ditech BUSINESS LENDING JUMBO AA PRODUCT

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1 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. 1. PRODUCT DESCRIPTION FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM Conventional Jumbo fixed rate mortgage 15 and 30 year terms Fully amortizing Servicing released refer to Loan Transaction Information grid Conventional Jumbo five year/one year adjustable rate mortgage 30 year term Fully amortizing Servicing released refer to Loan Transaction Information grid Conventional Jumbo seven year/one year adjustable rate mortgage 30 year term Fully amortizing Servicing released refer to Loan Transaction Information grid AA6 7/1 LIBOR ARM Jumbo AA Conventional Jumbo ten year/one year adjustable rate mortgage 30 year term Fully amortizing Servicing released refer to Loan Transaction Information grid AA7 10/1 LIBOR ARM Jumbo AA 2. PRODUCT CODES EE3 15 Year Fixed Jumbo AA AA5 5/1 LIBOR ARM Jumbo AA EE4 30 Year Fixed Jumbo AA (2/2/5 Cap) GG7 5/1 LIBOR ARM Jumbo AA (5/2/5 Cap) 3. FINAL FUNDING N/A DATE 4. INDEX N/A London interbank offered rate for 12-month United States dollar-denominated deposits, as published in the Wall Street Journal (LIBOR) 5. MARGIN N/A 2/2/5 Cap: 2.25% 2.5% 5/2/5 Cap: 2.50% 6. ANNUAL ADJUSTMENT CAP N/A 2% 7. LIFE CAP N/A 5% 8. RATE AT ADJUSTMENT N/A 2/2/5 Cap: Initial note rate is in effect for the fixed term, the first interest adjustment is up to 2%, thereafter, a 2% annual adjustment cap begins with the second adjustment 5/2/5 Cap: Initial note rate is in effect for the fixed term, the first interest adjustment is up to 5%, thereafter, a 2% annual adjustment cap begins with the second adjustment Rate is equal to the note margin plus index rounded to the nearest.125%. Subject to annual/life caps 9. TEMPORARY Not permitted BUYDOWNS Initial note rate is in effect for the fixed term, the first interest adjustment is up to 5%, thereafter, a 2% annual adjustment cap begins with the second adjustment Rate is equal to the note margin plus index rounded to the nearest.125%. Subject to annual/life caps Page 1 of 24

2 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM 10. QUALIFYING RATE AND RATIOS Qualifying Rate Qualify using note rate Ratios See LTV/CLTV Limitations section Qualifying Rate 2/2/5 Cap: Qualify using greater of note rate plus 2% or fully indexed rate 5/2/5 Cap: Qualify using greater of note rate plus 5% or fully indexed rate Qualifying Rate Qualify using greater of note rate or fully indexed rate Ratios See LTV/CLTV Limitations section 11. TYPES OF FINANCING Ratios See LTV/CLTV Limitations section Purchase Mortgage Non-arm s length transactions are permitted with family members. See the Jumbo chapter of the Client Guide for specific requirements Rate & Term Refinance Refinancing a first lien that was previously a cash out refinance requires the loan to be seasoned for 12 months as of the application date If existing mortgage was a purchase transaction, the note date of the existing loan must be at least 120 days from to the note date of the new loan If the existing mortgage was a rate/term refinance transaction, no seasoning requirements Buy-out of co-owner see the Jumbo chapter Client Guide for complete requirements Continuity of Obligation - see the Jumbo chapter of the Client Guide Loan amount may include Paying off the outstanding principal balance of Existing first loan, plus any required per diem interest Pay off of the outstanding principal balance of any existing subordinate liens that were used in whole to acquire the subject property or existing subordinate lien with at least 12 month seasoning (from date of application). Draws on HELOC within the last 12 months (from date of application) may not exceed $2,000. HELOC must be paid off and closed. Closing costs and prepaids Prepayment penalty associated with the existing mortgage Cash-out limited to the lesser of $2,000 or 2% of the principal amount of the new loan Principal curtailments are not permitted Delinquent real estate taxes and/or HOA dues may not be included in the loan amount. See the Jumbo chapter of the Client Guide for complete requirements. Properties currently listed for sale are not eligible Properties previously listed for sale must have been off the market and the listing agreement canceled at least one day prior to date of application Intent to occupy letter required for primary residences Owner occupied properties located in Texas subject to Texas Section 50(a)(6) are not permitted No cash out is permitted A copy of the current mortgage or note is required to determine the previous terms are not subject to Texas Section 50(a)(6) (also known as Home Equity Deed of Trust, Home Equity Installment Contract or Residential Home Loan Deed of Trust) If the first or second Texas Section 50(a)(6) loan is being paid off, regardless of whether the borrower is getting any cash back, the loan is not eligible If the first mortgage is not a Texas Section 50(a)(6) loan and the second mortgage is a Texas Section 50(a)(6) loan, the second lien may be subordinated and is considered a rate & term refinance. The second lien must be subordinate to the ditech first mortgage. Borrower cannot receive any cash back from the first mortgage transaction. Page 2 of 24

