closing and include the required ISAOA language. A condominium or attached PUD requires a copy of the master hazard insurance policy. The mortgagee must be listed as the originating bank s name plus the necessary ISAOA language or Merchants Bank plus the necessary ISAOA language. Please use our bank address of PO Box 248 Winona, MN if our bank name is listed as mortgagee. If the master or blanket policy of a Homeowner s Association policy does not cover the unit s interior, the borrower must obtain a walls-in policy, commonly known as an HO-6 policy. The HO-6 insurance policy must provide coverage in an amount that is no less than 20% of the condo unit s appraised value. Purchasing the Loan-Suspended Files 01/07/2014 9

10 Deductibles Fannie Mae and Freddie Mac allow the borrower s deductible to be up to 5% of the face amount of the insurance policy. This is for all property types. Flood Insurance Requirements A current flood insurance policy, or an application with a paid receipt for 1 year, is required on all loans if the property is located in zones A or V per the Flood Certification Letter (preliminary document) or appraisal (secondary document). Files with a LTV of greater than 80% must escrow, regardless of the type of loan program used. Flood insurance must always be escrowed regardless of LTV. The flood zone code appearing on the flood insurance policy must match the flood zone code appearing on the LPS flood certificate, and the annual premium amount must appear on the flood insurance policy or application. The initial premium must be paid prior to closing, due to the thirty (30) day waiting period. On conventional loans, the flood insurance limits must equal the lower of: The Unpaid Principal Balance of the loan; 100% of replacement cost of the insurable improvements; or The maximum amount allowed under NFIP. When the unpaid principal balance of the mortgage represents the lowest option, the unpaid principal balance must be at least 80% of the replacement cost of the structure. However, if the unpaid principal balance is less than 80% of the replacement cost of the structure, then the required insurance coverage amount must be at least 80% of the replacement cost or the building value, whichever is higher. The insurance limit cannot exceed the maximum amount of insurance currently sold under the National Flood Insurance Program (NFIP), present set at $250,000. Freddie Mac and Fannie Mae Flood Insurance Deductible The deductible may be a maximum of $5,000. FHA Deductible The deductible may be a maximum of $1000. Purchasing the Loan-Suspended Files 01/07/

11 Flood Insurance Requirements for Condominiums and Townhomes/Rowhomes (PUD) Definitions Condominium: A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. Fannie does not purchase or securitize mortgages secured by condominium projects they do purchase or securitize mortgages on individual units in the project (FNMA Servicing Guide). Condominium Unit: One-unit dwelling located in a Condominium Project (Freddie Servicing Guide). Condominium Project: Real estate that includes the separate ownership in fee (or on an acceptable leasehold estate) of a specified residential unit with an undivided interest in the real estate designated for common ownership solely by unit owners (Freddie Servicing Guide). Row House: A house that is one of a row of houses, often of similar or identical design, situated side by side and sharing common walls. A townhouse is defined as an especially fashionable row house (Dictionary). Per Freddie Mac, flood insurance requirements for townhouses and rowhouses are those applicable to 1-4 unit properties. Flood insurance is not required for individual units within a high-rise or vertical condominium. Condominium Owners Associations, however, are required to carry flood insurance. Per the Fannie Mae Servicing Guide, the minimum amount of flood insurance required for most first mortgages secured by one- to four-family properties, individual PUD units, and individual condominium units (such as those in detached condominiums, townhouses, or rowhouses) is the lower of the minimum amount required, under the terms of the coverage, to compensate for any damage or loss on a replacement cost basis (or the unpaid balance of the mortgage if replacement cost coverage is not available for the type of building insured); or the maximum insurance available under the appropriate National Flood Insurance Program, which is currently $250,000 per dwelling. We generally do not require separate flood insurance policies for the individual units in a condominium project. Instead, we require the owners' association to obtain a Residential Condominium Building Association Policy for each building that is located in a Special Flood Hazard Area. If an owners' association refuses to obtain the required coverage, we require the unit owner to obtain a separate policy to cover his or her individual unit. We do not require the owners of cooperative units to obtain individual flood insurance policies. Purchasing the Loan-Suspended Files 01/07/

