E MORTGAGE MANAGEMENT, LLC 704 VA

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1 E MORTGAGE MANAGEMENT, LLC 704 VA IRRRLs PRODUCT GUIDELINES 1/26/2015

2 Mortgage Eligibility Product Code Short Long Description Description Description VF15IRL VA 15 YR IRRRL VF15IRL - VA 15 YR IRRRL VF30IRL VA 30 YR IRRRL VF30IRL - VA 30 YR IRRRL VF30IRLHVE VA 30 YR IRRRL VA 30 YR IRRRL WITH AN HVE 1 VF15IRLHVE VA 15 YR IRRRL VA 15 YR IRRRL WITH AN HVE 1 1 Product codes for LTV s > 100%. See Property Valuation below for details. An Interest Rate Reduction Refinance Loan (IRRRL) is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan and with a lower principal and interest payment than the existing VA loan. IRRRL is also referred to as the VA Streamline or VA to VA program. Refer to VA Lender s Handbook, Pamphlet 26-7 (hereafter: VA Handbook) for VA underwriting guidelines. Maximum Loan Amount The maximum loan amount is the conventional loan limit below. Loan amounts greater than the conventional loan limit are not eligible for VA IRRRLs. Units Maximum Loan Amounts 1 unit $417,000 Loan Term Fixed Rate Terms Fixed rate loans have a term of 15 or 30 years. New loan term may not exceed original loan term plus ten years. The new loan term may never be greater than 30 years and 32 days. Example: If the existing loan was written with a 15-year term, the term of the new loan cannot exceed 25 years. A 30-year loan can be refinanced with a 15 year loan. However, a 15-year loan term cannot be refinanced with a 30-year loan term. Arms and Interest only loan products are not offered. Last Published Date: 01/26/2015 Page 1

3 Mortgage Eligibility Documentation Streamline Documentation Income is not stated, employment is verified, and assets are stated and not verified unless required for closing. Refer to Income and Employment Documentation in this guideline section. Assets required to close, if any, must be documented and verified in accordance with VA guidelines. Refer to Asset Verification in this guideline section. IRRRL loans require a full credit report. Refer to Credit Report in this guideline section. Loan payoff demand statements must be included in the loan file at the time of underwriting. The Note from the existing loan should be included in the loan file at the time of underwriting as documentation of the current loan terms. VA IRRRL Documents The following VA documents should be included in the loan file: IRRRL Case Number printout (must include previous loan value) Addendum to the URLA (VA a) Federal Collection Policy Notice (VA ) Counseling Checklist for Military Homebuyers (VA ) Child Care Letter Statement of Nearest Living Relative IRRRL Worksheet (VA ) Request for Verification of Benefits (VA ) VA Loan Comparison (see below) IRRRL Loan Comparison For all IRRRL transactions, the veteran is required to sign a statement acknowledging the impact of refinance on the veteran s loan payments and interest rate. The statement must reflect- interest rate and monthly payment for the new loan, and interest rate and monthly payment for the existing loan, and how long it would take to recoup ALL closing costs (both those included in the loan and those paid outside of closing). If the monthly payment (PITI) increases by 20 percent or more, the loan is not eligible for an IRRRL transaction and must be processed as a VA regular refinance. Last Published Date: 01/26/2015 Page 2

