VA Loan Program Guide

Transcription

1 VA Loan Program Guide Fixed Rate and 5/1 Hybrid ARM Wholesale Lending September 21, 2015 Table of Contents VA Loan Program Guide... 1 Fixed Rate and 5/1 Hybrid ARM... 1 Program Overview... 3 Credit Philosophy... 3 Ability to Repay and Qualified Mortgage... 3 Program Parameters... 4 Eligible Programs... 4 ARM Program Information... 4 VA ARM Adjustment Date Matrix... 4 LTV and Loan Limits... 5 Loan to Value (LTV) Matrices... 5 VA Standard Matrix (Fixed and 5/1 ARM)... 5 VA Specialty Matrix (Fixed Only)... 5 Maximum Base Loan Amount... 6 All Eligible States... 6 Minimum Guaranty... 6 Assets... 7 General... 7 Asset Documentation... 7 Cash Reserves... 7 Gift Funds... 7 Verification of Deposit (VOD)... 8 Borrowers... 9 Eligible Borrowers... 9 Borrower Reminders Employee Loan Policy Credit Credit Analysis CAIVRS Credit Report and Scores Bankruptcy (BK) Consumer Credit Counseling (CCC) Federal Debt Foreclosure Judgments Mortgage/Rental History Nontraditional Credit Insufficient Non-Traditional Credit VA Loan Program Guide Wholesale Lending Page 1 of 35 9/21/2015

2 Short Sale / Pre-foreclosure Tax Liens Collateral Property Overlays Escrow Holdbacks Appraisal Valuation Conditions Borrower Acknowledgement Manufactured Homes Property Listed For Sale Reminders for Minimum Property Requirements Debt to Income / Qualifying Underwriting Prior Approval by VA Qualifying Rate Job Related Expense Maximum Debt to Income Ratio (DTI) Overlays Compensating Factors Residual Income Minimum Residual Income with DTI <= 41% Tax Liens Geographic Restrictions Income and Employment T Verification of Employment (VOE) Employment and Income Documentation Requirements Seasonal, Building Trades or Climate Dependent Workers Self-Employed Borrower(s) Special Separation Benefit (SSB) Unemployment Compensation VA Education Benefits Voluntary Separation Incentive (VSI) Property Insurance Secondary Financing Purchase Transactions Refinance Transactions Seller Concession Transactions Eligible Transactions Purchase Refinance Pricing and Fees Escrow Waivers Funding Fee Fees Broker Compensation Documentation Product Codes VA Loan Program Guide Wholesale Lending Page 2 of 35 9/21/2015

3 Program Overview This VA Loan Program Guide provides an overview of the VA products and policies eligible for delivery to Pacific Union Financial for financing consideration. The details are based on the policies outlined in the VA Lender s Handbook and may include overlay restrictions specific to Pacific Union Financial. Recent revisions are in red font. Credit Philosophy The Pacific Union Financial philosophy is to offer the VA Program with minimal overlays to our clients. All loans will be evaluated in accordance with the following principles: Desktop Underwriter or Loan Prospector (each is also referred to as an Automated Underwriting System or AUS) is used to evaluate all eligible loan transactions. Loans that do not receive an AUS approval via DU or LP may not be resubmitted to the other AUS. Manual underwriting is allowed on the following: Interest Rate Reduction Loans (IRRRL) transactions. Loans that receive an AUS Refer recommendation. Loans in which the borrower does not have a credit score. Loans in which a Manual Downgrade is required. Each loan is evaluated in accordance with: VA Policies (collectively defined as the VA Lender s Handbook and circulars). Desktop Underwriter (DU) or Loan Prospector (LP) Findings. Pacific Union Financial s policies as outlined within this VA Program Guide. Each loan applicant is underwritten individually, and all credit standards are applied consistently to each borrower. All factors are weighed in when evaluating a loan file. The underwriting decision is not based on any single item or factor. Ability to Repay and Qualified Mortgage Pacific Union is committed to complying with Ability-to-Repay and Qualified Mortgage rules (ATR/QM) by making a reasonable, good-faith determination that borrowers have a reasonable ability to repay the loan in accordance with the Veteran Administration (VA) guidelines. Factors considered in making this determination include the borrower s income, assets and employment status (if relied on) against the mortgage loan payment, ongoing expenses related to the mortgage loan or the subject property, payments on simultaneous loans secured by the subject property, other debt obligations, and alimony and child-support payments as required by VA. A borrower s credit history is also considered in the evaluation and must comply with VA policies. Pacific Union will utilize reasonably reliable third party sources of information. VA Guidelines must be adhered to, including a review of residual income. Residual income is defined as income remaining after housing expenses, income taxes, longterm obligations and other expenses have been deducted from the borrower s total gross pay and available for the borrower s use. VA Loan Program Guide Wholesale Lending Page 3 of 35 9/21/2015