12 Per FEMA, the mandatory purchase requirements apply with equal force to condominium, cooperative, and timeshare units. Placing and monitoring coverage on units within a multi-unit building present special circumstances to lenders and merit particular treatment. Generally, the applicability of the mandatory purchase law can be explained through a review of how the various NFIP policies correspond to the forms of ownership of common interest community organizations, as follows: The Residential Condominium Building Association Policy (RCBAP) applies to all high-rise and low-rise residential condominium buildings and some timeshares in the Regular Program. The General Property Policy applies to cooperatives and some timeshares and condominium buildings not eligible for the RCBAP. The Dwelling Policy may be issued on an individual unit. Condominium Associations Condominium Association board members have a fiduciary responsibility to unit owners to protect the common property by assuring that appropriate insurance coverage is in place. This responsibility often includes providing adequate flood insurance to protect buildings located in SFHAs. A Residential Condominium Association may purchase NFIP insurance coverage on a residential building under the RCBAP. The premium for the policy is usually assessed as part of the unit owner s association dues. A condominium association may opt to purchase flood coverage under the RCBAP, even though individual owners may not have mortgages on their units. a. Residential Condominium Building Association Policy (RCBAP) The RCBAP is the policy specifically designed for condominium associations to insure residential condominium buildings. Under the RCBAP, the association is able to manage flood insurance needs and by-law requirements without relying on the actions of the unit owners. The valuation of the property subject to coverage is determined in accordance with Section C.2 of these guidelines. The Federal mandatory purchase laws apply with equal force to condominium unit owners and their lenders, but the practice of the lending industry, as followed under the RCBAP, is to defer to the association to ensure compliance. A properly placed RCBAP is deemed to satisfy the Reform Act s escrow requirement. Although the association does not bear mortgage responsibility on the individual units, its interest springs from the obligation to maintain and repair the premises for the community benefit and unit owners as tenants in common. A key feature of the condominium insurance format is the separate ownership and mortgaging of individual units, yet the insuring of the building as a whole is with a policy issued to the association only. Because the RCBAP provides flood insurance coverage protection for both the unit and the common elements of common buildings, the security interests of individual unit owner mortgagees should be protected, so long as coverage amounts reflect insurance to value, as with other forms of property insurance. A unit owner s mortgage lender has no direct interest in an RCBAP and is not to be named an additional insured. Purchasing the Loan-Suspended Files 01/07/

13 (1) Evidence of Compliance Upon the making, increasing, extending, or renewing of a loan on the unit and as frequently as required, a unit owner and the insurance agent should advise the unit s mortgagee of the RCBAP s existence to ensure that a mortgagee is aware that the mandated insurance requirement is being met. The unit owner or the producer may provide the mortgagee evidence of the RCBAP by supplying a copy of the declarations page documenting the specific dollar amount of coverage. If a unit owner s mortgagee determines that the coverage purchased under the RCBAP is insufficient to meet the mandatory purchase requirements, it can request the borrower to ask the association to carry adequate limits, or require purchase of a separate unit owner's building coverage policy. The assessment coverage under the Dwelling Policy form will respond when there is no RCBAP, or when the building insured by the RCBAP is insured to 80 percent of the replacement cost and when a loss exceeds this amount. (2) Coverage Under an RCBAP, the entire building is covered under one policy, including both common and individually owned building elements within the unit, improvements within the unit, and personal property owned in common if contents coverage is carried. The RCBAP does not protect the individual owner from loss to personal property owned exclusively by the unit owner. The NFIP prohibits duplication of NFIP policies on the same risk. As described below, both an association and a unit owner may obtain NFIP coverage, but the unit owner's coverage is proscribed in that it is in excess of the association policy. The RCBAP is primary in relation to the unit owner s policy. (3) Policy Limits The maximum amount of building coverage that can be purchased on a high-rise or lowrise condominium under the RCBAP is the replacement cost value of the building or the total number of units in the condominium building times $250,000, whichever is less. The maximum allowable contents coverage is the actual cash value of the commonly owned contents up to a maximum of $100,000 per building. (4) Coinsurance Provision The RCBAP encourages an association to purchase coverage in an amount equal to at least 80 percent of the replacement cost of the building or to the maximum amount of coverage available under the NFIP, in order to avoid the coinsurance penalty. If that threshold is met, the NFIP agrees to pay 100 percent of all compensable partial losses up to the limits of the policy minus any deductible. When an association carries limits to full replacement cost value, the unit owner does not need to obtain supplemental building coverage to cover a potential assessment in a total loss situation. The RCBAP s coinsurance provision requires a condominium association to carry NFIP coverage exclusively to comply with the insurance-to-value provisions. Purchasing the Loan-Suspended Files 01/07/

