MAGNOLIA BANK FHA STANDARD REFINANCE OPTIONS MATRIX

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1 RATE REDUCTION REFINANCES EQUITY (CASH OUT) REFINANCES 5. CACULATING THE MORTGAGE AMOUNT WITH A NEW APPRAISAL If the junior lien is a home equity line of credit, the maximum CLTV is based on the full credit line amount Premium pricing permitted Refer to Geographic Locations/Restrictions for additional state specific restrictions or requirements The following guidelines pertain to owner-occupied rate/term refinances for properties in Texas If the first mortgage is subject to Texas Section 50(a)(6), FHA insured financing is not permitted. If an existing second lien is subject to Texas Section 50(a)(6), FHA insured financing is not permitted. Once a cash-out, always a cash-out. The title policy will reference Texas Section 50(a)(6) or Article XVI of the Texas Constitution effective January 1, When FHA insured financing is permitted, Underwriting conditions and closing instructions must indicate No Cash back to borrower is permitted (not even one dollar is permitted) The maximum base mortgage calculation is the lower of the loan to value limitation or the existing debt calculation described below and may never exceed the statutory limit except by the amount of any new Up-Front MIP. Refer to Geographic Locations/Restrictions for additional state specific restrictions or requirements MAXIMUM MORTGAGE CALCULATION WORKSHEETS The new FHA base mortgage amount is the lesser of calculations 1A, 1B or 1C, when applicable, or Calculation 2 or Calculation 3 Calculation 1 LTV Limitation Modified Subordinate Lien: FHA understands that many subordinate lien holders have been requesting modifications to the terms of the lien (typically a reduction in the amount of the lien) in exchange for remaining in a subordinate position. Modifying the subordinate lien in this manner often results in re-executing it at closing, which is acceptable and is not considered a new subordinate lien. Premium pricing permitted Closing costs, prepaid expenses and discount points may not be added to the appraised value or sales price to calculate the new maximum loan amount. Equity Refinance is not permitted in Texas The Maximum Base Mortgage Amount is calculated as the appraised value (or original sales price, if applicable) times the applicable LTV factor as described in the chart below. MAXUIMUM MORTGAGE CALCULATION WORKSHEETS Maximum Base Mortgage Calculation LTV Limitation Properties Owned As Borrower s Principal Residence More Than One Year Prior to Application Date Appraised Value times applicable LTV factor Properties Owned As Borrower s Principal Residence Less Than One Year Prior to Application Date

2 A - Properties owned one year or more Appraised Value (excluding any closing costs) times 97.75% B - Properties Owned Less Than One Year Prior to Application Date and Already FHA Insured (FHA loan being refinanced to FHA loan) Appraised Value (excluding any closing costs) times 97.75% C - Properties Owned Less Than One Year Prior to Application Date and Not Already FHA Insured (Conventional or VA loan being refinanced to FHA loan). Lesser of Original Sales Price Plus repairs (if applicable) paid after the purchase and documented in the file or Appraised Value times 97.75% OR Calculation 2 - Base Mortgage Using Existing Loan Balance Unpaid Principal Balance (includes up to 1 month s interest from payoff statement) Minus lesser of UFMIP Refund or new UFMIP Plus the interest charged by the servicing lender when the payoff will not be received on the first day of the month, but may not include delinquent interest Plus allowable borrower paid closing costs Plus reasonable discount points Plus prepayment penalties Plus satisfaction of junior liens seasoned at least 1 year from funding, or used for the initial purchase or repair of the subject property Regardless of the age of a HELOC, if draws in excess of $1000 were advanced within the last 12 months for purposes other than repairs and rehabilitation of the Lesser of Appraised Value (AV) OR the Original Sales Price (SP) of the property times the applicable LTV factor Additional Requirements Subordinate financing may remain in place but subordinate to the FHA first mortgage, provided the borrower qualifies for making payments on all liens Six-month seasoning requirement for all cash out refinances. The sixmonth time frame is from the note date of the current loan to the application date of the new loan. In addition, all Borrowers on the new loan must have been in title for at least six months. Co-borrowers or co-signors may be added provided they are occupants of the property and have been on title for at least 6 months. Non-occupant owners may not be added in order to meet credit underwriting guidelines. Refer to Special Restriction Requirements section for all program restrictions. FHA to FHA refinances - Refinance Authorization Information must be obtained at Case Number Assignment directly from FHA Connection The calculated mortgage amount may never exceed the statutory limit for the area. All borrowers must credit qualify Refer to Employment/Income, Credit Ratio Analysis and Appraisal sections for required documentation