3 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM 12. MINIMUM LOAN AMOUNT Cash-Out Refinance At least one borrower must have held title to subject property for at least 6 months, measured from date vested on title to note date, with the following exceptions Delayed Financing not permitted If owned less than 12 months, LTV must be based on lower of appraised value or original sales price plus the cost of any documented improvements. If owned more than 12 months, LTV is based on the current appraised value. HUD-1 or deed must be provided to verify ownership Payoff of junior liens opened less than 12 months prior to loan application must be included in cash out limitations Payoff of junior liens opened 12 or months prior to loan application may be excluded from cash out limitations If draws on HELOC within the last 12 months (from date of application) exceeds $2,000, seasoning is based on the date of last draw Continuity of Obligation - see the Jumbo chapter of the Client Guide Delayed Financing must be treated as a cash out refinance transaction Properties currently listed for sale are not eligible Properties previously listed for sale must have been off the market and the listing agreement canceled at least one day prior to date of application Max 70% LTV for properties listed for sale in the 6 months prior to application date Owner occupied properties located in Texas subject to Texas Section 50(a)(6) are not permitted A copy of the current mortgage or note is required to determine the previous terms are not subject to Texas Section 50(a)(6) (also known as Home Equity Deed of Trust, Home Equity Installment Contract or Residential Home Loan Deed of Trust) If the first or second Texas Section 50(a)(6) loan is being paid off, regardless of whether the borrower is getting any cash back, the loan is not eligible Minimum loan amount is $1 higher than Fannie Mae/Freddie Mac high balance county loan limits Refer to the Loan Limit Look up Table for eligibility in specific MSAs for county loan limits. High-Balance Loan Amounts Page 3 of 24

4 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. 13. LTV/CLTV LIMITATIONS FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM PRIMARY RESIDENCE Units Loan Amount LTV/CLTV 1 Credit Score DTI Ratio 1-2 Purchase and Rate & Term Refinance $1,000,000 80% 700 $1,500,000 80% $1,000,000 80% 700 Cash Out Refinance $1,000,000 75% 700 $1,500,000 70% $1,000,000 75% Reduce LTV/CLTV by 5% in AZ, FL and NV 2 Maximum cash out $325,000 (includes debts paid off with loan proceeds) 43% 40% SECOND HOME Units Loan Amount LTV/CLTV 1 Credit Score DTI Ratio 1 Purchase and Rate & Term Refinance $1,000,000 75% 700 $1,500,000 70% 720 Cash Out Refinance 2 40% 1 $1,000,000 70% % 1 Reduce LTV/CLTV by 5% in AZ, FL and NV 2 Maximum cash out $325,000 (includes debts paid off with loan proceeds) 14. SECONDARY See the LTV/CLTV Limitations section and the Jumbo chapter of the Client Guide for eligibility guidelines Page 4 of 24

5 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM FINANCING Ineligible Secondary Financing Down Payment Assistance Programs (DPA) See the Jumbo chapter of the Client Guide for all ineligible secondary financing 15. PROPERTY TYPES Eligible Property Types 1-4 units (1-unit second homes) Condo Fannie Mae warrantable See Conforming Condominium-PUD Matrix PUD Ineligible Property Types 2-4 unit PUD 2-4 unit second homes Agricultural zoning Condo hotel Co-op Commercial zoning Dome homes Foreclosed properties located in a state where a redemption period is allowed Hotel or motel conversions Leasehold Estates Manufactured/mobile homes Mixed-use property Modular/Pre-Cut/Panelized homes Non-warrantable condo projects Property with deed/resale restrictions (except age restricted communities) Property with more than 20 acres Properties sold at auction (including previously approved condo or PUD units) Unique Properties (such as earth homes, log homes, etc.) Working farms, ranch, orchard, regardless of amount of income or loss received from property See the Jumbo chapter of the Client Guide for complete eligibility guidelines and ineligible property types 16. OCCUPANCY Primary Residence Second Homes 17. GEOGRAPHIC LOCATIONS/ Ineligible States New York Page 5 of 24

6 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM RESTRICTIONS Permitted only for Delegated Clients who underwrite and close loans in their own name. See Approval Authority section for limited eligibility West Virginia 18. STATE SPECIFIC The State Requirements are located in the Compliance Section, Chapter 2 of the Client Guide. REQUIREMENTS 19. ASSUMPTIONS Not permitted Permitted only after the initial note rate ends and in accordance with the Due on Sale and Assumption qualifications. Creditworthy borrowers only. 20. ESCROW WAIVERS See the Client Guide for escrow waiver eligibility 21. PREPAYMENT PENALTY None 22. APPROVAL AUTHORITY Approval Authority Delegated Conditional Delegated Non-Delegated Client has the following limited underwriting authority Individual loan amount <= $1 million eligible ditech first and second liens: combined loan amount <= $1 million eligible ditech first and other lender second liens: combined loan amount <= $1.25 million eligible ditech total overall exposure with a borrower <= $1.5 million. Total overall exposure includes all ditech liens on all properties owned by the borrower When a borrower has more than one pending transaction, all files must be underwritten together in order to consider the overall risk(s) and qualifying of the transactions. New York Individual loan amount <= $1 million eligible if Client is underwriting the loan. Individual loan amount > $1 million and all loans submitted to ditech for underwriting are ineligible All loans must be submitted to ditech New York - Ineligible All loans must be submitted to ditech New York - Ineligible 23. UNDERWRITING/AUS DECISIONS Loan must be manually underwritten and fully documented according to the product and policy guidelines on this product matrix, attached Client Guide Supplement and the Jumbo chapter of the Client Guide and submitted to DU receiving appropriate fraud alerts and contributory messages. Must receive a DU Approve/Ineligible decision for non-conforming loan amount. DU findings must be included in the loan file. Must comply with Ability to Repay underwriting standards and be a Safe Harbor Qualified Mortgage using criteria in Appendix Q. Transmittal Summary (Form 1008) is required and must be signed and dated 24. DOCUMENTATION Full documentation Page 6 of 24

