Lending Guide. Section Underwriwting Eligiblity Transactions

Transcription

1 Continuity of Obligation A continuity of obligation is required for all refinance transactions. A continuity of obligation exists when one or more of the following occur: At least one borrower on the existing mortgage is a borrower obligated on the new mortgage. The borrower on title has been on title (but is not on the existing mortgage) and has been occupying the subject property for at least 12 months and has paid the mortgage for the previous 12 months (cancelled checks, front and back are required) or can demonstrate a relationship (spouse, relative, or domestic partner) with the current obligor. The existing loan being paid-off and the title are held in the name of a natural person or a limited liability corporation (LLC) as long as the borrower was a member of the LLC prior to transfer. Transfer of ownership from a corporation to an individual does not meet the continuity of obligation. The borrower recently inherited or was legally awarded the property (divorce/separation settlement). If the borrower is on title and there is no continuity of obligation, the loan will be treated as a cash-out refinance. The following applies: If the property is owned free and clear (i.e. purchased for cash or any previous mortgage loan(s) have been paid off) and was purchased within the previous 6-12 months prior to the application date, the LTV will be based on the lower of the sales price/acquisition cost, documented by the HUD-1 or current appraised value. If the property is owned free and clear and was purchased more than 12 months from the application date, the LTV is based on the current appraised value. If the borrower has been on title for a minimum of 6 months and there is an existing lien, the maximum LTV is 50% based on the current appraised value. Properties gifted to the borrower are subject to the following: If the property is owned free and clear and there was not a transaction involved when the borrower was put on title, there is a 12-month seasoning requirement before the borrower can receive cash-out. If there is a lien on the property and the borrower has been on title a minimum of 6 months, the loan will be treated as a cash-out refinance and the maximum LTV is 50% based on the current appraised value. 4/1/13 Rushmore Lending Guide Page 1 of 17

2 Contract of Sale/Land Contract A land contract (also known as contract for deed, contract sale, contract purchase, an Agreement of Sale in Hawaii) is a form of seller financing in which the seller retains title to the property while the buyer makes regular payments to the seller. Once the buyer pays the number of payments and/or amount specified in the contract, the seller conveys the title to the buyer. A mortgage in which the proceeds are used to pay the outstanding balance of a land contract or contract for deed may be considered as either a purchase or a refinance transaction. Purchase - If the land contract or contract for deed was executed within the 12 months prior to the loan application date, the transaction will be considered a purchase. Proceeds are used to pay the outstanding balance on the installment land contract only. No loan proceeds can be disbursed to the borrower. The LTV is calculated on the lower of: The appraised value at the time the new mortgage is closed, or The total acquisition cost. The total acquisition cost is defined as the purchase price indicated in the original land contract plus any out of pocket expenses paid by the borrower for rehabilitation, renovation, or energy conservation improvements. Refinance - If the land contract or contract for deed was executed more than 12 months prior to the loan application date, the transaction will be treated as a rate/term refinance. Proceeds from the refinance transaction may include the sum of the outstanding balance of the installment sales contract and the costs incurred for rehabilitation, renovation, or energy improvements. A new appraisal is required and the LTV must be calculated using the appraised value of the new mortgage transaction. Construction The conversion of construction-to-permanent financing involves the granting of a to Permanent long-term mortgage to a borrower for the purpose of replacing interim construction Financing financing that the borrower has obtained to fund the construction of a new residence. The borrower must hold title to the lot, which may have been previously acquired or be purchased as part of the transaction. All construction work (including any work that could entitle a party to file a mechanics' or material-men's lien) must be completed and paid for and all mechanics' liens, material-men's liens, and any other liens and claims that could become liens relating to the construction must be satisfied. The borrower must be the primary obligor on the mortgage or deed of trust note for the permanent financing. A construction-to-permanent financing mortgage may be closed as a limited cash-out refinance or a cash-out refinance transaction. When a refinance transaction is used, the borrower must have held legal title to the lot before he or she applied for the construction financing and must be named as the borrower for the construction loan. The same loan-to-value ratio requirements that apply for other purchase money and refinance transactions apply to a construction-to-permanent financing mortgage. 4/1/13 Rushmore Lending Guide Page 2 of 17