4 Program Parameters Eligible Programs Standard 15 year Fixed Rate Conforming balance only 20, 25 and 30 year Fixed Rate 5/1 fully amortizing 30 year Hybrid ARM with 1/1/5 cap Specialty 15 year Fixed Rate Conforming Balance only 20, 25 and 30 year Fixed Rate ARMs are not allowed Program Details All programs are fully amortizing loans. Loans are assumable by a qualified borrower during the life of the loan. Temporary buydowns are not permitted. ARM Program Information 5/1Hybrid ARM loans: Index used to calculate interest rate adjustments is the weekly average yield of U.S. Treasury securities adjusted to a constant maturity of one year, commonly referred to as the 1-Year Constant Maturity Treasury (CMT) index. 2% margin see daily rate sheet. Interest rate cannot increase or decrease more than 1% per year or more than 5% over the life of the loan. The interest rate is fixed for the first 60 months for 5/1 ARMs The interest rate will adjust on the following Jan 1, April 1, July 1 or October 1. Adjustments will occur annually thereafter. Payment adjustments will occur one month after the interest rate adjustment. ARMs are not convertible. VA ARM Adjustment Date Matrix The initial interest rate adjustment and the initial payment adjustments will occur in accordance with the schedule below: Closing First Payment Date First Interest Rate Change Date 5/1 ARM Number of Months Until 1 st Change 09/02-10/01 11/01 01/ /02-11/01 12/01 01/ /02-12/01 01/01 01/ /02 01/01 02/01 04/01 63 VA Loan Program Guide Wholesale Lending Page 4 of 35 9/21/2015

5 01/02 02/01 03/01 04/ /01 03/01 04/01 04/ /02 04/01 05/01 07/ /02 05/01 06/01 07/ /02 06/01 07/01 07/ /02 07/01 08/01 10/ /02-08/01 09/01 10/ /02-09/01 10/01 10/01 61 LTV and Loan Limits Loan to Value (LTV) Matrices The loan to value is the base loan amount divided by the lesser of the appraised value or the purchase price. VA Standard Matrix (Fixed and 5/1 ARM) VA Standard Occupancy Purpose Base Loan Amount Units LTV/ CLTV FICO Primary Purchase, Cash Out Conforming Balance High Balance % IRRRL 1 Conforming Balance High Balance 1 130% % 620 Second Home 2, Investment IRRRL 1 Conforming Balance High Balance % 1. No AVM or appraisal required for IRRRLs. Use original principal balance to calculate LTV/CLTV. 2. One unit only allowed if second home. VA Specialty Matrix (Fixed Only) VA Specialty Occupancy Primary Purpose Purchase, IRRRL 1,2 Base Loan Amount Conforming Balance Units LTV/CLTV FICO % 560 VA Loan Program Guide Wholesale Lending Page 5 of 35 9/21/2015

6 Cash-Out Conforming % 560 Purchase, IRRRL 1,2 Balance High Balance % 600 Second Home 3, Investment IRRRL 1,2 Conforming % 560 IRRRL 1,2 Balance High Balance % No AVM or appraisal required for IRRRLs. Use original principal balance to calculate LTV/CLTV. 2. Credit scores are not required, but may be obtained for improved pricing purposes. 3. One unit only allowed if second home. Maximum Base Loan Amount Pacific Union provides a VA Purchase and Cash Out Calculator that may be used to determine the maximum loan amount and required Funding Fee. The base loan amounts are subject to the following minimum and maximum amount: All Eligible States Units Conforming (Maximum) High Balance (Minimum to Maximum) 1 $417,000 $417,001 to $1,200,000 2 $533,850 $533,851 to $1,200,000 3 $645,300 $645,301 to $1,200,000 4 $801,950 $801,951 to $1,200,000 Minimum Guaranty Must have a minimum 25% guaranty. Guaranty may be from VA Entitlement or VA Entitlement plus cash down payment/equity in the property. In general, maximum guaranty from entitlement, assuming the veteran has full entitlement, is as shown in the table below. Loan Amount Maximum Potential Guaranty Special Provisions Up to $45, percent of the loan amount. Minimum guaranty of 25 percent on IRRRLs. $45,001 to $56,250 $22,500 Minimum guaranty of 25 percent on IRRRLs. $56,251 to $144, percent of the loan amount, with a maximum of $36,000. Minimum guaranty of 25 percent on IRRRLs. $144,001 to $417, percent of the loan amount Minimum guaranty of 25 percent on IRRRLs. VA Loan Program Guide Wholesale Lending Page 6 of 35 9/21/2015

7 Loan Amount Maximum Potential Guaranty Special Provisions Greater than $417,000 The lesser of: 25 percent of the VA county loan limit, or 25 percent of the loan amount Minimum guaranty of 25 percent on IRRRLs Note: The percentage and amount of guaranty is based on the loan amount including the funding fee portion when the fee is paid from loan proceeds. Assets General The applicant or spouse must have sufficient funds to cover: Any closing costs or points which are the applicant s responsibility and are not financed in the loan. The down payment, if any. The difference between the sales price and the loan amount, if the sales price exceeds the reasonable value as outlined on the Notice of Value. Asset Documentation Assets for Approve/Eligible or Accept/Eligible recommendations must be document according to the AUS findings. Verification of veteran s source of funds is not required if closing cost plus the difference between the sales price of the property and the base loan amount is <4% of the lesser of the sales price or NOV. Manually underwritten and Refer recommendation transaction assets must be documented as follows: Written VOD and the borrower s most recent asset statements required; or Asset statements covering the most recent three month period or the most recent two month period if the asset statement shows the previous month s balance. Cash Reserves VA only requires cash reserves when rental income is used as qualifying income. Refer to the Rental Income section for additional details. Note: Cash reserves are not required for IRRRLs. Gift Funds Gifts can come from a family member/relative or verifiable long term relationship, if the donor is a non family member. Family member/relative is defined as a parent, spouse, grandparent, child (including son, daughter, stepson, stepdaughter, legally adopted child, and foster child), or other related individual (including relation by VA Loan Program Guide Wholesale Lending Page 7 of 35 9/21/2015