7 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM TYPE 25. BORROWER ELIGIBILITY Permanent Resident Must have valid social security number See the Jumbo chapter of the Client Guide for requirements Non-Permanent Resident Not permitted First Time Homebuyer Permitted Foreign Nationals Not permitted Trusts Agreements See the Jumbo chapter of the Client Guide for eligibility 26. CO-BORROWERS Loans with more than 4 borrowers are ineligible Co-applicants, co-mortgagors, guarantors and cosigners may not be interested party to the transaction, such as property seller, builder or real estate broker Non-occupant co-borrower must be a family member or have an established relationship and motivation, not including equity participation for profit, must be provided Non-occupant co-borrowers permitted for primary residence only Occupant borrower Max 35% HTI ratio Max 43% DTI ratio (within program parameters) Max combined DTI cannot exceed 43% (within program parameters) Must contribute a minimum of 5% own funds 27. CREDIT Credit Score Requirements See the LTV/CLTV Limitations section for minimum credit score requirements All borrowers must meet credit score requirements, regardless of whether income is used to qualify 24 month credit history required Trade Line Requirements Authorized user accounts may not be used to satisfy the trade line requirements. Disputed accounts may not be used to satisfy the tradeline requirements A minimum of 3 tradelines with a 12 month history is required regardless of whether the account is open or closed A minimum of 3 open trade lines for borrowers who do not have a previous mortgage history If unable to meet the minimum 3 open trade line requirements, credit may be acceptable if all of the following are met The borrower has a prior mortgage history reviewed for at least 12 months The borrower exhibits significant credit depth and favorable performance All borrowers must meet the trade line requirements Page 7 of 24

8 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM Housing (Mortgage/Rental) Payment History (PITIA) Inclusive of all liens regardless of position Applies to all mortgages on all financed properties All borrowers must demonstrate a 24 month housing payment history 0x30 in the last 12 months 1x30 in the last months 0x60 in last 24 months Subject mortgage must be current on delivery If primary residence is owned free and clear, a public records search must be provided Borrowers living rent free acceptable loan file must provide reason for lack of current housing payment (document on 1003, 1008 and borrower letter of explanation) Revolving Debt 2x30 in last 12 months Installment Debt 1x30 in last 12 months Significant Derogatory Credit See the Jumbo chapter of the Client Guide for the following: Bankruptcy Foreclosure Modification of Distressed Loan Preforeclosure Short sale, deed-in-lieu 28. ASSET/RESERVES Borrower Investment A minimum 5% down payment must be paid from the borrower s own funds. The balance may be paid from any of the acceptable asset sources (borrower s funds or gift funds) All assets disclosed on the application must be verified, regardless of whether the assets are needed to close or for reserves. Earnest money deposit must be sourced and verified on all loans Gift Funds Primary residence only Seller Contributions 6% (lesser of appraised value or purchase price) Reserves Page 8 of 24

9 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM Loan Amount Standard PITIA Reserve Requirements <= $1,000,000 9 months >$1,000,000 <= $1,500, months 29. EMPLOYMENT/ INCOME 30. LIMITATIONS ON OTHER R.E. OWNED Second Homes standard reserve requirements plus 2 months PITIA reserves for each additional financed property. Subject property is 2-4 unit property and rental income from subject property is being used standard reserve requirements plus 6 months PITIA reserves (regardless of positive or negative cash flow). Additional reserve requirements when primary current residence is converting to an investment property, second home or pending sale. Refer to Client Guide Supplement. Reserves are calculated based on the PITIA of each individual property. See the Jumbo chapter of the Client Guide and Client Guide Supplement for additional reserve requirements. See the Jumbo chapter of the Client Guide. Form 4506-T Prior to Closing 4506-T must be processed and personal tax transcripts obtained for each borrower regardless of whether the income is used to qualify Obtain the following: Tax return transcript (s) when the personal income tax return(s) are used for qualification (self-employment, rental income, >= 25% income earned from commission, etc.); or W-2 or 1099 transcript(s) for salaried borrowers or for borrowers with other types of income not documented with tax returns (retirement, social security disability, etc.) 4506-T must be processed and business returns obtained when borrower s ownership in the business is >= 25% 4506-T forms must be retained in the loan file At Closing 4506-T for personal and business returns must be signed at closing See the Jumbo chapter of the Client Guide for complete guidelines Multiple Loans to the Same Borrower Borrower s primary residence, the subject property and any properties owned separately by a co-borrower must be included in the total when determining the number of financed properties. Up to 4 financed properties New multiple loans must be underwritten simultaneously 2-4 unit properties borrower may not own any other residential property of equal or greater value in the same area in which the units are located See additional requirements in the Assets/Reserves section See the Jumbo chapter of the Client Guide for eligibility guidelines Page 9 of 24