3 However, the method for determining the loan-to-value ratio will vary based on the type of transaction and the length of time the borrower has held legal title to the lot (and, in some instances, how title was acquired). Limited Cash-Out Refinance (Rate/Term) When a rate/term refinance transaction or a cash-out refinance transaction is used in connection with a lot that the borrower acquired 12 or more months before applying for the construction financing, the loan-to-value ratio is determined by dividing the unpaid principal balance of the construction-to-permanent mortgage by the current appraised value for the property (both the lot and the improvements). If the borrower acquired the lot within the 12 months preceding the date of the application for the construction financing, the loan-to-value ratio is determined by dividing the unpaid principal balance of the construction-to-permanent mortgage by the lesser of: The current appraised value for the property (both the lot and the improvements), or The total acquisition costs (which are the sum of the costs of the improvements and the sales price of the lot). The file must include the appraiser's certificate of completion and a photograph of the completed property. In addition, if the proceeds of the construction loan were used to build a new residence, a copy of a certificate of occupancy (or an equivalent form) from the applicable government authority is also required. Ineligible Transactions The following are considered ineligible transactions: A borrower who currently owns a multi-unit property as his primary residence and is purchasing another owner occupied multi-unit property located in the same city/town. A purchase transaction where the property is subject to a private transfer fee covenant that was created on or after February 8, 2011 and the fee collected does not directly benefit the property. A transaction with an escrow holdback to bring the condition of the property to average or complete construction after the close of escrow. A transaction where more than one appraisal was obtained in an effort to secure an appraised value which substantiated the sales price of the subject property. A transaction where the property is subject to resale restrictions is ineligible utilizing an ARM product. Flip/bail out properties. Purchase transactions were the Seller wants to lease back the subject property is not allowed, regardless of the duration of the lease back period. 4/1/13 Rushmore Lending Guide Page 3 of 17

4 Restructured loans are generally ineligible. A restructured loan is a mortgage loan in which the terms of the original transaction have changed resulting in the forgiveness of the mortgage or a restructure of the mortgage either through a modification or the origination of a new loan that results in any of the following: Application of a principal curtailment by or on behalf of the investor to simulate forgiveness. Conversion of any portion of the original mortgage debt to a soft subordinate mortgage. Conversion of any portion of the original mortgage debt from secured to unsecured. Forgiveness of a portion of the principal and/or interest on either the first or second Lien. Payoff demands that are significantly lower than what is reporting on the credit report or VOM as the high balance of the loan will be carefully examined. Rushmore will allow the refinance of a previously restructured loan when the borrower has made 24 consecutive payments under the terms of the new restructured loan (24 months of consecutive payments after the restructure). The borrower must meet all other refinance guidelines. Refinance transactions without a continuity of obligation. Refinance transactions without a benefit to the borrower. Transactions that do not meet the continuity of obligation requirement as outlined in the Continuity of Obligations above. Inherited Properties Inherited properties are eligible for a rate/term or cash-out refinance transaction with applicable documentation (i.e. death certificate, court order, etc.). Borrower must qualify under program guidelines and the reason for the title transfer must be explained. Lease Option A transaction in which a borrower holds a lease with an option to purchase the subject property will be treated as a purchase transaction. The LTV will be based on the lesser of the purchase price or the current appraised value. The seller may give the borrower credit toward the down payment based on a portion of previous rent payments by the borrower. Copies of cancelled checks evidencing the monthly rent payment per the purchase agreement are required. A comparable rent schedule is required to verify the borrower paid in excess of the current market rents. Any monies paid in excess of the current market rents may be credited back to the borrower. 4/1/13 Rushmore Lending Guide Page 4 of 17