8 blood, marriage, adoption, legal guardianship, domestic partnership, fiancé, or fiancée). Gifts given in the form of cash are not acceptable. Federal, State, local government agencies and FHA Approved non profit agencies considered by FHA to be an instrumentality of the government may provide funds for down payment, closing costs and prepaid expenses. Brokers are encouraged, but not required to use the Pacific Union Financial Gift Letter. DONOR(S) MUST PROVIDE EVIDENCE OF THEIR ABILITY TO DONATE GIFT FUNDS AND EVIDENCE OF RECEIPT OF THOSE GIFT FUNDS FROM THE DONOR S ACCOUNT MUST BE PROVIDED PER THE FOLLOWING: If the gift funds... Then the required documentation is... Are in the borrower s account and the loan is AUS approved Are in the borrower s account and the loan is not AUS approved (government only) Are to be provided at closing AND In the form of a certified Are check to from be provided donor s at account closing AND Are in the form of a cashier s check, money order, official check, or other type of bank check Are to be provided at closing AND Are in the form of an electronic wire transfer to Are /or cashier s being borrowed check deposited by the with donor, the AND closing agent Documentation from the bank or other savings account is not available Document according to AUS findings A copy of the canceled check or other withdrawal document showing that the withdrawal was from the donor s account, AND Borrower s deposit slip and bank statement showing the deposit. Bank statement showing the withdrawal from the donor s account disclosed in the gift letter, AND Copy of the certified check made payable to escrow company Have the donor provide a withdrawal document or cancelled check for the amount of the gift, evidencing that the funds came from the donor s personal account disclosed in the gift letter, AND A copy of the check, AND Borrower s deposit slip or bank statement that shows the deposit and new balance OR the check may be given directly to the Title Company or Realtor who must provide written acknowledgment identifying the specific check received & being held in escrow by the Title Company Have the donor provide documentation of the wire transfer from donor s account disclosed in gift letter, AND Written acknowledgement that the specific check or wire transfer was received and is being held in escrow by the Title Company Written evidence provided by the donor to evidence that the funds were borrowed from an acceptable source. Funds may not be provided by an interested party to the transaction, including the lender. Borrower s deposit slip or bank statement showing the deposit and new balance OR Written acknowledgment that the specific check was received and is being held in escrow by the Title Company Verification of Deposit (VOD) VODs must be on a standard verification form and must be sent directly from the loan originator to the financial institution and returned directly from that entity. Faxed verification forms are acceptable if it is clear from the document that the information was sent by fax transmission directly from the source to the originator. The original documents must not contain any alterations, erasures, correction fluid or correction tape. The loan file must include legible copies of the originals. The VOD form must identify all of the following, when applicable: The name of the financial institution Account number Account owner(s) VA Loan Program Guide Wholesale Lending Page 8 of 35 9/21/2015

9 Type of account Account open date Current account balance Average balance for the previous two months Outstanding loans If a securities account, the specific stocks/securities The title, signature, and phone number of the individual completing the VOD. Funds must be properly sourced when an account is opened within 90 days of the VOD and/or when the current account balance is significantly greater than the average balance. If a portion of the borrower s funds were to be saved by the borrower between the date of the loan application and the date of the loan closing, the loan file documents must show that funds were accumulated and deposited prior to closing. Borrowers Eligible Borrowers At least one borrower must meet the basic VA criteria of appropriate length and character of service to be eligible for VA home loan benefit as evidenced by a Certificate of Eligibility. Exceptions are permitted for a surviving spouse of veteran who died as a result of a service related cause or who were continuously rated for a service connected disability, but the disability was not the cause of death. Refer to the VA Lender s Handbook and Circular for additional details. All borrowers must have a valid social security number as evidenced by one of the following: Pay stub W2 Valid tax returns Any borrower that uses entitlement must occupy the dwelling. A non occupying co borrower is permitted only if the non occupant is not using any VA entitlement. However, for active duty veterans who cannot meet this requirement due to their active duty status as a member of the Armed Forces, the veteran s spouse certification of intent to occupy will meet this requirement. In addition, the occupancy requirement is also considered met if a dependent child occupies, or will occupy, the property as a home and the Veteran s attorney in fact or the dependent child s legal guardian makes the occupancy certification. VA has amended the Report and Certification of Loan Disbursement (VA Form ) to reflect these changes. Borrower must be a natural person. Title may not be in the name of: Partnership Corporation Real estate syndication Trust Shared Equity transaction VA Loan Program Guide Wholesale Lending Page 9 of 35 9/21/2015