10 ditech BUSINESS LENDING JUMBO AA PRODUCT See attached Client Guide Supplement: The Client Guide Supplement is to be used in conjunction with the Product Matrix and the Jumbo Chapter of the Client Guide. The Client Guide contains complete eligibility and underwriting guidelines and only differences to those guidelines are highlighted in the matrix. FIXED RATE 5/1 LIBOR ARM 7/1 LIBOR ARM 10/1 LIBOR ARM 31. APPRAISAL REQUIREMENTS Appraisal Report Appraisal(s) must be ordered through Clients standard ordering process/amc. An Interior and Exterior Appraisal Report and Collateral Desktop Analysis (CDA) are required for all loans. CDA (Collateral Desktop Analysis) and field review must be ordered through Clear Capital The CDA is a desktop review appraisal completed by a licensed appraiser with local market expertise. Final LTV/CLTV cannot be based on a review value. All LTVs must use an appraised value that is supported by a review document Transferred appraisals are not permitted Condition ratings C1 through C4 are permitted Quality ratings Q1 through Q5 are permitted Loan amount >$1,000,000 requires two Interior and Exterior Appraisal Reports with interior photos Appraisals must be completed by two independent companies (may be same AMC) The LTV will be determined by the lower of the two appraised values CDA requirements apply based on the lower of the two appraisals Units Initial Review Type CDA Recommends Field Review Variance <= 65.00% % % 1 CDA No >= 0% and <5% Accept Accept Accept >=5% and < 10% Accept Accept Subsequent Field Review Required >=10% Subsequent Field Review Required Subsequent Field Review Required Subsequent Field Review Required Yes Any Subsequent Field Review Required 2-4 Field Review N/A N/A Default to Field Review Subsequent Field Review Required Default to Field Review Subsequent Field Review Required Default to Field Review 34. MORTGAGE INSURANCE 35. SPECIAL REQUIREMENTS/ RESTRICTIONS Field Review Variance Threshold 10% 10% 5% N/A Rebuttal Presumption Mortgages are not permitted Escrow Holdbacks are not permitted Page 10 of 24

11 ELIGIBILITY Age of Documents Land Trusts Multiple Financed Properties Credit and appraisal documents may not be more than 90 days from the note date for existing construction Credit and appraisal documents may not be more than 120 days from the note date for new construction Not permitted The following identifies properties are subject to limitations Types of Property Ownership Joint ownership of residential real estate (considered to be the same as total ownership of an individual property), even if borrower is not obligated on the Note Ownership in commercial real estate Ownership of a multi-family property consisting of more than 4 dwelling units. Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if borrower is the owner of the corporation and the financing is in the name of the corporation or S-corporation. Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if borrower is the owner of the corporation; however the financing is in the name of the borrower. A property held in a family trust that is owned by the trust and not owned by the beneficiary Ownership in a timeshare if categorized as an installment debt. Obligation on a mortgage debt for a residential property (regardless of whether or not the borrower is an owner of the property). Ownership of a vacant (residential) lot. Ownership of a property that is held in the name of an LLC or partnership (limited or general partnership) where the borrower(s) have an individual or combined ownership in the LLC or partnership Ownership of a manufactured home and the land on which it is situated and titled as real property. Ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home). Yes/No Yes No No No Yes Yes No Yes No Yes Yes No TRANSACTIONS Ineligible Transaction Delayed Financing Single Close Construction to Permanent Considered a cash-out refinance LTV is based on the lesser of the purchase price or appraised value, The original purchase transaction was an arm's length transaction. If the seller of the property was an LLC, the principals of the LLC must be documented, The original purchase transaction is documented by the settlement statement, which confirms that no mortgage financing was used to obtain the subject property. A recorded trustee's deed (or similar alternative) confirming the amount paid by the grantee to trustee may be substituted for a settlement statement if a settlement statement was not provided to the purchaser at time of sale. The preliminary title search or report must confirm that there are no existing liens on the subject property, The source of funds used for the purchase transaction must be documented. If the source of funds used to acquire the property was an unsecured loan or HELOC secured by another property, the new settlement statement must show these sources being paid off with the proceeds. The new loan amount must not be more than the actual documented amount of the borrower's initial investment in purchasing the property plus the financing of closing costs, prepaid items, and points. All other cash-out refinance eligibility requirements are met. Page 11 of 24

