All borrowers must have reached the age at which the mortgage note can be legally enforced in the jurisdiction where the property is located.

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1 Borrower Eligibility 3.1 A Overview SecurityNational Mortgage will allow mortgages made to natural persons only. If the borrowers are another type of legal entity or hold title in another type of entity (such as a corporation, S Corporation, non revocable inter vivos trust, life estate, land trust, general partnership or real estate syndication), the mortgage is ineligible. Additionally, loans where a custodian, agent, conservator, or guardian is signing on behalf of the borrower, non borrower spouse, or a vested owner are not allowed. 3.1 B Borrower s Age All borrowers must have reached the age at which the mortgage note can be legally enforced in the jurisdiction where the property is located. There is no maximum age limit for borrowers. All borrowers are evaluated on their ability to meet SNMC underwriting guidelines. 3.1 C Employee Loans All employee loans must be processed with full income and asset documentation. All employee loans must be processed through the retail channel and underwritten by a corporate underwriter. The loan application must be processed by a different branch than where the employee is employed. If you have any questions, please contact the Credit Policy Department. 3.1 D Power of Attorney Whenever we have a loan request, where the borrower or borrowers will not be present to sign the loan documents, and therefore are using a Power of Attorney (POA), the underwriter needs to evaluate the file very carefully and make sure the use of a POA does not present undue risk with the loan file. After reviewing the overall transaction, and other documents in the credit file, if the underwriter can justify the use of the POA, they should put a condition in E approve and then sign it off so that the closers/funders know the file is OK to close with a POA for the borrower. If a file goes to closing with the use of a POA for the borrower, and there is not a condition listed and signed off by the underwriter, it is the responsibility of the closer/funder to return the file to underwriting, so a proper risk analysis can be made. 3.1 E Residency 3.1 E1 United States Citizen A United States citizen is a native or naturalized person entitled to rights and privileges of the United States. Unless otherwise noted, loan program requirements are based on the assumption that the borrower is a United States citizen. SNMC Page 1

2 3.1 E Residency (cont d) 3.1 E2 Permanent Resident Aliens (cont d) Permanent resident aliens are non United States citizens who hold acceptable evidence of permanent residency issued by the U.S. citizenship and Immigration Services (USCIS). SNMC will allow mortgages made to non U.S. citizens who are lawful, permanent residents of the United States under the same terms available to U.S. citizens. Permanent resident aliens must have any of the following: Permanent Resident Card (USCIS form I 551) May be issued as a conditional right to reside for individuals seeking residency through marriage to a U.S. citizen/permanent resident or based on a financial investment in a U.S. business. These cards will have an expiration date and are valid for two years. At the end of the two years the individual must apply for an unconditional right to reside or risk losing their permanent resident status. Cards that are due to expire within 90 days must be accompanied by a copy of the USCIS form I 751 (Petition to Remove Conditions on Residence) or USCIS form I 829 (Petition by Entrepreneur to Remove Conditions) filing receipt. Cards may be issued without conditions and are valid for ten years. Cards that are due to expire within 6 months must be accompanied with a copy of USCIS form I 90 (Application to Replace Permanent Resident Card) filing receipt. There are numerous versions of the I551 card that are no longer issued but are considered valid as long as unexpired. Cards that are due to expire within 6 months must be accompanied with a copy of USCIS form I 90 (Application to Replace Permanent Resident Card) filing receipt. Unexpired Foreign Passport Must contain an unexpired stamp reading Processed for I 551 Temporary Evidence of Lawful Admission for Permanent Residence. Valid until mm dd yy. Employment authorized. A copy of the Green Card/United States Permanent Resident Alien Card is required for all permanent resident aliens whose income and/or assets are being used to qualify for a loan. A copy of the front and back of the card is required and must be included in the loan file. While the Green Card itself states Do Not Duplicate for the purpose of replacing the original card, U.S. Citizenship and Immigration Services (USCIS) allows photocopying of the Green Card. Making an enlarged copy or copying on colored paper may alleviate any concerns the borrower may have with photocopying. FHA loans For those borrowers with lawful permanent resident alien status, FHA will insure the mortgage under the same terms and conditions as U.S. citizens; the lender must document the mortgage file with evidence of permanent residency and indicate on the Uniform Residential Loan Application (URLA) that the borrower is a lawful permanent resident alien. Evidence of lawful permanent residency is issued by the Bureau of Citizenship and Immigration Services (BCIS)(Formerly the Immigration and Naturalization Service) within the Department of Homeland Security. SNMC Page 2