5 Multiple Rushmore limits its exposure to the same borrower to a maximum of 4 loans, with an Loans to One aggregate loan amount of $2 million. Financed properties cannot exceed a cumulative Borrower loan amount of $2 million dollars. Multiple Properties Owned When the subject property is the borrower s principal residence, generally there is no no limit to the number of financed properties a borrower may own, however, when utilizing an ARM product on the Agency Conforming and Agency High Balance program, the maximum number of properties owned is four (4) regardless of the subject properties occupancy type. When the subject is a second home or investment property, the borrower may not own more than 4 properties that are currently being financed, including the borrower s principal residence; with the exception of the Portfolio Conforming and Portfolio High Balance programs that allow 5-10 financed properties subject to specific criteria as detailed on the matrices and as follows: Cash-out refinance transactions will be ineligible if all of the requirements for the Delayed Financing Exception are not met, as detailed on the Portfolio Conforming and Portfolio High Balance program matrices. Six month eligibility is from the date the subject property was purchased to the application date of the new refinance loan. The source of funds, to purchase the subject property, was an unsecured loan or a loan secured by an asset other than the subject property (i.e., HELOC on another property). All cash-out proceeds from the refinance must be used to pay down the original loan and must be reflected on the HUD-1 Settlement Statement for the refinance transaction. Any payment on the loan balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction. If a property is held in the name of a corporation and the borrower is the joint owner of the corporation, the property will not be included in the number of financed properties as long as there is no mortgage reported on the borrower s credit report. Purchase A purchase transaction is a transaction in which the proceeds are used to finance the purchase of a property. The LTV is based on the lower of the sales price or current appraised value. A copy of the fully executed purchase contract and all attachments or addenda is required for all purchase transactions. Any changes/alterations to the purchase contract must be initialed by all parties involved in the transaction. 4/1/13 Rushmore Lending Guide Page 5 of 17

6 Rushmore requires the seller to be on title a minimum of 90 days. Rushmore will allow the purchase of a property where the seller is the owner of record less than or equal to 90 days on the Portfolio Program only, subject to MI company guidelines. Properties in which the seller has been on title less than 6 months and the value has increased will be prudently evaluated. The appraiser must justify any increase in value. When utilizing an ARM product on the Agency Conforming or Agency High Balance program, the seller is required to be on title a minimum of 12 months. If the property has been sold more than 3 months but less than 12 months the loan will require additional underwriter review to ensure that there has been no foreclosure bail-out, a distressed sale, inflated value due to unsubstantiated improvements, etc. Purchase transactions in which the seller is a corporation and not an individual (i.e. an REO property, an LLC, etc,) will require documentation that the individual signing the purchase contract is an authorized representative of the corporation. The borrower cannot receive any monies back from the transaction unless the cash back is for overpayment or reimbursement of borrower s fees, or reimbursement for costs paid by the borrower in advance. Cancelled checks from the borrower are required to evidence the fees paid. Rushmore will not accept a re-negotiated purchase contract that increases the sales price after the appraisal has been completed if: The appraised value is higher than the originally contracted sales price that was provided to the appraiser, and The new purchase agreement and/or addendum to the purchase agreement is dated after the appraisal, and The only change to the purchase agreement was the sales price. If the purchase agreement was renegotiated after the completion of the appraisal, the LTV will be based on the lower of the original purchase price or the appraised value, unless: The renegotiation was only for seller paid closing costs and/or pre-paids where seller paid closing costs/pre-paids are common and customary for the area and are supported by the comparables, or The purchase contract was amended for a new construction property due to improvements that have been made that impact the tangible value of the property. An updated appraisal must be obtained to validate the value of the improvements. 4/1/13 Rushmore Lending Guide Page 6 of 17