12 Pending Sale of Current Primary Residence Qualify with the PITIA of both the current property and new primary residence, or Qualify based on new primary residence if all of the following is met >= 30% in current property Executed sales contract for the current residence, and Lender commitment to buyer of current property if contract indicates financing contingency and Reserves required below Document equity with a full appraisal dated no more than 60 days prior to the note date Conversion of Primary to Second Home Conversion of Primary to Investment Property Departing property with less than 30% documented equity or undocumented Standard reserve requirements plus 6 months PITIA reserves for the departing property Departing property with more than 30% documented equity Standard reserve requirements plus 2 months PITIA reserves for the departing property Qualify with the PITIA of both the retained property and new primary residence Document equity with a full appraisal dated no more than 60 days prior to the note date Departing property with less than 30% documented equity or undocumented Standard reserve requirements plus 6 months PITIA reserves for the departing property Departing property with more than 30% documented equity Standard reserve requirements plus 2 months PITIA reserves for the departing property Document equity with a full appraisal dated no more than 60 days prior to the note date 1 unit property: Departing property with less than 30% documented equity or undocumented Rental income cannot be used to offset the mortgage payment Standard reserve requirements plus 6 months PITIA reserves for the departing property Departing property with more than 30% documented equity 75% of gross rental income may be used to offset the mortgage payment Standard reserve requirements plus 2 months PITIA reserves for the departing property 2-4 unit property: Departing property with less than 30% documented equity or undocumented Rental income for unit occupied by borrower not permitted Follow Rental Income requirements for rental income from other units Standard reserve requirements plus 6 months PITIA reserves for the departing property Departing property with more than 30% documented equity 75% of gross rental income for unit occupied by borrower may be used to offset the mortgage payment Follow Rental Income requirements for rental income from other units Standard reserve requirements plus 2 months PITIA reserves for the departing property Documentation Requirements: Fully executed lease Evidence of receipt of security deposit Page 12 of 24

13 Permanent Financing for New Construction FINANCING Subordinate Financing CREDIT Disputed Accounts Landlord Reference Non-Borrowing Spouse Verification of deposit into borrower s account Proposed rent must be deemed reasonable for size and location of property Transaction is treated as a rate and term refinance 1 unit only 2-4 units, condos and attached PUDs are ineligible Full appraisal with interior and exterior inspection completed with an as is value Appraisal update/completion certificate required if appraisal completed subject to completion All construction work must be completed and paid for prior to the closing of permanent financing Escrow holdbacks are not permitted Not less than 5 years remaining from the Note date of new proposed lien unless the subordinate financing fully amortizes under a level monthly payment plan prior to that time Fixed Rate When monthly payments are required, they must cover, at a minimum, the interest due to ensure negative amortization does not occur. If financing provided by the property seller is more than 2% below current market par rate for combo loans for the subordinate lien as of the date of application, it must be considered a sales concession and the subordinate financing amount must be deducted from the sales price. Variable Rate Total amount of secondary or subordinate financing fully amortizes during its term AND Combined annual payment adjustments of the loan and the secondary or subordinate financing does not exceed: Lesser of a 2% interest rate increase OR 8.50% payment increase The repayment terms must provide for regular monthly payments that cover at least the interest due so that negative amortization will not occur. Confirm the accuracy of disputed trade lines reported on the borrower's credit report. If it is determined that the disputed trade line information is accurate, ensure the disputed trade lines are considered in the credit risk assessment. The borrower must provide a signed and dated satisfactory explanation. Third party documentation must be provided to support borrower explanation. A landlord reference is required using: Credit report verification for the most recent 24 months; Cancelled checks for the most recent 24-month period and a copy of the lease verifying the due date; or A verification of rent (VOR) from a management company with a 24-month payment history and 12 months cancelled checks when the landlord is an interested party to the transaction (e.g., seller, broker, etc.). In addition, a copy of the lease verifying the due date in lieu of a landlord reference must be provided. Include 100% of any joint debts in the DTI ratio Separate credit report for non-borrowing spouse is not required Self employment losses from non-borrowing spouse: Can be excluded from the borrower s qualifying income subject to verification the borrower has no interest in the business. Should the borrower have an ownership interest in the business, then the full amount of the loss would be deducted from the borrower s qualifying income. Page 13 of 24

14 ASSETS Source of Funds May be Used for Down Payment/ Closing Costs Considered a Liquid Asset May be Used for Reserves % Eligible For Use in Funds Calculation Bank/Financial Institution Accounts Yes Yes Yes 100% of value Bridge Loans Yes No No Business Assets Yes No Yes See Business Assets section below CD/Money Market Yes Yes Yes 100% of value Cash Out Proceeds N/A No No Community Savings Yes Yes No Gifts Yes Yes Yes Gift of Equity (primary only) Yes No No Income Tax Refund Yes No Yes Life Insurance Cash Value Yes No Yes 70% of cash value when used as reserves Loans Secured by 401(k) Yes No Yes Loans Secured by Other Assets Yes No Yes Notes Receivable No No No Proceeds from Sale of Non-Real Estate Assets Yes Yes Yes Qualified Tuition (529) Plan Yes Yes Yes Accessible funds less penalties for withdrawal Retirement Account - IRA and SEP-IRA Yes No Yes 60% of vested value less any outstanding loans Retirement Account - 401(k), KEOGH or 403(b) Yes No Yes 60% of vested value less any outstanding loans Savings Bonds Yes Yes Yes 70% of value when used as reserves Secondary Financing Yes No No Stocks/Bonds Yes Yes Yes 70% of value Stock Options Yes Yes No Systematic Savings Yes Yes No Trade Equity Yes No No Trust Assets Yes No Yes 100% of value Uniform Transfers to Minors Act (UTMA) or Uniform No No No Gifts to Minors Act (UGMA) The minimum documentation required to verify the full PITIA payment should be obtained from legitimate sources, such as; current monthly mortgage statement, copies of homeowners insurance policies, recent tax bill, web search to taxing authority, copy of mortgage note, etc. Bridge Loans Business Assets Bridge loans secured by borrower s current residence is an acceptable source of funds To omit the PITIA or bridge loan payment from the qualifying ratios, refer to the Pending Sale of Current Primary Residence section In addition to standard reserve requirements, minimum 6 months reserves for existing residence required Business assets may be used for down payment, closing costs and reserves Borrower must have minimum 5% cash investment from own personal assets (non-business account) separate account not required for Sole Proprietor Sole Proprietor: The borrower must be 100% owner of the business. Page 14 of 24