3 3.1 E Residency (cont d) 3.1 E3 Non Permanent Resident Aliens Non permanent resident aliens are non United States citizens who are permitted to reside in the United States on a temporary basis and may have been granted authorization to work in the U.S. by the U.S. Citizenship and Immigration Services (USCIS). These borrowers follow the non permanent resident alien guidelines. These non permanent resident aliens must have valid visas or other proof of legal residency. Acceptable visas are: E 1, Treaty Trader: This visa is essentially the same as an H 1 or L 1; the title refers to the foreign country s status with the United States H 1 (includes H 1B and H 1C), Temporary Worker: This is the most common visa given to foreign citizens who are temporarily working in the United States L 1, Intra Company Transferee: given to professional employees whose company s main office is in a foreign country (L 2 applies to the spouse and children of the L 1 nonimmigrant) G series: given to employees of international organizations that are located in the United States. Some examples include the United Nations, Red Cross, World Bank, UNICEF, and the International Monetary Fund. Verification that the applicant does not have diplomatic immunity must be obtained from the applicant s employer and reviewing the applicant s passport and reviewing the diplomatic list. TN 1, Canadian NAFTA visa: Used by Canadian citizens for professional or business purposes TN 2, Mexican NAFTA visa: Used by Mexican citizens for professional or business purposes Notes: Foreign nationals from Canada and Mexico who are working in the U.S. under the terms of NAFTA should be treated as non permanent resident aliens when determining their eligibility for mortgage financing. Residency The following documentation is required to verify residency: Verification that the borrower is authorized to work in the U.S. with a U.S. source of income. Evidence of a visa that allows the borrower to reside and work in the U.S. for a limited amount of time. There is no minimum time required to be left on the visa; however, underwriter discretion is advised. If there is less than six months remaining, the borrower should provide a letter explaining his/her intention to reman in the country, and a copy of their application for the visa extension. SNMC Page 3

4 3.1 E Residency (cont d) 3.1 E3 Non Permanent Resident Aliens (cont d) Funds Funds recently deposited into a U.S. depository institution are an acceptable source of funds if there is evidence that the funds were transferred from the country from which the borrower permanently resides, and it can be established that the funds were the borrower s before the date of transfer. In this case, the sources of all funds used for closing should be verified as for a borrower who is a U.S. citizen. Documentation requirements are: A copy of the Wall Street Journal showing the conversion rate used should be provided in the loan file along with a written conversion of the beginning and end balances. Funds for the down payment, closing costs and reserves must be verified as being on deposit in a U.S. bank prior to closing. Additional Information If the visa will expire within six (6) months of loan application and the borrower has not changed employers, a copy of the employer s letter of sponsorship for renewal must be provided. If the borrower is changing or has changed employers at or after loan application, a new visa must be obtained (pending applications for visas are not acceptable) An application to change status is NOT sufficient evidence of lawful U.S. residency If a non permanent resident alien is a borrower with a U.S. citizen, it does not eliminate or reduce any visa or other non permanent resident alien documentation requirements All standards for determining stable monthly income, adequate credit history and sufficient liquid assets must be applied in the same manner to each Borrower, including Borrowers who are non permanent resident aliens. Income should be expected to continue for at least 3 years. If the petitioner (employer) on a Notice of Approval is different than the employer listed on the loan application for the borrower, the Notice of Approval is no longer valid. Conventional Non permanent resident aliens must have been employed in the U.S. for the previous two years. FHA FHA will insure a mortgage made to a non permanent resident alien provided that the property will be the borrower s principal residence, the borrower has a valid SSN, and the borrower is eligible to work in the U.S. as evidenced by an Employment Authorization Document (EAD) issued by BCIS. If the authorization for temporary residency status will expire within one year and a prior history of residency status renewals exists, the underwriter may assume continuation will be granted. If there are no prior renewals, the underwriter must determine the likelihood of renewal, based on information from the BCIS. Although social security cards may indicate work status, such as not valid for work purposes, an individual s work status may change without the change being reflected on the actual social security card. Therefore, the social security card is not to be used as evidence of work status for non permanent resident aliens; the BCIS employment authorization document is to be used instead. Please review acceptable visa types listed above. SNMC Page 4