7 Auction. Properties purchased at auction are subject to the following. Single family residence (attached or detached) 2-4 units All occupancy types are eligible. Investment transactions require a minimum credit score of 720 (unless a specific program is more restrictive) and a 5% reduction of the LTV/CLTV. The maximum LTV/CLTV is calculated from the lesser of the accepted bid plus the auction buyer s premium or the appraised value. Only the auction buyer s premium can be added to the accepted bid to determine the total purchase price. The auction terms must be included as part of the purchase contract provided to the appraiser for review. If the combined auction buyer s premium and the sales/marketing charges or fees exceed 12% of the total purchase price, the amount over 12% must be deducted from the purchase price. Any expenses for repairs that will be itemized on the seller s side of the HUD-1 require full documentation of the repair(s) including but not limited to contracts, supporting work orders, or other acceptable documentation in order to exclude these charges from the 12% cap. If documentation is not provided, the repair fees must be included in the 12% cap. Real Estate Owned (REO) properties obtained through an auction must have a Collateral Consultation Review (CCR) performed by RELS. Rushmore will order the CCR The following requirements apply to the auction house: Must be licensed, if required, and in good standing in the state where the auction took place. Must have been in business, at minimum, one year. The following additional auction house requirements apply if the subject property was not previously occupied OR the property was previously occupied and the appraiser identifies multiple auctions in the same neighborhood (as defined by the appraiser). Auction house or auctioneer has no ownership interest in the properties being auctioned Auction house or auctioneer is not affiliated with the seller/developer of the property The contract between the auction house and seller has been reviewed and the requirements for all parties are reasonable and in line with industry standards, including, but not limited to: 4/1/13 Rushmore Lending Guide Page 7 of 17

8 Services rendered and fees charged are reasonable and standard for the transaction. No price guarantee is made aside from establishment of a minimum bid or reserve price. Parties named on the contract must match the supporting documentation (i.e. appraisal, title, etc.) FHA Short Sale Borrowers obtaining an FHA insured mortgage after a short sale are eligible as detailed below. Eligible Borrowers: Borrowers are eligible for a new FHA insured mortgage as follows: There has been a minimum of 3 years elapsed since the completion of the short sale, whether the property was a principal residence, second home or investment property, and The proceeds from the short sale served as payment in full. Ineligible Borrowers: Borrowers are not eligible for a new FHA insured mortgage as follows: The borrower pursued a short sale agreement on their primary residence to take advantage of declining market conditions, and The borrower is purchasing, at a reduced price, a similar or superior property located within a reasonable commuting distance. Borrowers in default at the time of the short sale (or pre-foreclosure sale) are not eligible for a new FHA insured mortgage for three (3) years from the date of the sale. Borrowers who sold their home under FHA s pre-foreclosure sale program are not eligible for a new FHA insured mortgage for three (3) years from the date FHA paid the claim associated with the pre-foreclosure sale. Borrowers in default at the time of the short sale may be considered for an FHA insured mortgage on a case-by-case basis if: The default was due to circumstances beyond the borrower s control (i.e. the death of the primary wage earner, long term un-insured illness, etc.), and The credit report indicates the borrower had satisfactory credit prior to the circumstances that caused the default. 4/1/13 Rushmore Lending Guide Page 8 of 17