15 Large Deposits Provide verification from accountant, CPA or borrower if tax returns are self-prepared Partnership The borrower must be a general partner Verify ability to withdraw funds to the extent of ownership percentage and there is no required repayment Provide verification from accountant, CPA or all other general partners Verify percentage of ownership using Form 1065 and Schedule K-1 Corporation Verify ability to withdraw funds to the extent of ownership percentage and there is no required repayment Provide verification from account, CPA or corporate resolution indicating stock holder approval Verify percentage of ownership with Compensation of Officers section of corporate tax return The impact of the withdrawal must be considered by the underwriter in a cash flow analysis to determine no negative impact to the business based on the withdrawal of the funds. Provide all of the following: Six months business bank statements YTD P&L Statement Current balance sheet for most recent quarter Letter from applicant confirming impact to the business Business assets are not considered liquid assets. The business accountant (must not be related to the borrower or be an interested third party) must provide a letter indicating the Borrower has access to the funds, and There is no required repayment and Funds are not an advancement against future earnings or future cash distributions The borrower must provide a written explanation and documentation of the source of funds for any large deposits that are inconsistent with the borrower's monthly income. If the source of the large deposit is readily identifiable on the account statement, such as a direct deposit from an employer, the Social Security Administration, etc., additional documentation is not required. However, if there is any question that the funds may have been borrowed or there are consistent deposits that are not income, additional documentation must be obtained New Accounts Document source of funds used to open a new account within the last qualified 90 days of the application date, regardless of the amount Obtain a letter of explanation signed by the applicant(s) for significant large deposits. Additional documentation to support the explanation is required. Deposits > 25% - Not required for Funds If during any monthly period the aggregate total of deposits on an account statement(s) (other than deposits from an identifiable source) is > 25% of the applicant s gross monthly qualifying income: Deduct the large deposit(s) from the ending account balance and allow the remaining verified balance in the account to be used as funds to qualify. If the ending account balance is less than the large deposit(s), no funds from the account may be used and it is not necessary to deduct the difference in funds from another account. In the event that an asset balance is reduced by the amount of large deposit(s), adhere to the following guidance: The reason for the change in the asset amount must be documented on the underwriting loan transmittal and the AUS decision must be rerun Ending balance more than the large deposit: Additional documentation or explanation is not required. Ending balance less than the large deposit: Document the underwriting loan transmittal with the rationale for not using the account. Deposits > 25% - Required for Funds Page 15 of 24

16 Gifts Life Insurance Cash Value Section 1031 Tax Exchange Stock Options Sweat Equity Trade Equity If during any monthly period the aggregate total of deposits on an account statement(s) (other than deposits from an identifiable source) is > 25% of the applicant s gross monthly qualifying income, further analysis is required. Prior to requesting a letter of explanation from the applicant(s), determine which deposit(s) are insignificant (i.e., $50, $75), as the source(s) of these small deposits are not required to be documented or explained. Obtain a letter of explanation signed by the applicant(s) for significant large deposits. Additional documentation to support the explanation is required. Gift of Equity Primary residence only Must be provided by family member, domestic partner or fiancé Borrower must contribute 5% of own funds Gift or grant from employer, municipality or non-profit organization Primary residence only Cannot be used as reserves Borrower must contribute 5% of own funds The following are not permitted Gift from family members in non-arms length transactions when subject is a second home Gift of equity for second homes Net proceeds from the cash surrender value or from a loan against a life insurance policy are an acceptable source of funds for down payment closing costs and reserves. The most recent statement from the insurance company reflecting the following: life insurance company name; borrower as the policy owner; period covered and ending cash value; no statements identifying restrictions for withdrawals; and any outstanding loans. If used for closing, verification of liquidation and receipt of funds must be documented with either a copy of the check from the insurer or payout statement issued by the insurer. If used for reserves, only 70% of the net cash value less any new or outstanding loans may be used. The cash value must be documented but does not need to be liquidated. Not permitted Must be vested and immediately available to the borrower Use current stock price to determine gain May not be used to meet reserve requirements Obtain any of the following Most recent 2 months statements (must list number of options and price) Most recent quarterly statement (must list number of options and price) or Value verified by current statement from stockbroker Proof of liquidation and receipt of funds required. Not permitted Property seller may agree to take a borrower s currently owned property in trade as part of the down payment Borrower must contribute minimum 5% cash down payment from own funds Provide all of the following: Sales contract Full interior/exterior appraisal of property being traded Page 16 of 24