3 subject property, the line of credit is not eligible for inclusion in the new mortgage. Plus repairs required by the appraiser, if any Plus accrued late charges Plus non-delinquent escrow shortages Plus prepaid expenses: Per diem interest on the new loan to the end of the month Hazard insurance premium deposits needed to establish escrow account Real Estate Tax deposits needed to establish escrow account One month Mortgage Insurance Minus lender credit for closing costs and prepaid expenses OR Calculation 3 Statutory Limit for County Subordinate liens, including credit lines may remain outstanding but subordinate to the new FHA first mortgage No cash back to borrower permitted except for minor adjustment at closing not exceeding $ cash back The mortgage being refinanced must be current for the month due FHA to FHA refinances - Refinance Authorization Information must be obtained at Case Number Assignment directly from FHA Connection Delinquent interest may not be included in loan amount Refer to Section #4 - Types of Financing for special restrictions on owner occupied properties located in Texas 6. OCCUPANCY Primary Residences

4 PROPERTY TYPES RATE REDUCTION REFINANCES EQUITY (CASH OUT) REFINANCES Eligible Properties 1-4 units PUDs Modular Pre-Cut/Panelized housing Condos Must be on FHA approved list and meet the guidelines as determined by the Loan-level certification for Individual Unit Financing process Subject project must be reviewed for project approval. Refer to the Client Guide for the HUD Review and Approval Process (HRAP) and Direct Endorsement Lender Review and Approval Process (DELRAP) If not approved, loan is only eligible for credit-qualifying streamline refinance without appraisal Site Condos do not require condominium project approval Ineligible Properties Co-ops Manufactured homes Properties located within designated Coastal Barrier Resource System (CBRS) areas 1. GEOGRAPHI C LOCATIONS/ RESTRICTIONS Continental US, Alaska and Hawaii Loans in West Virginia where the value is less than the combined loan amounts are not eligible. Therefore, maximum LTV/CLTV is 100% State specific regulatory requirements for all loans can be viewed at the following link. These restrictions supersede all underwriting guidelines set forth by Magnolia Bank. State Specific Requirements 1. UNDERWRITI NG Loan must be underwritten by a DE Underwriter employed by Magnolia Bank or by a Magnolia Bank FHA Delegated Lender. Loans must be submitted to Total Scorecard 1. INVESTOR ELIGIBILITY FHA 1. PROCESSIN G STYLE Standard

5 Reduced Documentation allowed if an Approve recommendation is issued by Total Scorecard 1. RATIO REQUIREMENTS AUS Approved loans - Ratios evaluated by TOTAL Scorecard Manual Underwrite and AUS Refer loans - Ratios 31% / 43% The DTI ratio of 43% may be exceeded with significant compensating factors provided the DTI does not exceed 50% Ratios >43% <=50% require significant documented compensating factors which may include: Established history for the past months of housing expense greater than or equal to the proposed housing payment Demonstrated ability to accumulate savings and a conservative attitude toward the use of credit Previous credit history showing that the ability to devote a greater portion of income to housing expenses The borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage There is only a minimal increase in housing expense Substantial documented cash reserves (at least 3 months) after closing. Potential for increased earnings, as indicated by job training or education in the borrower s profession 13. SPECIAL RESTRICTION/ REQUIREMENTS RATE REDUCTION REFINANCES Adding Co-borrowers May add a co-borrower, co-signer or non-occupant co-borrower Underwriting HUD Employee Loans If the applicant is an employee of HUD or a member of a HUD-employee s household (spouse, parent or child), the application must be submitted to the Homeownership Center for prior approval processing This does not apply to Streamline refinances The case number must be ordered via the FHA Connection as HUD Processed by entering 203 as the Section of the Act The DE Underwriter employed by Magnolia Bank or the Magnolia Bank Delegated Lender should first review the loan file and make but not issue a decision The DE Underwriter employed by Magnolia Bank or the Magnolia Bank Delegated Lender should then EQUITY (CASH OUT) REFINANCES Properties owned free & clear are eligible for cash out refinance transactions. Properties encumbered by one or more mortgage transactions in the last 12 months are eligible for cash out refinance provided 12 months (or life of loan) satisfactory payment history is verified. If a mortgage refinance took place within the last 12 months and there is a skipped month due to the refinance, it will be necessary to review the payment history on the previous transaction in order to satisfy the 12 full months payment history Adding Co-borrowers All borrowers must occupy subject property May add a co-borrower or co-signer provided he/she occupies the subject property as his/her primary residence. The addition of an occupant-borrower is not limited to the original borrower s spouse. However, the additional borrower must occupy the property as his or her primary residence. (i.e. son/daughter of original borrower)