14 Lenders must be aware of the coinsurance clause that applies if the association has not obtained appropriate coverage. To the extent the association has not purchased NFIP coverage in an amount equal to the lesser of 80 percent or more of the full replacement cost of the building at the time of loss, or the maximum amount of insurance available under the NFIP, the insured will not be reimbursed fully for a loss. Building coverage purchased under individual dwelling policies cannot be added to RCBAP coverage in order to realize the 80- percent requirement. The amount of loss in such a situation will be determined in accordance with the policy s coinsurance formula. b. Dwelling Policy A unit owner can acquire supplemental building coverage to the RCBAP by purchasing a unit policy under a Dwelling Policy form that is written in excess of the association policy. The policies are coordinated such that the Dwelling Policy purchased by the unit owner responds to shortfalls on building coverages pertaining either to improvements owned by the insured or to assessments. Assessment coverage, which is available under the unit Dwelling Policy, applies when the building covered by the RCBAP is insured to 80 percent of replacement cost. The assessment coverage under the Dwelling Policy form will respond only to that part of a loss that exceeds 80 percent of replacement cost. This assessment coverage also applies to common elements of any other insured building of the condominium association that is insured under the NFIP in an amount equal to the actual cash value of the other insured building. Loss payments, including assessment coverage, cannot exceed the maximum building coverage permitted for the building under the 1994 Reform Act. Assessment coverage also applies, up to the building coverage limits of the Dwelling Policy purchased, when there is no association policy (RCBAP). Personal property owned by individual unit owners must be insured under an individual unit owner s Dwelling Policy. c. General Property Policy To purchase coverage under the NFIP on a nonresidential condominium building, a condominium association must use the General Property Policy form. Both building and contents coverages are available separately, in amounts up to $500,000 per nonresidential building. The nonresidential unit owner also may purchase contents coverage using this policy. In addition, a condominium association must use the General Property Policy form to purchase coverage on a residential building located in a participating Emergency Program community. Cooperative Associations The NFIP offers coverage for cooperatives through the General Property Policy form, with a maximum amount of building coverage up to $250,000 available to a residential cooperative. The entity that owns the cooperative, not the various unit members, is the named insured. A cooperative cannot be insured under the RCBAP. Purchasing the Loan-Suspended Files 01/07/

15 Timeshares NFIP coverage of timeshares is directly related to the jurisdiction s property ownership rights, as influenced by state law. The jurisdictions generally can be divided into two categories: Fee or real-estate ownership Non-fee interest, such as right-to-use. States with fee ownership number slightly more than half of the jurisdictions. In a fee-ownership jurisdiction, a timeshare is considered similar to a condominium. Therefore, the RCBAP is the required policy form for residential timeshares if the risk otherwise meets the underwriting requirements. That is, a timeshare unit owner must hold an interest similar to that of a condominium unit owner to be eligible for coverage under the RCBAP. If a timeshare is eligible for an RCBAP, it is precluded from being insured under a General Property Policy. A fee ownership timeshare requires coverage placed through the timeshare s association on the RCBAP form. As with a condominium, lenders may consider the RCBAP policy, with the association as the named insured, as complying with the mandatory purchase requirements. In a non-fee jurisdiction, the title remains with the building owner who has the full insurable interest in the real property, not with the unit occupants. In this situation, a General Property Policy form must be used for the building. The non-fee simple form of ownership is very similar to a cooperative, where no deed is held by the unit owner. Rural Development Loans The purchasing department will review the uploaded closed loan package to insure all necessary Rural Development forms are included and completed correctly. Below are items reviewed for by the purchasing department: 1. Late fee information section on the note must reflect 4% / 15 days. 2. The loan amount on the note must match the amount on the Conditional Commitment. 3. The interest rate on the note must match or be less than the rate on the Conditional Commitment. 4. The RD premium must appear on the Initial Escrow and match the Conditional Commitment, and this may show as being paid monthly or annually. i. If this is shown as paid annually the fee must be disbursed 12 months from the date of the loan at the beginning of the following month. 1. Example: Loan closed 7/24/13, the fee will be due 8/1/14 5. Proof of the Guarantee Fee payable to RD HUD or cancelled check. 6. RD form Conditional Commitment (Revision 02/12 or newer), fully completed and signed by RD Agent. i. The Lender Certification for SFH Guaranteed Loan (incorporated into RD form and replacing RD form ) signed and dated by the lender. ii. Retained box has been checked 7. Form Loan Closing Report is completed, signed, and dated by lender. 8. Original Loan Note Guarantee form is attached and loan amount matches the note. Purchasing the Loan-Suspended Files 01/07/