10 Borrower Reminders VA requires very specific documentation when a Power of Attorney will be used to sign the loan document. Refer to Chapter 9, section 7 of the VA Lender s Handbook for complete details. POA must be legally enforceable, compliant with state regulations and allow clear title to be conveyed in the event of foreclosure. Veteran must provide written consent to the specifics of the transaction. At the time of closing: Confirm in writing that veteran is alive and well and if on active duty, not missing in action; and Provide the following certification in writing: "The undersigned lender certifies that written evidence in the form of correspondence from the veteran or, if on active military duty, statement of his or her commanding officer (including statement of person authorized to act for said officer), affirmatively indicating that the veteran was alive and, if the veteran is on active military duty, not missing in action status on (date), was examined by the undersigned and that the said date is subsequent to the date the note and security instruments were executed on the veteran's behalf by the attorney in fact." When the subject property is located in a community property state, the nonborrowing spouse s credit must be obtained. Any additional obligations must be included in the DTI the amount of the obligation must be deducted from the borrower s residual income. Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. First time homebuyers are eligible. Non US Citizens are eligible. Employee Loan Policy Loans to the originating Broker and/or their employees are allowed, subject to a Second Level Risk Review and approval by a Credit Risk Underwriter. Credit Loans must comply with VA policies and the policies outlined within this document. All loans with the exception of IRRRL transactions must be processed through DU or LP. DU or LP recommendations are relied upon for creditworthiness except when a manual downgrade is required, as detailed below. Credit Analysis Loans must be processed through DU or LP. An Approve/Eligible or Accept/Eligible recommendation must be manually downgraded if any of the following are present. Any mortgage or other significant debt is currently greater than or equal to 90 days past due. If any mortgage debt has more than 1x30 past due in the last 12 months. If any direct verification of an obligation was obtained (required if omitted from credit report) and is more than 1x30 past due in the last 12 months. VA Loan Program Guide Wholesale Lending Page 10 of 35 9/21/2015

11 When a loan is manually downgraded or receives a Refer recommendation, the following guidelines must be adhered to: The loan must be documented in accordance with VA s Refer policies, and Underwriters may not rely on the DU or LP findings for creditworthiness or eligibility. Loan must be reviewed for compliance with VA s manual underwriting guidelines. An underwriter s assessment of creditworthiness is required on VA Form The borrower must provide a LOE for all derogatory credit. CAIVRS A CAIVRS screening must be performed on all obligors on the loan. Screening is not required on a non borrowing spouse. If CAIVRS screening indicates an applicant is delinquent, has had a foreclosure or a claim paid on a federal debt, the issue must be resolved before a loan may be approved. Veterans may call to make arrangements to repay the debt. The CAIVRS confirmation code must be entered on the following documents: Loan Analysis (VA Form ) for purchase and cash-out refinance transactions; and The VA Loan Summary Sheet (VA Form ) for IRRRL transactions. Note: A copy of the CAIVRS printout must be included in the case binder. Credit Report and Scores A tri merge credit report is required on all loans. For IRRRLs, it is used solely to validate the credit score. Credit Score Methodology The following criteria may be used to determine each individual borrower's Credit Score using the "middle/lower" method; If there are three valid credit scores for a borrower, the middle score (numerical middle of the three scores) is used. If there are three valid scores for a borrower but two of the scores are the same, the duplicate score is used. If there are two valid scores for a borrower, the lower of the two scores is used. If there is one valid score for a borrower, that score is used. Loan Score Selection After selecting the appropriate Credit Score for each borrower, the Loan Score must be determined as follows: If there is more than one borrower, the lowest selected Credit Score among all borrowers is the Loan Score. When there is only one borrower, the selected Credit Score for that borrower is also the Loan Score. Note: Refer to the Loan to Value Matrices for minimum score requirements and overlays. VA Loan Program Guide Wholesale Lending Page 11 of 35 9/21/2015

12 Bankruptcy (BK) AUS Accept/Approve Recommendations: Chapter 7, rely on DU or LP to determine if credit history is satisfactory. AUS Refer recommendations and manually underwritten loans: Chapter 7 requires that 2 years have passed since the discharge date. Financing allowed for borrowers currently in Chapter 13 BK, if the borrower has made at least 12 months payments on time and the Trustee or the Bankruptcy Judge approves of the new loan. Consumer Credit Counseling (CCC) If a borrower is currently in a CCC, the file must contain evidence of 12 months satisfactory payments and approval from the counseling agency to obtain new credit. Rely on DU or LP to determine if credit history is satisfactory. Federal Debt The veteran may not have any outstanding federal debt issues. To determine if a veteran or Veteran s co obligor(s) has a federal debt, submit Verification of VA Benefits (VA Form ) to VA when the Owes Federal Debt box is checked on the front of the Indebtedness letter. If the form indicates the applicant has any outstanding federal debt, the file must contain evidence the debt has been paid in full or that an acceptable repayment plan has been established. If a repayment plan has been established, a copy of the promissory note for the entire debt, signed by the veteran must be included in the file. Refer to chapter 4, 6 b of the VA Lender s Handbook for additional details and exceptions. The veteran must resolve all federal debt issues prior to loan approval. Foreclosure AUS Accept/Approve recommendations: Rely on DU or LP. AUS Refer recommendations and manually underwritten loans: Typically at least 2 years must have elapsed from the completion of the foreclosure and the file must contain documentation of reestablished satisfactory credit for the borrower. If the foreclosure was on a VA loan, the applicant might not have full entitlement. Ensure the applicant s COE reflects sufficient entitlement to ensure at least 25% guaranty. Judgments Court ordered judgments must be paid off if on title. Judgments not on title may remain open if the borrower has a repayment plan in place with a minimum of two payments made prior to the contract date. Mortgage/Rental History AUS Accept/Approve recommendations: Rental history: No verification of rental history required. VA Loan Program Guide Wholesale Lending Page 12 of 35 9/21/2015