4 Mortgage Eligibility Maximum LTV/CLTV and Maximum Mortgage Calculation Maximum Transaction Type Occupancy Units LTV/CLTV Standard Eligibility Requirements No Cash-out Primary 1 150/150 1 Refinance Residence 1 Maximum loan amount including the VA Funding Fee is 100% of the appraised value based on a conventional 2055 (drive-by) appraisal or HVE. Refer to Property Valuation in this guideline section for requirements. Maximum Mortgage Calculation The maximum loan amount is the unpaid principal balance on the existing VA loan plus the following: Any late charges (the loan may not be delinquent), plus Allowable closing costs Prepaid expenses Maximum of two discount points VA funding fee Example: Base loan amount $150,000. VA Funding Fee =.50%. $150,000 X.50% = $750. Total loan amount = $150,000 + $750; $150,750. Appraised value must be equal to or greater than $150,750 (Note: CLTV may not be greater than 100%). VA guarantees a minimum of 25 percent of the loan amount (without regard to the veteran s entitlement.) * VA IRRRL loans may not be closed as Higher Priced Mortgage Loans (HPMLs). Worksheet VA Form , IRRRL Worksheet, is required for calculating maximum loan amount. Click here for the IRRRL Worksheet. Underwriting Underwriting System Submission to Desktop Underwriter (DU ) is not permitted on VA IRRRLs. Manual underwriting is required. Underwriting Method IRRRLs are underwritten by EMM underwriters under EMM delegated authority. External underwriting methods, such as contract underwriting, are not permitted. Occupancy Primary residence Second homes and investment properties are not eligible, regardless of whether or not the property was the veteran s primary residence at the time the existing loan was made. Last Published Date: 01/26/2015 Page 3

5 Mortgage Eligibility Loan Purpose and Cash to Borrower Restrictions An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan. An IRRRL cannot be used to take equity out of the property or pay off debts, other than the VA loan being refinanced and related costs. Loan proceeds may be applied only to paying off the existing VA loan and to the costs of obtaining or closing the IRRRL. Therefore, the general rule is that the veteran cannot receive any cash proceeds from the loan. If necessary, the refinancing loan amount must be rounded down to avoid payments of cash to the veteran. Exceptions In a limited number of situations, the veteran may receive cash at closing. Some examples of situations in which VA does not object to the veteran receiving cash are: Computational errors, Changes in final pay-off figures, Up-front fees paid for the appraisal and/or credit report that are later added into the loan, and Refund of the escrow balance on the existing loan. This often occurs when a party other than the present holder originates the loan. The maximum allowable cash to the veteran is $500, regardless of the reason. Note- An IRRRL may be done with no money out of pocket by including all costs in the new loan or by making the new loan at an interest rate high enough to enable EMM to pay the costs. However, the interest rate on the new loan must be lower than the rate on the existing loan unless an ARM is being refinanced to a fixed rate mortgage. Secondary Financing VA Guarantee New subordinate financing is not permitted. An existing subordinate lien meeting VA guidelines for subordinate financing is permitted. IRRRL Guarantee Fee The IRRRL guarantee fee is 50 basis points for all loans. IRRRL Guarantee Amount The IRRRL guarantee amount is the lesser of the existing guarantee amount used or the new guarantee amount that would be used on a standard VA refinance, not to be less than 25% of the total loan amount. Last Published Date: 01/26/2015 Page 4

6 Mortgage Eligibility Tangible Net An IRRRL must bear a lower interest rate than the loan being refinanced unless the loan Benefit being refinanced is an ARM. The principal and interest payment on an IRRRL must be less than the principal and interest payment on the loan being refinanced unless the following exception applies: The IRRRL is refinancing an ARM, When refinancing from an existing VA ARM to a fixed rate, the interest rate may increase Term of the IRRRL is shorter than the term of the loan being refinanced. Lower Payment Benefit VA IRRRL loans must meet EMM tangible net benefit guidelines. If the benefit of the loan is a lowered payment, the veteran must recoup all closing costs within 48 months of payment savings. Refer to section 000 General Underwriting Guidelines Tangible Net Benefit for requirements. Change of Term Benefit If the monthly payment increases by 20% or more, the loan is not eligible for an IRRRL and must be processed as a VA regular refinance. Calculations for the change in payment must align with information on the IRRRL Loan Comparison. Refer to Documentation in this guideline section. Escrow Waiver Temporary Buydowns Escrow waiver is not permitted. Temporary buydown loan products are not offered. Last Published Date: 01/26/2015 Page 5