6 package the credit file including the appraisal to the HOC in a colored binder marked HUD EMPLOYEE LOAN DO NOT SEND ORIGINALS. HUD will not return the package Copies must be stamped as true and certified copies of the originals Only the DE Underwriter indicated above is permitted to contact the HOC to discuss the case The original borrower / property owner must be in title for a minimum of 6 months and must be on the original note and mortgage. There are no exceptions. An additional occupant-borrower who has been on title at least 6 months may be added at any time after the original borrower purchases the property, up to and including the closing of the new loan. (The original borrower must always meet the 6-month requirement for title and mortgage). Non-Occupying Co-borrowers Permitted only if the non-occupant co-borrower has been on title and on the mortgage note as a non-occupant co-borrower since the original financing of the purchase mortgage. Documents must be provided to evidence non-occupant co-borrower was on the purchase transaction (copy of purchase HUD-1 and copy of original note) Adding a non-occupant co-borrower or co-signer in order to meet credit underwriting guidelines is not allowed. No non-profit organizations Not permitted in Texas Borrowers may be deleted provided that at least one original borrower who has been on title at least 6 months and is on the original note and mortgage remains. Underwriting HUD Employee Loans If the applicant is an employee of HUD or a member of a HUDemployee s household (spouse, parent or child), the application must be submitted to the Homeownership Center for prior approval processing This does not apply to Streamline refinances The case number must be ordered via the FHA Connection as HUD Processed by entering 203 as the Section of the Act The DE Underwriter employed by Magnolia Bank or the Magnolia Delegated Lender should first review the loan file and make but not issue a decision The DE Underwriter employed by Magnolia Bank or the Magnolia Bank Delegated Lender should then package the credit file including the appraisal to the HOC in a colored binder marked HUD

7 EMPLOYEE LOAN DO NOT SEND ORIGINALS. HUD will not return the package Copies must be stamped as true and certified copies of the originals Only the DE Underwriter indicated above is permitted to contact the HOC to discuss the case 2. GEOGRAPHI C LOCATIONS/ RESTRICTIONS Verification of Employment or Verbal Verification of Employment Most recent pay stubs covering 30 consecutive days Two years W2s IRS Form 4506T Reduced Documentation allowed if an Approve recommendation is issued by Total Scorecard (refer to Overlay Matrix) Form 4506-T must be processed prior to underwriting regardless of TOTAL Scorecard recommendation. (refer to Overlay Matrix) A new IRS Form 4506 T required to be signed with the closing package as well as at application even when the form has been processed. Refer to the Client Guide for eligibility guidelines. 2. UNDERWRITI NG The following is required if funds are needed to close Verification of Deposit and Most recent bank statement OR Two months bank statements Reduced Documentation allowed if an Approve recommendation is issued by Total Scorecard Reserves 3 & 4 units 3 months PITI reserves required. Reserves cannot be derived from proceeds from transaction or gift RATE REDUCTION REFINANCES EQUITY (CASH OUT) REFINANCES