13 Mortgage history: If any mortgage debt includes more than 1x30 day late payments within the most recent 12 months, the loan must be downgrade to a manual underwrite. See manual underwriting requirements below. AUS Refer recommendations and manually underwritten loans: Rental history: A twelve month rental history is required and must be verified directly from the landlord, through information shown on the credit report or by cancelled checks. Mortgage history: A written explanation is required on any mortgage debt more than 1x30 past due within the most recent 12 months. Direct verification or a supplemental credit report is required if the mortgage: o o Is not included on the credit report. Is listed on the credit report does but not include details regarding the payment history and/or the rating implies that the loan is outstanding, assumed, or recently retired. o Is listed on the credit report as past due and has not been updated within the most recent 90 days. See IRRRL topic for additional requirements specific to IRRRLs. Nontraditional Credit Non-traditional credit must be documented using a Non-Traditional Mortgage Credit Report (NTMCR). Direct verifications may be obtained only when a NTMCR is impractical or the service is not available. Non-traditional credit may be used when the borrower does not have the type of credit that appears on a traditional credit report or to supplement an insufficient number of credit references. Non-traditional credit may not be used to: Offset derogatory credit; or Create a credit report for a borrower without a verifiable credit history; or Enhance a poor payment history. Non-traditional credit references must include a minimum of 12 months history with: No history of delinquency on rental housing payments No more than one 30-day late payment on all other references No collection accounts / court records filed (other than medical) within the last 12 months Non-traditional credit must: Include three credit references, including at least one from Group I, and Exhaust all Group I references prior to considering Group II references Group I references include rental housing payments or utility company references. Eligible Group II references include: Medical, life, auto or renters insurance coverage that is not payroll deducted Payment to child care providers made to a business providing such services School tuition Retail stores department, furniture, appliance stores, specialty stores; rent to own i.e., furniture, appliances Payment of medical bills not covered by insurance Internet/cell phones services VA Loan Program Guide Wholesale Lending Page 13 of 35 9/21/2015

14 Documented 12 month history of saving by regular, non-payroll deducted deposited resulting in an increasing balance to the account. No NSF activity reported. Automobile leases Personal from an individual with repayment terms in writing and supported by cancelled checks to document the payments. Insufficient Non-Traditional Credit For borrowers with no credit references or only Group II references: A satisfactory credit history with at least 12 months of history must include no more than one 30 day delinquency on any Group II reference, and no collection accounts/court records filed (other than medical) within the last 12 months, and Ratios may not exceed 41% and must be computed only on those borrowers occupying the property. Ratio increases based on compensating factors are not allowed. Short Sale / Pre-foreclosure Rely on DU or LP findings. Tax Liens Failure to make payments on a delinquent federal debt must be considered when analyzing the borrower s creditworthiness. The underwriter must provide justification as to why the previous failure does not represent a risk of mortgage default. The borrower is not eligible for a mortgage loan until the delinquent account is brought current, paid, otherwise satisfied, or a satisfactory repayment plan is made between the borrower and the Federal agency owed and is verified in writing. If a tax lien has NOT been recorded, the taxes may remain unpaid if the borrower has a written repayment agreement in place. A minimum of three months repayment history is required and the payment amount must be included in the DTI ratios. If a tax lien has been recorded and the borrower has entered into a repayment arrangement, the lien is not required to be paid off subject to the following: A minimum of three months repayment history with no late payments is required and the payment amount must be included in the DTI ratios. No exceptions allowed. Late payments made prior to the most recent three month period must be due to documented extenuating circumstances. If no payment arrangements have been made the tax lien must be paid in full. Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the VA guaranteed mortgage. IRS tax liens do not require a subordination agreement unless there is evidence that the IRS has demanded a first lien position. VA Loan Program Guide Wholesale Lending Page 14 of 35 9/21/2015

15 Collateral Property Overlays No leaseholds No EEM Properties located on an Indian Reservation are not eligible Condo project must be on VA s approved list Condo rider required on all condo loans. If VA version is not available, use the conventional rider PUD rider required on all PUD loans. If VA version is not available, use the conventional rider Escrow Holdbacks Appraisal Allowed for repairs that cannot be completed due to weather related delays, but do not affect the livability, safety or structural integrity of the property or affect the ability to obtain a Certificate of Occupancy on new or proposed construction Not permitted if a Manufactured Home. VA Appraisals All Non IRRRL transactions require an appraisal completed by a VA approved appraiser. VA appraisal assignments must be requested using WebLGY. Upon appraisal receipt, Pacific Union has 5 business days to issue/send a Notice of Value (NOV) and a copy of the appraisal to the veteran. To ensure a timely issuance of the NOV and delivery of the appraisal to the borrower, the following procedures should be followed when ordering a VA appraisal: Register the loan with Pacific Union in FLOW Log into WebLGY Click Request an Appraisal Select the appropriate appraisal type: Always order a LAPP appraisal unless property is ineligible for LAPP processing (see VA Lender s Handbook) Enter our VA Lender Sponsor Identification Number: Enter the requester phone number, extension and name. Enter the appropriate address from below: Operations Center Virginia Southern California Northern California Texas Appraisal Box VAAppraisalVIR@loanpacific.com VAAppraisalSOCAL@loanpacific.com VAAppraisalNOCAL@loanpacific.com PUFVAappraisalDAL@loanpacific.com Verify the property address and click the verify button. If the property address entered does not match a USPS address, the system will return an error message stating that no match was found. Correct the address if applicable and re-click the verify address button. VA Loan Program Guide Wholesale Lending Page 15 of 35 9/21/2015