9 Refinance A refinance transaction replaces an existing loan(s) with a new loan to current owners, or places financing on a property currently owned by the borrower where no financing exists. Refinance transactions will be classified as either Limited Cash-out (Rate/Term) or Cash-out and must have a benefit to the borrower. This can be evidenced by one or more of the following: Cash to pocket Convert from ARM to fixed rate Convert from negative amortization loan to a fully-amortizing loan Consolidate debt Lower interest rate Lower payment Pay off a balloon payment Pay off a tax lien NOTE: Depending upon the property s location, additional evidence of benefit to the borrower may be required due to state or local regulations. Properties listed for sale within the six months prior to underwriting are eligible for Rushmore financing with evidence that the property was taken off the market prior to the application date. Cash-Out A refinance is considered cash-out if it exceeds any of the limitations indicated for rate/term refinances, or if it involves disbursement of loan proceeds to pay off or pay down unsecured or unseasoned debt. The amount of cash disbursed in the form of paying off or paying down any unsecured or unseasoned debt plus cash to the borrower may not exceed the limits specified in the program details based on occupancy, CLTV, and documentation type. The maximum DTI on a cash-out transaction is 45%. There is a 6-month title-seasoning and 6 months mortgage seasoning requirement for all cash out refinance transactions. Any prior refinances (limited cash out or cash out) must have closed at least 6 months prior to the note date of the new transaction. The following also applies to cash-out transactions: If the property was acquired less than 6 months from the application date, the loan is ineligible for cash out refinance transaction on the Agency program. A cash-out refinance within six months of a purchase, when no financing was obtained for the purchase transaction, is allowed on the Portfolio program, subject to the following: The maximum amount of the new loan cannot be greater than the actual documented amount of the borrower s initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points 4/1/13 Rushmore Lending Guide Page 9 of 17

10 (subject to the maximum LTV/CLTV for the product). LTV is based on the current appraised value. The purchase transaction was an arms-length transaction. The HUD-1 from the original transactions is required to confirm that there was no mortgage financing used to obtain the property. The source(s) of the funds used to purchase the property can be documented (i.e. bank statements, personal loan documents, HELOC against another property) and were the borrower s own funds. If gift funds were used to purchase the property, the transaction is ineligible NOTE: The preliminary title documentation must not indicate any existing liens on the subject property. If the source of the funds to purchase the property was a HELOC secured by another property, the new HUD-1 must reflect that the HELOC has been paid off with the proceeds from the new cash-out transaction. An Approve/Eligible Finding from DU is required and the transaction must meet all other cash-out eligibility requirements If the property is owned free and clear (i.e. purchased for cash or any previous mortgage loan(s) have been paid off) and was purchased within the previous 6-12 months prior to the underwriting date, the LTV will be based on the lower of the sales price/acquisition cost or current appraised value. If the property is owned free and clear and was purchased more than 12 months from the underwriting date, the LTV will be based on the current appraised value. Properties listed for sale within the six months prior to underwriting are eligible with evidence that the property was taken off the market prior to the application date. Maximum LTV for cash-out refinance is the lower of 70% or maximum for product/occupancy/property type. The borrower may include real estate taxes in the new loan amount. Delinquent real estate taxes (taxes past due by more than 60 days) may also be included in the new loan amount, if they are, an escrow account must be established, in accordance with applicable regulatory or state requirements (e.g., if a particular state law does not allow an escrow account under certain circumstances the loan would be eligible without an escrow account). The borrower may include real estate taxes in the new loan amount. Delinquent real estate taxes (taxes past due by more than 60 days) may also be included in the new loan amount, if they are, an escrow account must be established, in accordance with applicable regulatory or state requirements (e.g., if a particular state law does not allow an escrow account under certain circumstances the loan would be eligible without an escrow account). 4/1/13 Rushmore Lending Guide Page 10 of 17