16 i. Copies are accepted for all states except Wisconsin. ii. If this was not available at the time the closing package was sent to Purchasing, please provide a signed certified copy of RD form Request for SFH Loan Guarantee. First Payment / Goodbye Letter A First Payment / Goodbye Letter must be included with every uploaded closing package. Merchants Bank does not have a standard form that must be used; however the form must include the following three key elements: Payment information is included, correct, and broken down according to Principal and Interest, Hazard Insurance, Taxes, Flood Insurance, and MI. The letter advises the loan is being sold to Merchants Bank National Association, and states payments should be mailed to Merchants Bank National Association at PO Box 248 Winona, MN The first payment date is listed and matches the note. Notice of Servicing Transfer form A Notice of Servicing Transfer form must be included with every uploaded closing package. Purchasing will review the form to ensure the following criteria have been met: The new servicer phone number is listed as , and our address of 102 E 3 rd St or PO Box 248 Winona, MN is listed. The loan is being sold to Merchants Bank National Association (this may not be abbreviated). The effective date is the first payment date. The stop accepting payments date is the first payment date or the day prior. The start accepting payments date is the first payment date. Purchasing the Loan-Suspended Files 01/07/

17 Application Purchasing will require an application on version 06/09 be provided in the uploaded closing package. All fields on the application must be completed in order to be compliant, however the purchasing department only reviews the items listed below. The year the home was built (only reviewed if we do not have an appraisal) The ownership interest in sections III and VIII of the application must match. If the borrower was renting you may leave both the rent and own fields blank. The application must be signed by all borrowers and the lender, and must be dated by all parties with the closing date. Government monitoring has been completed if application was taken face-to-face. Loan Originator Identifier and Loan Originator Company Identifier must be completed on the application, as well as on the 1003 in MRC. Flood Certification Merchants Bank utilizes LPS as our flood certificate company. Purchasing will review for a LPS certificate in our bank name with our lender ID of 8866, and if one is not present we will order it for you. The purchase advice will reflect the $9.00 fee for this service. Good Faith Estimate The closing package uploaded to the Virtual Loan Folder must include all versions of the GFE provided to the borrowers, along with a list of service providers or a letter stating the borrowers are not allowed to shop for services appearing on the GFE. A detailed change in circumstance form must be included for all re-disclosed GFEs. Please note: The purchasing department does not review the Good Faith Estimate, and we suggest speaking with your internal compliance department if you should have any questions regarding this document. The following resources may be found in the document library of MRC: Understanding the Good Faith Timing of the Good Faith Estimate and Truth in Lending Disclosures Purchasing the Loan-Suspended Files 01/07/

18 HUD Settlement Statement A signed HUD must be included in all uploaded closing packages, and all pages must be included. Below are some of the items reviewed for by the purchasing department: (Please note this list is not all inclusive) Settlement and disbursement dates are correct. Escrow amounts match the Initial Escrow Disclosure. o Please see Initial Escrow Account Statement for additional information If an HVE was utilized the $75 fee may not appear on the HUD. A seller signed HUD must be included for all purchase transactions. If the seller s HUD was signed by a POA, a copy of the POA documentation must also be included. Escrow Holdback Agreement In the event the Underwriter has approved an Escrow Holdback, a signed escrow holdback agreement must be uploaded with the closing package and the approved amount must be collected for on the HUD. This form is available in our Document Library. The dollar amount must match between the UW receipt, amount collected on the HUD, and the amount appearing on the escrow holdback agreement. The form must indicate the date when work must be complete (actual date, not number of days) and must be signed by all parties. Shared Well / Shared Driveway Agreements All Shared Well Agreements and Shared Driveway Agreements must be recorded with the County Recorder or the Register of Deeds. Underwriting may condition for a copy of the recorded Shared Well Agreement to be provided as an at-close condition if the well is not located on the subject property. In addition, a copy of the recorded agreement must be provided with the Trailing Documents if the Shared Well Agreement and/or Shared Driveway Agreement is appearing on the title commitment. A recorded Shared Well Agreement / Shared Driveway Agreement must show that the agreement runs with the property and that the inhabitants of the subject property have the right to access the well on an ongoing basis. The agreement should also provide for maintenance of the well and/or driveway. Purchasing the Loan-Suspended Files 01/07/