17 LIABILITIES/DEBTS Bridge Loans Business Debts of Self-Employed Borrowers Business Expenses Fully executed HUD-1 Full executed and recorded deed transferring title Bridge loans must be included in the borrower s debt-to-income ratio. Payment may be excluded if all of the following is provided: executed sales contract for current residence and commitment to the buyer of the current residence (if the contract contains a financing contingency) and standard reserve requirements plus 6 months PITIA reserves pm the current residence The debt must be considered as part of the borrower s individual recurring monthly debt obligations if any one of these conditions cannot be met. The account has no late payments in the last 12 months and no more than 1 x 30 in the last 24-month period. Evidence, such as canceled company checks that the debt has been paid out of company funds. The cash flow analysis of the company took the payment of the debt into consideration. When a self-employed borrower indicates that certain liabilities are paid by his or her business or business debt appears on the borrower's individual credit report, the liability must be included in the DTI unless: There are no late payments in the last 12 months; There is no more than 1x30 in the last 24 months; A minimum of twelve months evidence documenting that the debt is paid by the business account; and A cash flow analysis for the business took the payment obligation into consideration. Court Ordered Assignment of Debt Installment Debt The payment must be included in the borrower s individual recurring monthly debt obligations if any of the following situations exist: The business does not provide sufficient evidence that the obligation was paid out of company funds; The business provides acceptable evidence of its payment of the obligation, but the cash flow analysis of the business does not reflect any business expense related to the obligation (such as an interest expense - and taxes and insurance, if applicable - equal to or greater than the amount of interest that one would reasonably expect to see given the amount of financing shown on the credit report and the age of the loan). It is reasonable to assume that the obligation has not been accounted for in the cash flow analysis; or If the account in question has lates in the past 12 months or more than 1x30 in the past 24 months. When the borrower has outstanding debt that was assigned to another party by court order (e.g., divorce decree or separation agreement), and the creditor does not release the borrower from liability, it may be excluded from the debt-to-income ratio if all of the following is met No delinquent payments in the previous consecutive 12 month period Evidence that primary obligor has been making the payments for the past 12 consecutive months documented with one of the following: Cancelled checks Copies of money orders Other acceptable documentation If the account had any late payments in the past 12months, the payment must be included in the DTI ratio All installment accounts that extend beyond 10 payments remaining will be included in long-term obligations for qualifying purposes. Installment payments with 10 or less months remaining do not need to be included in long-term obligations unless: The excluded installment payment is significant enough to affect the applicant's ability to make the mortgage payments. In this instance, the payment must be included in the total DTI ratio. Deferred loan payments Must be included in DTI ratio If payment not indicated on the credit report, provide payment letter or forbearance agreement to determine payment Student loans Page 17 of 24

18 Loans Secured by Borrower s Assets Contingent Liability Pay Off Revolving Debt Pay Down Revolving Debt Must be included in DTI ratio If payment letter or forbearance agreement does not verify the payment, calculate the payment using the appropriate interest rate for Stafford student loan (based on 10 year amortization) July 2006 to present: 6.80% July 1998 to June 2006: 7.14% July 1995 to June 1998: 7.94% Prior to 1995 or open date is not provided: 8.25% Student loan in default Must be paid in full at or prior to closing If renegotiated payment plan has been established, copies of the past 12 months payments and repayment agreement are required If less than 12 months payments, loan must be paid in full When the borrower uses his or her financial assets as security for a loan, the monthly payment must be included in the DTI Provide a copy of the applicable loan instrument that shows the financial asset as collateral for the loan If the borrower intends to use the same asset to satisfy reserve requirements, reduce the value of the asset by the proceeds from the secured loan and any related fees to determine whether the borrower has sufficient liquidity remaining. Co-signed/court order mortgage liability A borrower can have a contingent liability from either cosigning for another party to obtain credit or have debt that was assigned to another party through a court order (such as under a divorce decree or separate agreement), and the borrower has not been released from the liability. The monthly payment for the contingent liability must be included in the borrower s total qualifying debts if the borrower s credit history or the cosigned debt itself exhibits a derogatory payment history. The borrower must meet all of the following requirements in order to exclude the cosigned debt from the borrower s Debt-to-Income (DTI) ratio: Evidence that the primary obligor has been making the payments for the past consecutive 12 months, documented by any of the following: Cancelled checks Copies of money orders Other acceptable documentation Mortgage Assumption The contingent liability is not required to be counted as part of the borrower s recurring monthly debt obligations, if it can be verified that the property purchaser has at least a 12- month history of making regular, timely payments for the mortgage. All of the following documentation is required: Evidence of the transfer of ownership Copy of the formal, executed assumption agreement Credit report indicating that consistent and timely payments were made for the assumed mortgage If timely payments during the most recent 12-month period cannot be documented, the applicable mortgage payment must be counted as part of the recurring monthly debt obligations. Source of funds must be documented. Minimum $10 monthly payment for each debt paid must be included in DTI If a revolving debt or HELOC is to be paid off and closed, the loan file must contain the following documentation in order to exclude the payment from the DTI: Copy of the HUD-1 Settlement Statement specifically naming the debt as being paid off. and Supplemental credit report or direct verification with the creditor supporting the debt is closed or Closing instructions requiring closure of debt (HELOC payoff, subject property only) Source of funds must be documented If a revolving or HELOC account is to be paid off or paid down, but not closed, the existing monthly payment on the current outstanding balance should be counted in the DTI ratio. Page 18 of 24