11 Properties with less than one year seasoning may require documentation supporting any increases in value. FHA Short Payoff Borrowers are eligible for an FHA rate/term refinance transaction when the existing note holder(s) will write off the amount of the indebtedness that cannot be refinanced into the new FHA insured mortgage as follows: The borrower is current on their existing mortgage, and There is insufficient equity in the home based on its current appraised value, and/or The borrower experienced a reduction in income and does not have the capacity to repay the existing mortgage on the property. Limited Cash-Out (Rate/Term) In cases where the existing note holder(s) are not willing to write down the indebtedness, a new subordinate lien may be obtained for the amount of which the payoff is short (subject to FHA Guidelines). If payments on the new subordinate financing are required, they must be included in the qualifying ratios unless the payments have been deferred for a minimum of 36 months. The LTV for any limited cash-out refinance is calculated on the current appraised value. Although there is no minimum title-seasoning or mortgage seasoning requirement for limited cash-out refinance transactions, Rushmore will prudently evaluate refinance transactions in which the borrower recently acquired title to the property or recently refinanced the property. Refinance transactions that are paying off an existing lien which was used to purchase the subject property with less than one year mortgage seasoning, the LTV/CLTV will be based on the current appraised value. Any increases in value must be adequately documented (i.e. comparables support increase in value and market values are increasing, documentation of home improvements, or a copy of the original appraisal showing subject property transferred below market value). If the increase in value cannot be supported, the lower of the original purchase price or the new appraised value is used to determine the LTV/CLTV. A limited cash-out may also be used to pay off an existing reverse mortgage. If the borrower receives cash back greater than 2% of the loan amount or $2,000, whichever is less, then the transaction would be considered a cash-out refinance and subject to cashout guidelines If the existing lien being paid off is less than 12 months and was cash out refinance transaction with a LTV greater than 80%, the new loan is ineligible as a rate and term transaction. If the existing lien being paid off was closed within the previous 6 months and the previous transaction was cash out refinance, the new transaction will be considered cash 4/1/13 Rushmore Lending Guide Page 11 of 17

12 out. The note date of the existing lien and the note date of the new lien will be used in determining the 6 months time frame. A property listed for sale within the previous six (6) months but was taken off the market prior to the application date is eligible for a rate/term refinance transaction, however the borrower must provide written confirmation of their intent to occupy the property if it is the borrower s primary residence. A restructured loan, a loan in which the terms of the original loan have changed resulting in the modification of the original loan terms and/or forgiveness of a portion of the loan, is eligible for a refinance transaction when the borrower has made twenty four consecutive months of timely mortgage payments under the terms of the restructured loan (24 months of consecutive payments after the restructure) and the loan meets all other refinance guidelines. All refinance transactions must have a benefit to the borrower. Borrowers must be obligated on the current mortgage loan. See Continuity of Obligation above for details. The mortgage amount is limited to sufficient funds required to accomplish the following: Pay off the unpaid principal balance of the existing first lien mortgage, including any prepayment penalty Pay off the unpaid principal balance of any existing subordinate mortgage that was used to purchase the subject property, including any prepayment penalty. A copy of the Final HUD-I executed by buyer and seller from the previous transaction may be required. Financing the payment of closing costs, points, and prepaid items is eligible; with the exception of real estate taxes that are more than 60 days delinquent, the borrower may include real estate taxes in the new loan amount as long as an escrow account is established, in accordance with applicable regulatory or state requirements (e.g., if a particular state law does not allow an escrow account under certain circumstances, the loan would be eligible as a limited cash-out refinance without an escrow account). Disburse incidental cash to the borrower of no more than $2,000 or 2% of the loan amount, whichever is lower. The maximum cash back to the borrower on the DU Refi Plus program is $ Principal curtailments are not permitted with the exception of the DU Refi Plus program which allows minimal curtailments. Modifying the interest rate and/or term for existing mortgages. 4/1/13 Rushmore Lending Guide Page 12 of 17