5 3.1 E Residency (cont d) 3.1 E4 Foreign Nationals Foreign nationals are non United States citizens who are neither permanent nor non permanent resident aliens and have neither full nor partial diplomatic immunity. Foreign nationals are not eligible for financing except as noted. 3.1 E5 Additional Immigration Status Loans to non citizens who have been granted political asylum require underwriting to non permanent resident alien guidelines. Asylees and refugees must provide their Arrival and Departure Records (INS Form 1 94) and copies of their employment authorization documents. A grant of asylum is for an indefinite period. 3.1 E6 Diplomatic Immunity Due to the inability to compel payment or seek judgment, transactions with individuals who are not subject to United States jurisdiction are not eligible. This includes embassy personnel with diplomatic immunity. Verification the borrower does not have diplomatic immunity can be determined by reviewing the visa, passport, or the U.S. Department of State s Diplomatic List at F Social Security Number All borrowers must have a valid Social Security Number. The following documentation is not acceptable in lieu of a valid Social Security Number as they do not evidence the borrower s right to earn income in the United States: Individual Tax Identification Number (ITIN): issued to individuals who are ineligible for Social Security Numbers and is for tax purposes only. An ITIN is a 9 digit number, beginning with the number 9 and is formatted like a SSN Matricula Consular Card: an identification card issued by the Mexican Consulate to individuals who are otherwise undocumented (no Green Card or valid visa). Matricula Consular Cards do not support legal residency in the U.S. SNMC Page 5

6 3.1 G Multiple Mortgages to the Same Borrower The following guidelines apply to the maximum number of 1 4 unit properties financed. All financed 1 4 unit properties for all borrowers or any other joint ownership is considered the same as total ownership and is therefore subject to the same restriction. There are no restrictions on the number of properties that the borrower owns free and clear. Occupancy Type Allowable Number of Financed Properties² Owner occupied No restrictions¹ Second Home 4 (including primary) * Investment 4 (including primary) * ¹ FHA maximum numbers of financed properties is 4. ² Total maximum properties with any specific investor 4. * Borrower may not be affiliated with the builder, developer, or seller of the subject property (see 3.1 I Non Arms Length Transactions). Notes: Investment Regardless of the number of mortgages the borrower has financed, DU will issue a message that the loan must comply with Fannie Mae s limitation of the number of financed properties. It is the underwriter s responsibility to verify the number of loans. Pay special attention to red flags indicating multiple loans may be in process. Loans held in the name of a trust will be considered the same as personal properties Not included when evaluating the maximum number of financed properties Joint or total ownership in property that is held in the name of a corporation, even if the borrower is the owner of the corporation. 3.1 G1 Certification Commercial properties Unimproved land Ownership in multifamily (5 + unit) property Borrowers must sign a document at closing stating they have no other loans in process or have not entered into any other contracts to purchase property. Violation of this certification will cause the new loan to become due and payable. 3.1 H Separated Borrowers When the borrower indicates that he/she separated, it must be determined whether it is a legal separation. If the borrower is legally separated, a copy of the legal separation agreement must be provided to determine the division of assets, liabilities, and potential obligations. If there is no legal separation agreement, a letter from the attorneys of both parties involved specifying the proposed settlement terms must be provided. If no documentation can be obtained to verify the division of assets and liabilities, the loan will generally not be considered an acceptable risk. SNMC Page 6