16 If the no match was found error is returned, but the address is accurate, select the Close Window icon to proceed. Note: VA guarantees the actual physical address of the property. USPS mailing addresses and physical addresses do not always match. Review and accept the terms of responsibility to complete the appraisal request process. Print the request for appraisal, which contains the VA loan number. Next, upload the purchase contract and all addenda by selecting the Correspondence option from the left blue navigation menu on the Status and History page. If the purchase contract is amended during the loan process, an updated contract must be provided. If the appraisal is not delivered directly to Pacific Union, the appraisal to the appropriate box listed above within 24 hours of receipt of the appraisal. This must be done to ensure the NOV is issued within 5 days of the appraisal being completed. VA Appraisals Brokers Pending Sponsorship The VA Sponsorship process may take several weeks. However, Clients may process up to 4 VA loans may be processed while awaiting sponsorship.. Only Clients who have sponsorship will be able to order an appraisal through WebLGY. The VA Appraisal Ordering Procedures have been developed to accommodate those Clients who are waiting for their sponsorship to be processed and for those who only process VA loans on an occasional basis. Clients must submit the following documentation to your regional operations center: Fully completed VA Form Purchase contract and all addenda, if a purchase transaction. If the purchase contract is amended during the loan process, an updated contract must be provided. A check made payable to the Pacific Union Financial in the amount of the appraisal fee. Appraisal fees vary by region and are regulated by VA. Click on VA Appraisal Fee Schedules and Timeliness Requirements to determine the maximum fee for your area. VA Appraisal Assignments A VA appraisal may be assigned to Pacific Union Financial from another lender. Only the appraisal is assignable. The appraisal s value must be evaluated by a Pacific Union Financial and if warranted, a NOV will be issued. The assigned appraisal: May not be expired. May not have been used to complete another transaction that has already closed. Valuation Conditions Valuation conditions are standard repair and inspection conditions required by VA. These conditions may vary by property location. State and regional specific valuation conditions are available at VA s Construction and Valuation website. VA Loan Program Guide Wholesale Lending Page 16 of 35 9/21/2015

17 Borrower Acknowledgement All files must include one of the following acknowledgements from the borrower: Receipt of the appraisal at least 3 days prior to closing. Waiver of right to receive appraisal within 3 days prior to closing.* *Note: VA requires that a copy of the VA appraisal is provided to the borrower. Manufactured Homes Permitted. Refer to the Manufactured Home Loan Program Guide for additional guidelines and state restrictions. Property Listed For Sale Eligible for an IRRRL refinance if the listing was expired or cancelled prior to application date. Veteran to provide a letter stating their intent to remain in the property. Eligible for Cash Out Refinance if listing was expired or cancelled >90 days prior to application date. This requirement may be waived if the incidental cash back to borrower does not exceed $2000. Incidental cash back to the borrower includes funds used to pay off a subordinate lien that is less than 6 months old at the time of application. Reminders for Minimum Property Requirements Mixed use properties are eligible provided the non residential use does not impair the residential character and does not exceed 25% of the total square footage. All properties must have safe potable drinking water and sanitary facilities for safe disposal of sewage. Connection to public or community water/sewage is only mandatory if required by the local building, planning, or health authorities. Individual water systems must meet local health standards or EPA standards in the absence of local standard. Evidence of water test required by local health department or a commercial testing lab or licensed sanitary engineer. Individual sewage inspections by a local health authority may be required when the appraiser indicates a problem with the septic system, indicates the subject is located in an area with soil percolation problems or is a condition of the appraisal and is valid for 90 days. If roof is defective and has 3 or more layers of shingles, it must be replaced/repaired. All mechanical, heating and electrical supplies must be adequate for the dwelling. New construction and for properties constructed less than 1 year and never been occupied are subject to specific inspection requirements and LTV limitations. Refer to VA Lender s Handbook for additional details. Property must be free of any health, safety or structural hazard that may impair the customary use and enjoyment of dwelling. Site must be graded to provide positive, rapid drainage from the perimeter of well and to prevent ponding on the site. Property may not be located in a high pressure gas, liquid petroleum or high voltage electric transmission line easement. VA Loan Program Guide Wholesale Lending Page 17 of 35 9/21/2015

18 Any defective paint condition in a dwelling built prior to 1978 will be assumed to contain lead and must be corrected. The property must be free of wood destroying insect infestation, dry rot and fungus growth. A termite inspection will be required if the property is located in an area where the probability of termite infestation is "very heavy" or "moderate to heavy, according to the Termite Infestation Probability Map published in The Council of American Building Officials (CABO) One and Two Family Dwelling Code or the appraiser requires the inspection. If applicable, For existing properties, a satisfactory Termite Certificate is required. For new construction (improvements less than one year), item 2B of the Notice of Value (NOV) will require a Soil Treatment Guarantee on HUD National Pest Management Association (NPMA) form(s) as follows: HUD-NPMA-99-A, Subterranean Terminate Protection Builder s Guaranty Construction, must be completed and certified by the builder. This form describes the treatment applied by the pest control company. o If Box 1 is checked, HUD-NPMA-99-B must be completed by a licensed pest control company and attached to HUD-NPMA-99-A. o If Box 2 is checked, the builder must certify that pressure treated lumber was installed in compliance with applicable building codes and requirements of HUD ML , as a means of subterranean termite prevention. Debt to Income / Qualifying Underwriting All loans, with the exception, of IRRRLs must be evaluated using DU or LP and receive an Approve/Eligible or Accept/Eligible recommendation. IRRRL loans must be manually underwritten. Pacific Union Financial will review all loans to ensure compliance with VA and Pacific Union Financial requirements. Prior Approval by VA VA requires specific loans be sent to them for prior approval. For this reason, the following transaction types are not eligible for delivery to Pacific Union Financial: Joint loans (loans made to two veterans who will both use entitlement). Loans made to same sex married couples, if prior approval is required due to the inability to determine legal marital status. Refer to VA s Important Information on Marriage webpage to determine if a marriage will be recognized as legal for VA lending purposes and to review a list of states that have legally recognized same-sex marriages. Loans to veterans rated incompetent by VA. This designation will appear on the VA Form , Verification of VA Benefits form. IRRRL made to refinance delinquent loans. Manufactured home loans, NOT permanently affixed to the lot and NOT considered real estate under state law. Unsecured loans or loans secured by less than a first lien. Supplemental loans. VA Loan Program Guide Wholesale Lending Page 18 of 35 9/21/2015