13 The proceeds from a rate and term transaction to buyout an ex-spouse is permitted as long as the borrower provides a copy of the recorded settlement agreement indicating the spouse is to be bought out. Texas rate/term refinance transactions, that are not subject to Texas 50(a)(6) requirements, are eligible for a Renewal and Extension Rider if the loan is secured by the borrowers primary residence. The new loan amount cannot exceed the payoff amount of the prior loan plus closing costs and any amounts that may have been advanced by the lender. The borrower cannot receive cash-back and loan proceeds cannot be used to pay off any other debts. The proceeds of the new loan are used to renew and extend the purchase money first and if applicable, the purchase money second or qualified home improvement loan. When a first mortgage lien that is being renewed and extended, it is not required to have a subordination agreement on the second lien, unless the title company requires a subordination agreement to ensure that the lien will remain in first lien position. A Renewal and Extension Rider, provided by the title company must be recorded with the deed of trust in lieu of the subordination agreement. Any loan that is shown as being paid off on the HUD-1 must be listed on the Renewal and Extension Rider NOTE: This policy only applies to rate/term refinance transactions located in the state of Texas and only when the rate/term is not subject to Texas 50(a)(6) requirements. Texas Cash-out 50(a)(6) A Texas Section 50(a)(6) mortgage is a mortgage originated under provisions of the Texas constitution which allows a borrower to take cash-out from a homestead property as long as specific requirements are met. Texas law determines if the mortgage is a Texas Section 50(a)(6) and the Texas definition of a cash-out refinance or a limited cash-out refinance may differ from standard definitions. Once a loan is a Section 50(a)(6) loan, any subsequent refinance of the homestead is also considered to be a Section 50(a)(6) loan and subject to all of its provisions. The title commitment will identify if the loan is a Section 50(a)(6) loan. The following are the general eligibility requirements for Texas Section 50(a)(6) loans. The property securing the loan must be an owner-occupied, 1-unit, primary residence and be classified as a homestead under Texas law. The following property types are eligible: Single family residence Planned Unit Development (PUD) Condominium. The property cannot exceed 10 acres, no exceptions. If adjacent property is owned, a survey must be provided that indicates the subject property is a separate parcel. 4/1/13 Rushmore Lending Guide Page 13 of 17

14 The homestead must have access to and from a public roadway. The property cannot be classified for agriculture use according to the ad valorem tax designation. The maximum LTV/CLTV allowed under Section 50(a)(6) is 80%. Only one Section 50(a)(6) loan may be secured by the homestead property at any time. Twelve (12) month seasoning required when the existing loan is a Texas Section 50(a)(6) loan (first or second), determined by the Note date. Any spouse must execute the mortgage however the spouse is not required to be on the Promissory Note. All individuals on title and their spouse must sign all Texas cash-out documents. Only homestead owners can be on title at closing. Properties in a trust are ineligible. Power of Attorney is ineligible. FHA/VA transactions are ineligible. The fees and charges on the loan cannot exceed 3% of the loan amount excluding prepaid items and YSP. Discount points used to reduce the interest rate are not included in the 3% however discount points used for closing costs must be included in the 3%. Fees paid to third parties (e.g. appraisal, credit report, origination, pest control, title report, title insurance, third party closing costs, etc. ) may be paid by the borrower but are included in the 3%. If closing costs are greater than 3%, fees must be reduced prior to close. Refunds to the borrower are not permitted. Premium pricing is allowed if it is disclosed to the borrower at time of initial application. NOTE: For discount points charged on the HUD-1 Settlement Statement to be considered bona fide and not required to be part of the 3% test, the borrower must be provided a choice of an interest rate with or without discount points. If the borrower selects a rate that requires the payment of discount points, the borrower(s) will be required to sign an Election to Pay Discount Points affidavit at closing. The loan cannot close until twelve (12) days after the borrower has received and executed the Notice Concerning Extension of Credit. The loan file must contain the Notice Concerning Extension of Credit, individually signed and individually dated by all owners of the property and their spouses. The beginning of the 12-day waiting period will never begin prior to the following: The receipt of the full credit file, which includes the signed and dated Notice Concerning Extension of Credit. 4/1/13 Rushmore Lending Guide Page 14 of 17