19 Pay Off Installment Debt Pay Down Installment Debt Revolving Accounts Ensure any funds to pay off a revolving account are clearly indicated that funds are to close the account rather than simply to pay down the account to a $0 balance and remain open. If a HELOC account is being paid down, rather than closed, the full line amount of the HELOC must be calculated in the CLTV. Source of funds must be documented. Verify debt has been paid with one of the following: Copy of the HUD-1 Supplemental credit report or Verification from the creditor If an installment debt is paid down to less than 10 months, the debt does not need to be calculated in the DTI ratio unless the excluded installment payment is significant enough to affect the borrower's ability to make the mortgage payments and the borrower has limited reserves. In the absence of a verified or stated payment amount according to the credit report, a payment should be calculated at 5% of the outstanding All revolving accounts, regardless of months remaining, must be included in the total DTI ratio, unless the debt has been paid off and closed. HELOC 30 day accounts Open 30-day charge accounts, where a minimum monthly payment is disclosed, may be treated as a revolving account, only if a minimum monthly payment is supported by the credit report or a monthly statement. The loan file must contain comments clearly indicating the manner in which the open 30-day charge account was addressed An open 30-day charge account, where the reported monthly payment equals the total outstanding balance or indicates a zero payment, requires the balance to be paid in full every month. The loan file must contain evidence of sufficient assets to cover the unpaid balance, in addition to the down payment, closing costs and reserves. If sufficient assets are verified, the payment can be excluded from the DTI calculation. If assets are insufficient, a payment of 5% of the outstanding balance must be included in the DTI calculation This applies to personal and business charge accounts reflected on the credit report. See the Jumbo chapter of the Client Guide for additional information on debt paid by the business Existing HELOC that will be subordinate to the proposed mortgage: Whether the HELOC is frozen or not, use the monthly payment reflected on the credit report as a liability. If the credit report does not indicate a payment, use the payment from the most recent billing statement. If the payment is not reflected on the credit report and a billing statement is not obtained, use 0.75% of the full line amount. If there is no payment reflected on the credit report but there is a zero balance, no monthly payment is required to be counted in the recurring monthly debt. If HELOC is new, qualify the borrower at 0.75% of the full line amount Note: HELOCs that have been frozen by the lender, with or without a balance, must still be calculated into the CLTV. If the subordinate financing is a deferred Community Second loan: If repayment of the loan is deferred for five years or more, then the monthly payment should not be included in the monthly housing expense calculation. If repayment is deferred less than five years, then the payment required at the end of the deferral period must be included in the monthly housing expense calculation. If paid off or paid down but not closed: Include existing monthly payment on current outstanding balance in the DTI ratio Include the full line amount in the CLTV ratio If paid off and closed, provide all of the following to exclude the payment from the DTI ratio: Page 19 of 24

20 INCOME/EMPLOYMENT Prior Employment Verification Extended Absence Salaried Borrower Bonus and Overtime Income Copy of HUD1 specifically naming the debt a being paid off and Supplemental credit report or direct verification with the creditor supporting the debt is closed or Closing instructions requiring closure of debt. Verbal verification of employment required for previous employment Must be employed in current job for 6 months or longer Document two year work history prior to the absence Most recent paystub(s) covering most recent 30 days of earnings and YTD income, Most recent two year's W-2s and/or 1099s, Verbal Verification of Employment, and Variable income (bonus, commissions, overtime, second job) may be removed when not needed to qualify provide justification for not using the income in the file Removal of income not needed to qualify is not permitted when borrower is employed by a family owned business The following documentation must be obtained: Most recent paystub(s) covering at least 30 days earnings and YTD income, Most recent two year's W-2s, Verbal verification of employment, and Written verification of employment, employer letter or equivalent indicating likelihood of continuance. If written confirmation of continuance cannot be obtained, provide documentation indicating employer statement could not be obtained and rationale for inclusion of the income Commission Income The following income documentation must be obtained: most recent paystub(s) covering at least 30 days earnings and YTD income, most recent two year s W-2s or 1099s most recent two year's personal income tax returns with all schedules, verbal verification of employment and written verification of employment, employee letter or equivalent itemizing commission income Self-Employed Evidence that the borrower has at least two consecutive years of self-employment operating the same business in the same location is required to demonstrate income stability. All tax returns must be signed and dated All of the following documentation is required: >= 25% ownership Most recent two year s personal tax returns with all schedules Most recent two year s K-1s (partnership and s-corporation) Most recent two year s business tax returns (excluding sole proprietor) YTD P&L signed and dated by the preparer and borrower on or prior to the note date, if more than 120 days have passed since end of business fiscal year Current Balance Sheet signed and dated by the preparer and borrower on or prior to the note date, if more than 120 days have passed since end of business fiscal year (excluding sole proprietor) Verbal verification of employment within 30 calendar days prior to note date < 25% ownership Most recent two year s personal tax returns with all schedules Page 20 of 24