19 Qualifying Rate Fixed rate transactions: Qualify at note rate. Hybrid ARM transactions: Qualify at note rate, unless the subject is located in one of the following states or the loan is a Higher-Priced Mortgage Loan (HPML). For the following states, the ARM must be qualified at the greater of the note rate or the fully indexed rate in order to meet both agency and state requirements: Illinois Maryland Minnesota New Mexico Pennsylvania Vermont All HPML Hybrid ARM transactions must qualify at the higher of the note rate or fully indexed rate. Job Related Expense VA requires any costs for child care, significant commuting costs, and any other direct or incidental costs associated with the applicant s (or spouse s) employment to be included and deducted from the qualifying income. Files should include a child care letter whenever the borrower(s) are employed and have dependents under the age of 13. When the borrower s place of employment is a significant distance from the borrower s home, the file should also contain a letter from the borrower addressing any commuting expenses. Maximum Debt to Income Ratio (DTI) Overlays AUS Approve/Eligible recommendations: 55% maximum DTI Refer/Eligible recommendations or manually underwritten loans: 43% DTI, with the exception of insufficient credit (no credit references or only group II non-traditional credit references). Maximum 41% DTI for insufficient credit transactions. Second Level Review approval required for all loans. Refer to Residual Income topic for additional requirements. Note: DTI overlays do not apply on IRRRLs. Compensating Factors When manually underwriting loans with marginal residual income and debt-to-income ratio s, acceptable compensating factors include but are not limited to the following: Excellent credit history Conservative use of consumer credit, Minimal consumer debt, Long-term employment, Significant liquid assets, Sizable down payment, The existence of equity in refinancing loans, Little or no increase in shelter expenses, VA Loan Program Guide Wholesale Lending Page 19 of 35 9/21/2015

20 Military benefits, Satisfactory homeownership experience, High residual income, Low debt-to-income ratio, Tax credits for child care, and Tax benefits from home ownership. Residual Income Residual income is the amount of income remaining after housing expenses, income taxes, long term obligations and other expenses have been deducted from the borrower s total gross pay. VA requires a specific amount of monthly residual income be available for the borrower s use. This amount is based on the family size, location of the property and loan amount. Federal, state and local taxes must be entered in DU or LP. Taxes should be calculated using the most recently published tax charts by the IRS and state or local taxing authorities. Click here for Tax tables. Maintenance and utility costs may be estimated at 14 cents per square foot. Minimum Residual Income with DTI <= 41% Loan Amounts $79,999 and Below Family Size Northeast Midwest South West 1 $390 $382 $382 $425 2 $654 $641 $641 $713 3 $788 $772 $772 $859 4 $888 $868 $868 $967 5 $921 $902 $902 $1,004 Over 5 Add $75 for each additional family member up to 7 Loan Amounts $80,000 and Above 1 $450 $441 $441 $491 2 $755 $738 $738 $823 3 $909 $889 $889 $990 4 $1025 $1003 $1003 $ $1062 $1039 $1039 $1158 Over 5 Add $80 for each additional family member up to 7 Region Northeast Midwest South West States CT, MA, ME, NH, NJ, NY, PA, RI, VT IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI AL, AR, DC, DE, FL, GA, KY, LA, MD, MS, NC, OK, PR, SC, TN, TX, VA, VI, WV AK, AZ, CA, CO, HI, ID, MT, NM, NV, OR, UT, WA, WY Minimum Residual Income when DTI >41% When the DTI exceeds 41%, regardless of DU or LP Findings, residual income must be at least 120% of the minimum required by VA. Tax Liens Refer to Tax Liens for detailed requirements. VA Loan Program Guide Wholesale Lending Page 20 of 35 9/21/2015