7 3.1 I Trusts 3.1 I1 Definitions A trust is revocable when the individual who created it, usually called the grantor, trustor, or settlor, can change or cancel it at any time, for any reason, while still living. This ability to revoke the trust, or revocability, is important, because it allows the grantor/trustor/settlor, who otherwise owns the property directly, to retain control of the property. Irrevocable trusts are not eligible for financing. Inter vivos revocable trusts are created by individuals, while they are still living, as an estate planning tool. The inter vivos revocable trust, also called a family trust, living trust, or revocable living trust can be used as an alternative form of property ownership. A land trust is a form of property ownership used in the state of Illinois, primarily to protect assets. The trust splits ownership between an institutional trustee, who holds legal and equitable title to the property on behalf of the beneficiary, and the beneficiary who holds the powers of management and control of the property. An Illinois Land Trust is created by: A trust deed that conveys title from the beneficiary to the trustee, AND A trust agreement between the trustees and beneficiary that defines their relative interest, rights, and duties. Blind trusts are not eligible for financing. A blind trust is an arrangement where financial holdings of a person are placed in the control of a fiduciary, typically to avoid conflict of interest. Therefore, someone other than the borrower has control over the trust assets. Life estates are not eligible for financing. A life estate is an estate whose duration is limited to the life of the party holding it, or some other person, upon whose death the right reverts to the grantor or heirs. 3.1 I2 Living Inter Vivos Trusts To be eligible the borrower must be: The settlor, or the person who created the trust, and The beneficiary, or the person who is designated to benefit from the trust, and The trustee, or the person who will administer the trust for the benefit of the beneficiary, the borrower. Eligible borrowers include: One or more borrowers with one living trust, or Two or more borrowers with separate living trusts, or Multiple borrowers with one or more holding title as an individual and one or more holding title as a living trust. Eligible property includes: 1 4 unit primary 1 unit second home SNMC Page 7

8 3.1 I Trusts (cont d) 3.1 I2 Living Inter Vivos Trusts (cont d) The following documentation is required: Attorney s Opinion letter from the borrower s attorney verifying all of the following: o The trust was validly created and is duly existing under applicable law o The trust is revocable o The borrower is the settlor of the trust and the beneficiary of the trust o The trust assets may be used as collateral for the loan o The trustee is: Duly qualified under applicable law Is the borrower Is the settlor Is fully authorized under the trust documents and applicable law to pledge or otherwise encumber the trust assets. Complete copy of the trust documents certified by the borrower to be accurate, OR a copy of the abstract or summary for jurisdictions which must be reviewed, and then the abstract or summary of trust documents can be relied upon in lieu of the trust agreements. Exception for Trust Certificate Authorized States: In lieu of the Attorney s Opinion letter and copies of trust documents the title company Trust Certification is acceptable for the following states: Alabama, Arizona, Arkansas, California, Delaware, District of Columbia, Idaho, Iowa, Kansas, Maine, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and Wyoming Other title and closing requirements: o o o o o The title to the property is vested in the trustee on behalf of the trust, The binder may not contain any exceptions to coverage based on the mortgaged property being held by the living trust, The Note must be executed individually by the settlor and by the trustee on behalf of the trust, The Mortgage or Deed of Trust is executed by the trustee on behalf of the trust. The Revocable Trust Rider must be used with the mortgage or Deed of Trust. The date of the Trust must be reflected on the note as part of the description below the Trustee s signature, e.g. Jane Doe, Trustee of the Jane Doe Trust dated April 1, SNMC Page 8