15 NOTE: If the signed and dated copy of the Notice Concerning Extension of Credit is not provided in the credit file, the 12-day waiting period will not begin until Rushmore receives the signed and dated Notice. There is a three (3) day right of rescission on all Section 50(a)(6) loans. The 3-day right of rescission cannot begin until the closing date, following the 12-day waiting period. The borrower s first payment must be due no later than 60 days from closing. There is a 6-month title seasoning required for all Texas cash-out refinance transactions. Cash-out refinance transactions use the current appraised value to determine LTV/CLTV when the property has a lien against it, regardless of the length of time the borrower has owned the property. If the property is owned free and clear and was purchased within 6-12 months prior to the application date, the LTV is based on the lower of the sales price/acquisition price, documented by the HUD-1 or the current appraised value. Increase in property value must be supported. If the property was purchased within 6 months prior to the underwriting date, the loan is ineligible for cash-out. If the borrower has an existing Section 50(a)(6) second lien and the new first mortgage will be a cash-out then the existing second lien must be paid off. The following are considered cash-out refinance transactions: Borrower is paying off a first and/or second mortgage that is not a Texas Section 50(a)(6) loan AND getting cash-out from the refinance. Borrower is paying off a first mortgage that is a Texas Section 50(a)(6) loan but is not getting any cash-out AND paying off a second lien that is not a Texas Section (50(a)(6) that was not used entirely to purchase the subject property or paying off a valid Texas home improvement loan. Borrower is paying off a first mortgage that is not a Texas Section 50(a)(6) loan AND is paying off a second lien that is a Texas Section 50(a)(6) loan and: The borrower is getting cash back from the refinance transaction, OR The borrower is not getting cash-out but is paying off the Texas Section 50(a)(6) second mortgage The following documentation is required: A full appraisal, that includes an interior and exterior inspection, is required. The borrower(s) and the lender must sign a written acknowledgement as to the fair market value of the property on the date the loan closes. The appraisal must be attached to the acknowledgement. A survey or Survey affidavit is required on all loans as follows: 4/1/13 Rushmore Lending Guide Page 15 of 17

16 A Survey Affidavit, in lieu of a new survey, is acceptable if the original survey is 10 years old and the survey shows the property in its present condition and no changes in boundary lines, fences or other improvements have been made. The Survey Affidavit must be acceptable to the title company. If original survey is more than 10 years a new survey will be required. The new survey must: Provide a legal description of the property to be covered by the loan, Exclude any property designated as agricultural or timber on tax records, Be no more than 10 acres, Show access to a public road, and Exclude any rental use improvements or any other nonhomestead use property. All individuals on title and their spouses must sign the Texas Home Equity Affidavit and Agreement (First Lien). (Fannie Mae Form 3185). The borrower(s) must be provided a complete and accurate copy of the final HUD-1 or HUD-1A and closing cannot occur less than one (1) business day thereafter. Borrowers are required to sign the Borrower s Certification of Receipt of Settlement Statement and the Accuracy Thereof form at closing. Any changes made to the HUD-1 after the borrowers have signed will require an additional 24 hour waiting period. Borrower s must receive a copy of all documents signed at closing and are required to sign the Texas Home Equity Receipt of Documents form. All loans must have a Texas Home Equity Loan Closing Instructions Addendum. A Texas Loan Policy of Title Insurance (Form T-2) is required. The policy must be supplemented by a Restrictions, Encroachments, Minerals Endorsement (Form T-19), an Equity Loan Mortgage Endorsement (Form T-42), including the optional coverage provided by paragraph 2(f), and a Supplemental Coverage Equity Loan Mortgage Endorsement (Form T-42.1). Deletions of the endorsements are not allowed. An Election to Pay Discount Points affidavit must be signed at closing by the borrower if the borrower has selected an interest rate that requires the payment of discount points. 4/1/13 Rushmore Lending Guide Page 16 of 17

17 The legal instruments required for Texas Section 50(a)(6) loans are the following Fannie Mae forms: Texas Home Equity Security Instrument Form Texas Home Equity Note (Fixed Rate) Form Texas Home Equity PUD Rider (if applicable) Form Texas Home Equity Condominium Rider (if applicable) Form /1/13 Rushmore Lending Guide Page 17 of 17