19 SSA-89 Form Next is a copy of the SSA-89 form with the required fields highlighted, along with directions for completing the form. The Company Name Address section should be completed with Merchants Bank National Association 102 E 3 rd St. Winona, MN The name and address of the Company s Agent should be completed with Kroll Factual Data 5200 Hahns Peak Drive Loveland, CO All highlighted fields must be completed The Social Security Administration will not accept the form with any alterations, even if the alteration has been initialed by the borrower The Social Security Administration will not accept the form if it is signed by a Power of Attorney This form may be found as a stand-alone document in the document library of MRC with the information for Merchants Bank and Kroll pre-populated. Purchasing the Loan-Suspended Files 01/07/

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21 SSA-3288 Social Security Consent For Release Form This form is required to be included in all closing packages if Social Security Income was used to qualify for the loan. Below is a copy of the form available in the Forms Chapter of the manual, as well as directions for completing the form. A stand-alone document is available with the information for Merchants Bank pre-populated. Please note the Social Security Administration will not accept this form with any alterations, even if the alteration was initialed by the borrower. This form may NOT be signed by a Power of Attorney. Purchasing the Loan-Suspended Files 01/07/

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23 Real Estate Tax and Hazard Insurance Payments If real estate taxes and/or hazard insurance premiums are due within 6 weeks of the borrower s closing date, this amount must be collected on the HUD Settlement Statement at closing or proof of payment must be provided with the closing package. Name Affidavit A name affidavit is required whenever the file contains a variation in the borrower s name or signature. The accepted name affidavit form may be located in the Forms section of the manual. The name affidavit does not cover variations of how the borrower s name is typed between documents. All name affidavits must be signed by the borrower and notarized. An over-signed legal document is acceptable and does not require correction or a name affidavit. A name affidavit will not suffice if the borrower holds title with a different name than how it is typed on the closing documents (i.e. maiden name vs married name). This situation will require a quit claim deed to be executed and recorded. As an alternative you may use FKA language on the note, mortgage, and assignment. Power of Attorney A Power of Attorney is an authority by which one person (principal) enables another (Attorney in Fact) to act for them. A Power of Attorney is required when documents are signed by an Attorney-in-Fact. The Trailing Docs Department will require a recorded copy of the POA if it was used to execute the note or mortgage on either a purchase or refinance transaction. A specific or limited Power of Attorney is required, and a copy must be included in the closed package submission. General Power of Attorney forms are not an acceptable alternative. The purchasing department will review the Power of Attorney form to insure the following conditions have been met: 1. Signed by the Grantor / Principal and dated prior to the date of the loan closing. 2. The Agent who signed the note / mortgage must be named in the POA. 3. The POA must grant the right to transfer real estate. 4. Whether or not the form includes an expiration date and for how long it is valid. 5. POA to sign under specimen signature. 6. The form must be notarized. 7. **Effective for all POAs signed on or after 01/01/2014** The POA must have signed a written acknowledgment with respect to receiving notice of his/her duties. The signature lines on the note and mortgage must be typed as shown below, and the agent signing must sign exactly as typed. Purchasing the Loan-Suspended Files 01/07/

24 John Doe, By Jane Doe as POA. Also, the notary section of the mortgage must acknowledge the POA s signature. A Power of Attorney utilized for a purchase transaction by the seller must be included in the closing package. A recorded copy will be required by the Trailing Documents Department if the POA was used to sign the warranty deed. A Power of Attorney may be used for all documents except the 4506T, SSA-89, and SSA Title Commitments Our Underwriting Department performs an initial review of the title commitment, and this is done again by the Purchasing Department after the loan has closed only to verify tax amounts, the borrower s name, and the legal description. We strongly encourage you to thoroughly review your title commitment prior to sending it to Underwriting. Please be proactive and contact the Underwriting help desk if you have a question regarding an item on your title commitment. They can advise if it may be an issue or whether Trailing Documents would request a copy of a document. This will allow you to request any additional documentation you may need for the Underwriter, which would allow the file to move through the process quicker and with fewer conditions. Items such as Conditional Use Permits, Easements, Encroachments, and Well/Driveway Agreements should be requested from the title company so they may be included with the title commitment that is uploaded for Underwriting to review. Right of First Refusal (Title Defects and Impediments) Fannie Mae has indicated in their publication B that title for a property that secures a conventional mortgage is acceptable even though it may contain minor defects or impediments. Below is an excerpt from the article dated May 27, Rights of lawful parties in possession, as long as such rights do not include the Right of First Refusal to purchase the property. (No rights of parties in possession, including the term of a tenant s lease, may have a duration of more than two years.) Freddie Mac has indicated the loan is eligible as long as the Right of First Refusal is subordinated to the first mortgage lien. Please note this is for Freddie Mac loans only. Fannie Mae has confirmed they will not accept a subordination for the Right of First Refusal. W9 Form A fully completed W9 form must be included in the uploaded closing package for all borrowers. The borrower s name and address must be completed at the top of the form, the social security number must match the application, and it must be signed. All pages of the W9 must be included in the closing package for compliance purposes. Purchasing the Loan-Suspended Files 01/07/