9 3.1 I Trusts (cont d) 3.1 I3 Illinois Land Trusts Illinois land trusts are allowed subject to the following: All beneficiaries are individuals; The Mortgage applicant(s) must be one of the beneficiaries of the trust; The trustee must be a corporation or financial institution customarily engaged in the business of acting as trustee under Illinois land trusts; The beneficiaries have sole power of direction over the land trust and trustee; All beneficiaries are obligated as individuals under the terms of the note; The Mortgage applicants have been underwritten and are qualified Borrowers under the requirements of the product. All such Land Trust Mortgages are secured by owner occupied, 1 4 family properties; and The term of the trust agreement is at least as long as the term of the security instrument. The trust agreement must be reviewed by SNMC attorney (John Douglas) for certification of compliance to the above referred items. Documentation: Where the property is to be held in a land trust, all of the following additional documentation must be provided: Land Trust Rider to the Mortgage/Deed of Trust Land Trust Rider to the Note Security Assignment to Beneficial Interest in Land Trust No additions, deletions, or other riders to the standard forms are permitted. The Note, Mortgage and documents required above must be completed and executed as follows: The Note and Mortgage must include the number of the trust and the date on which the trust was created. This information should follow the name of the trustee on these documents. The beneficiary must execute the Note and land trust rider to that Note. The trustee must execute the Mortgage, the Note, and the land trust rider to each. The beneficiary must assign his/her beneficial interest in the Note and trust agreement to the Seller. The riders must be dated and executed the same day as the Mortgage and Note. SNMC Page 9

10 3.1 J Non Arms Length Transactions A non arms length transaction occurs when a personal or business relationship exists between the borrowers, seller, builder or lender. These transactions may pose increased risk and an in depth analysis may reveal unsupported values, straw buyers, non arms length or at interest influences, and excessive fees or disbursement. A non arms length transaction may include: Family sales or transfers Corporate sales or transfers Employer/Employee sales Flip transactions Mortgagors employed in the real estate or construction trade who are involved in the construction, financing or sale of the subject property. Some transactions involving principals or lender or other vendor (appraiser, title company, etc.) who is involved in the lending process of the subject property. An at interest transaction may involve parties who are not closely tied or related but may have a greater vested interest in the transaction: An at interest transaction may include: Builder also acting as Realtor/Broker Realtor/Broker selling own property Realtor/Broker acting as listing/selling agent as well as mortgage broker These transactions are not allowed on second homes or investment properties. Primary residences are eligible with additional scrutiny as part of underwriting, closing and quality control functions subject to the following requirements: Borrower must provide a copy of the canceled earnest money check to verify payment to the Seller 5% of the sales price must be verified as being saved by the borrower (these funds do not have to be used towards the down payment) Verification that the borrower is not now, nor has been in the previous 24 months, in title to the property A payment history for the existing mortgage (verification of seller s mortgage) must be obtained and show no pattern of delinquency within the past 12 months Borrower must provide a written explanation stating the relationship to the seller and the reason for the purchase Appraisal review from RELS Valuation required Additional risk factors: Absence of equity or down payment Purchase price may not represent actual consideration given Financial bailouts or attempts to hide poor credit Occupancy concerns Financing of unsold builder inventory Inflated appraised value SNMC Page 10

11 3.1 J Non Arms Length Transactions (cont d) 3.1 K1 Purchasing from Builder If the borrowers are purchasing a property from a builder who is purchasing the borrowers existing residence, it is considered a non arms length transaction and is not permitted 3.1 L Non Purchasing Spouse To perfect a lien under governing state law when a married borrower purchases a property without involving a spouse, the spouse may be required to sign the security instrument, and other applicable documentation, to confirm relinquishing all rights to the property. FHA loans: Except for obligations specifically excluded by stated law, the debts of non purchasing spouse must be included in the borrower s qualifying ratios, if the Borrower resides in a community property state, or Property being insured is located in a community property state 3.1 L1 Community Property States Arizona California Idaho Louisiana Nevada New Mexico Texas Washington Wisconsin 3.1 M Maximum Number of Borrowers SNMC will allow a maximum of four borrowers on a transaction for both conventional and government loans. SNMC Page 11