7 Credit Credit Report EMM requires a full, three credit bureau tri-merge report or a residential mortgage credit report for all borrowers. Joint reports should be used only for married co-borrowers. Credit Score EMM requires that each borrower have a minimum of two credit scores. Use the middle score of three scores or the lower score of two scores of the lowest scoring borrower. Minimum eligible credit score is 620. Housing Payment History Major Derogatory Credit EMM will not accept mortgage or rental history with late payments recorded within the last 12 months. Minimum of six months mortgage payment history must be available on the current mortgage. Mortgage payment history must be 0 x 30 in the last 12 months on all financed properties. Mortgage may not be past due at the time of closing. Short sale waiting period- If the loan was current at the time of the short sale, a minimum of two years must have elapsed from the short sale completion date to the Note date for the subject transaction, If the loan was delinquent at the time of the short sale, a minimum of three years must have elapsed from the short sale completion date to the Note date for the subject transaction. Refer to the VA Handbook for guidelines regarding other derogatory credit. Borrower Borrower Eligibility Borrower(s) may be an honorably discharged veteran, active duty service member, unmarried surviving spouse, Reservist or National Guardsman. The following types of borrowers are eligible: U.S. Veteran (refer to VA Handbook Pamphlet 26-7 Chapter 2) Unmarried surviving spouse of a U.S. Veteran Refer to VA Handbook, Chapter 2 for additional information regarding borrower eligibility. Last Published Date: 01/26/2015 Page 6

8 Borrower Changing Borrowers Generally, the parties obligated on the original loan must be the same on the new loan and the veteran must still own the property. The underwriter should contact VA regarding a proposed IRRRL involving a change in obligors unless the acceptability of the IRRRL is clear. Sample cases from VA are provided here. Examples: Parties Obligated on Existing VA Loan Parties to be Obligated on new IRRRL Is IRRRL Possible? 1 Unmarried veteran Veteran and new spouse Yes 2 Veteran and spouse Divorced veteran alone Yes 3 Veteran and spouse Veteran and different spouse Yes 4 Veteran alone Different veteran who has Yes substituted entitlement 5 Veteran and spouse Spouse alone (veteran died) Yes 6 Veteran and nonveteran Veteran alone Yes joint loan obligors 7 Veteran and spouse Divorced spouse alone No 8 Unmarried veteran Spouse alone (veteran died) No 9 Veteran and spouse Different spouse alone (veteran No 10 Veteran and nonveteran joint loan obligors died) Nonveteran alone (Case 7) The divorced spouse is keeping the home and wishes to refinance. The spouse cannot get an IRRRL unless the veteran agrees to be obligated on the new loan and commit his or her entitlement to the new loan. A person without entitlement cannot get an IRRRL or any other type of VA loan. In the following cases, the applicants cannot obtain an IRRRL because they do not include the veteran or a person who was the veteran s spouse at the time the original loan was made, and who was obligated on the loan along with the veteran. (Case 8) Unmarried veteran obtaining the original loan: The marriage and death of the veteran occurred after the loan was made, and The deceased veteran s spouse is not obligated on the original loan. Thus, an IRRRL is not possible. (Case 9) Veteran and spouse obligated on the original loan: The divorce, remarriage, then death of the veteran occurred after the loan was made and, The deceased veteran s new spouse is not obligated on the original loan. Thus, an IRRRL is not possible. (Case 10) Veteran/nonveteran joint loan: The veteran sold out to the non-veteran co-obligor after the loan was made and, The veteran no longer has any ownership interest in the property. Thus, an IRRRL is not possible. No Last Published Date: 01/26/2015 Page 7

9 Income Qualification Qualifying Rate Qualifying rate is equal to the Note rate. Debt Ratio Debt ratio is not calculated. Employment Documentation A verbal verification of employment (VVOE) with no reference to income is required for salaried or commissioned borrowers. If the employer does not indicate the probability of continued employment on the VOE, then no additional information is required. A two-year employment history is required. Income Documentation Documentation Waiver Loans that meet the following guidelines may be approved without reference to income or income documentation: Minimum eligible credit score is 620 (required on all IRRRLs). Primary residence only (required on all IRRRLs). Mortgage history must be 0x30 for the last 12 months on all mortgages (required on all IRRRLs). Employment history Salaried or commissioned borrowers must have a two-year employment history with no gaps, as verified by verbal verification of employment (VVOE). o Employment gaps are not permitted, regardless of reason. Prior employment is fine as long there were no gaps. o Frequent changes in employment represent an additional risk. Underwriters are advised to scrutinize loans with multiple and/or recent job changes. Letters of explanation may be requested at the underwriter s discretion. Self-employed borrowers must have a two-year history of self-employment. Fixed income borrowers (e. g. retirement/social Security) are required to provide verification of the source of income. VA IRRRL files must not contain any reference to income on the loan application or on any other documentation in the file and a 4506-T must not be ordered. Income Documentation If the loan does not meet the requirements for a documentation waiver, then the loan must be processed as a VA regular refinance. Last Published Date: 01/26/2015 Page 8