25 Right to Cancel/Right of Rescission Merchants Bank requires a three business day right of rescission for all refinance transactions in which one is required by TILA and/or state or local laws. Merchants Bank will not purchase loans in which the right of rescission is required but has been waived. A file that has a right of rescission violation will be added to a tracking spreadsheet for Quality Assurance purposes. Security Instrument The Security Instrument is a legal document signed by the titleholders of a property agreeing to use the property as collateral for a loan and perfects a lender s lien position. Fannie Mae statespecific Security Instrument documents are required for each state. The original recorded mortgage, recorder s certified copy, signed and certified true copy, copy or duplicate original with original signatures is required to be included with the uploaded closing package. The recorded original mortgage is required as a follow-up document if it is not submitted with the closed loan package. Any errors on the security instrument must be initialed by the borrowers. White-out should not be used for correction. If you receive a suspense condition regarding the mortgage, mortgage rider, or assignment, please contact the applicable county recorder in order to determine how they require the correction to be made. If the document has not yet been recorded, you may simply make the correction and have it initialed by the borrower or notary (depending on where the correction was made) and upload it to the VLF. If the document has already been recorded there are generally three options for making the necessary corrections, depending on the preference of the county recorder. Please note your county recorder may have other options for you. 1. A new corrective document may be prepared and fully executed, and the corrective language must be added to the first page of the document. a. This is a corrective being recorded to correct and will replace the recorded as document number. 2. The original recorded mortgage may be obtained in order to make the necessary correction and have initialed by the borrower, and the re-recording language must be added to the first page of the document. **PLEASE NOTE** Some county recorders are now requiring the borrower(s) to re-sign and the new signature(s) must be notarized in lieu of just having the borrower(s) initial. a. This recorded as document number is being re-recorded in order to correct. 3. An Affidavit of Correction may be used to correct an error on the mortgage if it is acceptable to the county that will be recording the document. The borrower(s) must sign the form and the signature(s) must be notarized. Purchasing the Loan-Suspended Files 01/07/

26 Loan Modification Lender s Signature Paragraph The Lender s signature paragraph on the loan modification must be completed exactly as shown below. Instruments who must sign?? The information below covers the five primary states we do business in, and is a reminder as to the signatures required on Security Instruments in the case of a Non-Owner Spouse / Civil Union Partner. Purchasing the Loan-Suspended Files 01/07/

27 Subordination Agreement A Subordination Agreement is required if there is subordinate financing that was taken out prior to the subject lien that will not be paid off with the closing of the loan sold to Merchants Bank. The subordination agreement must specifically reference the first lien and a copy should be included with the closing package submission. Also, reference to the new mortgage must list the correspondent s bank name and not Merchants Bank, since we are not the bank originating the loan. Mortgage Insurance Certificate Merchants Bank will order the MI Certificate for all loans and complete the activation process. If the MI Certificate is ordered in your institution s name, the MI Notice of Transfer of Servicer form must be included with the uploaded closed package. This form is needed to transfer the name of the servicer of the loan to Merchants Bank. The Purchasing Department will review the MI documents to insure the following conditions have been met: 1. The MI certificate has not expired, and includes the correct coverage percentage, loan amount, appraisal amount, and purchase price. 2. The amortization schedule is included, and reflects the correct MI premium and drop-off dates. 3. The MI disclosure reflects the correct 80% and 78% drop-off dates. 4. The MI premium on the initial escrow disclosure matches the certificate. 5. The monthly escrow amount appearing on the TIL includes the full escrow amount, including taxes, hazard insurance, and MI premium. Single Pay MI In cases where the borrower chooses Single Pay MI, an additional disclosure will print at the time Underwriting orders the MI certificate. Underwriting will upload the certificate along with the disclosure, which must be signed and dated by the borrowers at closing. The purchasing department will review the closing package for the Single Pay MI certificate and the signed and dated disclosure. Purchasing will also review for documentation showing the premium has been paid and submitted to the MI company, which is done by the originating lender and not by the purchasing department. Below is an example of the single pay MI disclosure. Purchasing the Loan-Suspended Files 01/07/