8 Mortgage Payment History Requirements Loan must be current for the month due (payment due in the month of closing may be paid either in cash or financed) Housing (Mortgage/Rental) Payment History (PITIA) is inclusive of all liens regardless of position, as well as all occupancy types. Obtain up to a 12-month or life of loan payment history on all real estate owned via Residential Mortgage Credit Report, Tri-merged in-file credit report, cancelled checks or VOM showing payments are current. AUS Approve Mortgage history evaluated by TOTAL Scorecard in accordance with FHA TOTAL Scorecard User Guide. Loans will be ineligible with one or more housing (mortgage/rental) delinquency of 60, 90, 120, 150 days or greater reported within 12 months of the date of the credit report. AUS Refer Non-Magnolia Bank to Magnolia Bank Refinance (when referred by TOTAL Scorecard or manual downgrade per Client Guide) 0x30 mortgage payments in the last 12 months Magnolia Bank to Magnolia Bank Rate/Term Refinance (when referred by TOTAL Scorecard or manual downgrade per Client Guide) 0 x 30 mortgage payments in the last 6 months No more than 2 x 30 mortgage rates between months 7 through 12 No cash back to borrower PITI must be reducing a minimum of $50/month Fixed Rate only Comply with minimum credit score requirements Medium to Low Risk result on FHA Comprehensive Risk Assessment tool No additional debt (installment/revolving) opened in the last 6 months Borrower to qualify on base pay/salary only Non-occupant co-borrower/co-signor not permitted Three months verified PITI reserves Mortgage Payment History Requirements Loan must be current for the month due (payment due in the month of closing may be paid either in cash or financed) Mortgages with less than 6 months of payment history are not eligible Housing (Mortgage/Rental) Payment History (PITIA) is inclusive of all liens regardless of position, as well as all occupancy types. AUS Refer Comprehensive Risk Assessment Form must be complete All TOTAL Scorecard recommendations and manually underwritten loans - 0x30 late mortgage payments in the last 12 months or life of loan (if property is owned less than 12 months Obtain up to a 12-month or life of loan payment history on all real estate owned via Residential Mortgage Credit Report, Tri-merged in-file credit report, cancelled checks or VOM. Minimum FICO Score Requirements Regardless of TOTAL Scorecard Decision and Manual Underwrite: 640 Non-traditional credit is ineligible Obtain up to a 12-month or life of loan payment history via Residential Mortgage Credit Report, Tri-merged in-file credit report, cancelled checks or VOM. Minimum FICO Score Requirements Regardless of TOTAL Scorecard Decision and Manual Underwrite: 640 Non-traditional credit is ineligible

9 3. GEOGRAP HIC LOCATIONS/ RESTRICTIONS A new appraisal is always required All property conditions must be satisfied prior to closing No termite certification is required unless appraiser notes a problem Termite related repairs are considered health and safety issues 3. UNDERWRI TING Standard MIP guidelines apply Evidence of a valid Social Security Number is required on all loans A copy of the social security card or other documentation such as recent pay stub, W2, or tax transcript can be used to validate the social security number. Evidence of FHA Refinance Authorization data (for FHA to FHA only)and New Case Number obtained from FHA Connection (Print screens and place in loan file) Check current deed or title to verify all current borrowers are listed as owners (one year ownership guideline may apply). Evidence no change in name of street, zip code or re-zoning occurred since the last FHA transaction. (Copy of NOTE or letter from municipality notifying borrower of address re-naming, etc) Good Faith Estimate URLA and signed HUD Addendum FHA Loan Underwriting and Transmittal Summary, HUD Form LT signed by DE Underwriter FHA Maximum Mortgage Calculation Worksheet CAIVRS, GSA, LDP, Procurement/Non-procurement information must be checked. Important Notice to Homebuyer Informed Consumer Choice Disclosure Notice Flood Certificate For non-magnolia Bank to Magnolia Bank loans, a copy of the HUD-1 is always required to verify FHA case number and Up-Front MIP 2. INVESTOR ELIGIBILITY Correspondent website contains the following links for internet Access National HOC Reference Guide HUD Median Income Limits FHA Maximum Mortgage Limits FHA Connection FHA Mortgagee Letters To access FHA Mortgagee Letters, FHA HOC Letters or HUD Handbooks go to:

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