10 Assets Reserves Cash-to-Close Asset Verification Reserves are not required but any reserves stated as a compensating factor must be documented and verified. Assets required to close, if any, must be documented and verified. Verification Requirements If assets are necessary to qualify the loan, then the following is required: All pages of two most recent bank statements If the borrower provides a quarterly statement, then EMM must verify that funds in the account have not been transferred to another asset account that is verified with more recent documentation. A written Verification of Deposit (VOD) on Request for Verification of Deposit completed by the depository institution may be obtained to supplement the bank statement(s), but may not replace them. The VOD should- Detail all holdings Provide average balance held in all accounts for the most recent two months Be dated within 120 days of the closing date. Explanation should be provided for large deposits over the statement period, as applicable. Business Accounts Self-employed borrowers who operate as sole proprietors may utilize funds from business accounts for the loan transaction. Other types of businesses are not eligible for this. Real Estate Owned The maximum number of financed residential properties a borrower may have is four. Borrowers with five or more financed residential properties are not eligible for financing with EMM. The total of four includes residential properties owned by the borrower or an LLC owned by the borrower. Commercial properties are not included in the calculation. New multiple loans must be underwritten simultaneously. Last Published Date: 01/26/2015 Page 9

11 Property Property Valuation Required Appraisal A conventional exterior-only appraisal on Fannie Mae form 2055 (drive-by) is required for all loans with LTV s < 100%. This appraisal must NOT be ordered through the VA Portal. It must be ordered through an eligible EMM Appraisal Management Company (AMC). For LTV s > 100% use HVE value and do not order a Note- The 2055 and the value stated on the 2055 must not be reflected on any VA or IRRRL documentation. AVM Requirement Prior to ordering a 2055 drive-by appraisal, a Freddie Mac Home Value Estimate (HVE ) must be ordered and must meet the following requirements: HVE-based LTV Confidence Score Action LTV 100% Any Order 2055 LTV > 100% and < 150% Any Use Product Code below 1 An HVE is run on all loans. The HVE is used to determine the proper product code and to determine whether a 2055 is required. 1 For loans with LTV s between 100% and 150% use product code:vf30irlhve or VF15IRLHVE. The HVE or 2055 must be documented in Data Trac under the property tab, in appraisal review. (Review Type and Value) Note- The veteran may not be charged for the HVE. Properties Listed for Sale Properties listed for sale within the last six months are eligible provided- Property was taken off the market no less than 30 days prior to the application date, and Veteran provides written confirmation of their intent to occupy the property moving forward, and Property may not be relisted during or after (at least 120 days) the loan closing. Last Published Date: 01/26/2015 Page 10

12 Property Property Eligibility The property is assumed to be VA eligible since the original loan was approved and guaranteed as a VA loan. Ineligible Properties Although the VA guarantees loans on the following property types, they are not eligible for financing with EMM: Manufactured homes Co-ops Life estates for Specially Adapted Housing. VA Indian Leasehold properties Properties with non-permitted or illegal additions made since the original loan was guaranteed. Two- to four-unit properties (considered on an exception basis only) Refer to Geographic Restrictions in this guideline section for restrictions on properties in Florida. Geographic Restrictions California IRRRLs are not offered in California. Florida Condominiums are not eligible. Texas Texas (a)(6) loans are not eligible, regardless of whether or not the current loan contains a cash out provision. Last Published Date: 01/26/2015 Page 11