21 Geographic Restrictions No Texas Home Equity loans Refer to the Geographic Matrix for restrictions Income and Employment Loans must be documented in accordance with VA Policies and the AUS Findings. Only income that meets VA s standards for stable and reliable income should be included in the AUS submission. Typically VA defines stable and reliable income as income that has been received for at least 2 years and is likely to continue. In addition to VA s requirements, the following must be provided: 4506-T A fully completed 4506-T is required for all borrowers, except on IRRRL transactions. Tax return transcripts must be provided for each year of income documentation. Income reported on the transcript must support the income entered in the AUS system. Any major discrepancies between the income verified in the file and tax transcripts must be reasonable and supported by documentation in the file. Verification of Employment (VOE) VOEs must be on a standard verification form and must be sent directly from the loan originator to the employer and returned directly from that entity. Faxed verification forms are acceptable if it is clear from the document that the information was sent by fax transmission directly from the source to the originator. The original documents must not contain any alterations, erasures, correction fluid or correction tape. The loan file must include legible copies of the originals. Verbal VOE (VVOE) A VVOE must be completed PRIOR to closing and as follows: By a Pacific Union Financial closer within five business days prior to closing. A VVOE or VOE is not required on an IRRRL loan when an abbreviated URLA is utilized and employment is not disclosed. Employment and Income Documentation Requirements Income Source/Type Active Military Income Documentation Requirements Leave and Earning Statement (LES) is required. If the borrower is eligible for separation from Active Duty within 12 months of the date of closing, one of the following documents must be obtained and evaluated to ensure the borrower s income is likely to continue: Evidence that the borrower has re-enlisted or extended their period of active duty to a date beyond 12 months of the projected loan closing, OR VA Loan Program Guide Wholesale Lending Page 21 of 35 9/21/2015

22 Income Source/Type Documentation Requirements Verification of a valid offer for civil employment following the release from active duty, that includes details such as the date employment will begin, earnings and etc., OR A statement of intent to re-enlist or extend the period of active duty beyond the 12 month period and documentation that their commanding officer has no reason to believe that reenlistment/extension will not be granted, OR Strong compensating factors such as: 10% down payment Significant cash reserves Clear evidence of ties to the community with a nonmilitary spouse s income so high that only minimal income from the active service member is need to qualify. Recently activated Service Members may experience a significant change in their income. The impact of this change needs to be carefully reviewed to ensure the veteran will not be placed in a position of financial hardship. All aspects of each individual case, including credit history, accumulation of assets, overall employment history, etc., must be evaluated. Each file must be carefully and thoroughly documented and include the reasons for using or not using the reservist income, as applicable. Only income considered stable should be sued as qualifying income. Alimony, Child Support, and Maintenance Payments Foster Care Income Non-Military Employment Income The payments must have been received for at least 3 months and must be likely to continue for 3 years, to be include as effective income. Continuous of income is not limited to, but may include the following: Whether the payments are received pursuant to a written agreement such as a settlement agreement or court divorce decree that includes financial details, The length of time the payments have been received, The regularity of receipt, AND The availability of procedures to compel payment. Foster care income may not be used as qualifying income, but may be used to offset higher residual requirements. A paystub reflecting at least a 30 day year-to-date income is acceptable. Several paystubs covering a full month are no longer required. For loans that receive an Accept/Approve recommendation: An explanation of employment gaps 60 days is required. A VOE is not required if the borrower has been with the same employer for 1 year and can provide w-2 form(s) for the previous year. W-2 form(s) are not required if ALL of the following apply: The borrower has been employed with the same employer for two or more years, AND An initial Verbal Verification of Employment(VVOE) confirms that the borrowers length of employment and that the borrower is still employed with the company, AND The borrower is not self-employed or commission, AND Only the borrower s base pay is used to qualify for the loan, not their total income received including bonus pay, overtime or secondary income, AND The borrower signs a Form 8821 and Form 4506, allowing access to the previous two year tax return information. VA Loan Program Guide Wholesale Lending Page 22 of 35 9/21/2015

23 Income Source/Type Documentation Requirements For Loans that receive a Refer recommendation or manually downgraded loans: An explanation of employment gaps 30 days is required. VOE, w-2 forms(s), or income information from the IRS (Form 8821 or Form 4506) verifying current employment plus previous employment (if applicable) covering a 2 year period. Refer to Verification of Employment (VOE) for detailed requirements. Civilian income for recently discharged Veterans must be carefully reviewed to ensure income is reliable and likely to continue. Continuity of employment is essential for a Veteran with no retirement income or insufficient retirement income to support the loan obligation. If the duties of the new job are similar to the one performed while in the military, the income may be considered stable. If the Veteran s retirement income, compared to total estimated shelter expense, longterm debts, and family living expense is such that only minimal income from employment is necessary to qualify from the income standpoint, resolve doubt in favor of the Veteran. Employment less than less than 12 months is typically not considered stable and reliable. Consideration should be given based on the borrower s previous employment history, probability of continued employment (if provided), and training and/or education related to the position may be taken into consideration. An explanation for allowing the income for qualifying purposes must be included on VA Form If the borrower has been employed less than 6 months with no previous employment history or well supported probability of continued employment (i.e. employment contract), the income may not be used for qualifying purposes or to offset debts. Other Types of Income Rental Income Income from pension, disability, dividends from stock, interest income, etc., may be used as stable monthly income if a 2 year history of receipt and 3 year continuance is documented. Rental property occupied prior to the new loan: Cash reserves are not required. Obtain a copy of the rental agreement on the property, if any. Positive prospective rental income may only be used to offset the mortgage payment on the rental property, if there is no indication that the property will difficult to rent. To offset the debt the mortgage debt should be listed on the loan analysis but shown as a rental offset. Prospective income may NOT be included as qualifying income if the property is located in a weak rental market or has a negative cash flow. Negative rental income and expenses must be listed separately on the loan analysis. Rental of a property not securing the VA loan: Cash reserves equal to at least 3 months required. Individual signed and dated income tax returns and all applicable schedules for the previous 2 years required to show rental income generated from the property. If there is little or no prior rental history on the property, make a determination based on the following: VA Loan Program Guide Wholesale Lending Page 23 of 35 9/21/2015