300 - FHA Lending Guide 12/31/2015 (Case Files prior to 9/14/15)

Transcription

1 300 - FHA Lending Guide 12/31/2015 (Case Files prior to 9/14/15) Equal Housing Lender 2015 Ocwen Loan Servicing, LLC Worthington Road, Suite West Palm Beach, FL ( )NMLS #1852. Trade/Service marks are the property of Ocwen Loan Servicing, LLC. Some products may not be available in all states. Information, rates and pricing are subject to change without notice at the sole discretion of Ocwen Loan Servicing, LLC. All loan programs subject to borrowers meeting appropriate underwriting conditions. Advertisement for Mortgage Professionals Only. This is not a commitment to lend. Other restrictions apply. All rights reserved.

2 300 - Table of Contents FHA LOANS PRODUCT DESCRIPTION Product Description Notice AUS Guidelines FRM Product Codes ARM Product Codes Ineligible FHA Programs ARM Features ARM Interest Adjustment Table Case Number Assignment and Cancellation Requesting Case Numbers Automatic Case Number Cancellation Case Number Reinstatement Transferring Case Numbers HUD Handbooks & Mortgagee Information HUD Section of the Act and ADP Codes LOAN TERMS Loan Terms Maximum Loan Amount Minimum Loan Amount Base Loan Maximum LTV Identity of Interest Transactions Non-Occupying Co-Borrowers Three and Four Unit Properties Building On Own Land Paying Off Land Contract Occupancy of Former Investment Property Required Minimum Cash Investment Maximum Number of Financed Properties and Maximum Exposure ELIGIBLE TRANSACTIONS Temporary Buydowns Construction Housing History Eligible Borrowers Occupancy Paying Off Debt Purchase Refinances General Refinance Requirements FHA Refinance Credit Query County Loan Limits Rate and Term Refinance Occupancy LTV Calculation Seasoning Requirements Ocwen Loan Servicing LLC Client Select 300-i

3 Maximum Insurable Mortgage Maximum Cash Back to the Borrower Mortgage Payment History Requirements Subordinate Financing Refinance Buyouts Short Payoffs Cash Out Refinance Maximum LTV/CLTV Secondary Financing Ownership Seasoning Requirements STREAMLINE REFINANCES Streamline Refinances Ineligible Non-Credit Qualifying Streamlines Max Loan Amount without Appraisal Max Loan Amount Credit Qualifying with Appraisal Max Loan Amount Non-Credit Qualifying with Appraisal Net Tangible Benefit Seasoning Requirements Max Cash Back to Borrower Secondary Financing Occupancy and Property Types Employment / Income Verification Social Security Validation Qualifying Ratios For Case Numbers Assigned prior to April 21, Qualifying Ratios For Case Numbers Assigned on or after April 21, Qualifying Ratios Maximum Qualifying Ratio Matrix Credit Requirements Mortgage Payment History Asset Documentation Appraisal Requirements Loan Application CAIVRS LPD/GSA List TOTAL Scorecard Mortgage Insurance IRS Form 4506-T SECONDARY FINANCING Overview Permissible Sources Ineligible Secondary Financing Sources Secondary Financing from Family Members for Purchase Transactions Borrowed Down Payment Terms and Conditions Completion for Secondary Financing Modified HELOC GEOGRAPHIC RESTRICTIONS Approved States OCCUPANCY AND PROPERTY Property Types ii Ocwen Loan Servicing Client Select

4 Primary Residence Units Properties Condos PUD s HUD REO Repair Escrows Deed Restrictions Listed for Sale Ineligible Property Types Leasehold Estates Requirements Lease Requirements Ground Rents ELIGIBLE BORROWERS Number of Borrowers Borrower Requirements Borrower Identity Verification Borrower Names Co-Borrowers / Co-Signors HUD Employees Living Trust Living Trusts and Security Instrument Certification of Trust Trust Loan Documentation Requirements Military Personnel Non-Purchasing Spouse Mandatory Rejection of a Borrower Borrower Waiting Period Eligibility for Federal Related Credit Effect of Past Delinquencies on Eligibility Ineligible Parties Documenting Borrower Eligibility INCOME General Income Stable Monthly Income Employment History Verbal VOE Verbal VOE Self-Employed AUS Documentation IRS Form 4506-T Prior to April 15 th IRS Form 4506-T prior to June 15 th IRS Form 4506-T after June 15 th IRS Form 4506-T Not Required to File Salaried / Wage Income Paystub and W2 Requirements Alimony, Child Support, Maintenance Auto Allowances and Expense Account Payments Capital Gains Commission Income Employer Differential Payments Ocwen Loan Servicing LLC Client Select 300-iii

5 Employment by Family Owned Business Employment Gaps Government Assistance Programs Section 8 Home Ownership Vouchers Interest and Dividend Income Military Income Mortgage Credit Certificate New Employment Non-Taxable Income Note Receivable Income Overtime / Bonus Income Second Job Income Projected Income Recent Return to Work Force Rental Income Rent Loss Insurance Retirement and Social Security Self-Employed Overview Effective Income Length of Time in Business Self-Employed Income Documentation Foreign Income Tip Income Temporary Leave and Short Term Disability Income Trailing Spouse Trust Income VA Benefits Borrowers on Strike LIABILITIES AND QUALIFYING RATIOS Alimony Child Support Authorized User Accounts Condominium Fees Contingent Liability Conversion of Existing Primary Residence Installment Debt Obligations not considered as Debt Projected Debt PITIA Qualifying Ratios For Case Numbers Assigned prior to April 21, Qualifying Ratios For Case Numbers Assigned on or after April 21, Qualifying Ratios For Case Numbers Assigned on or after April 21, 2014 (Continued) Qualifying Ratios For Case Numbers Assigned on or after April 21, 2014 (Continued) Qualifying Ratios - NOTES For Case Numbers Assigned on or after April 21, Maximum Qualifying Ratio Matrix Compensating Factors For Case Numbers assigned prior to April 21, iv Ocwen Loan Servicing Client Select

6 Compensating Factors For Case Numbers assigned on or after April 21, Residual Income for Manually Underwritten Undisclosed Debt Revolving or Open-Ended Debt Student Loans CREDIT General TOTAL Scorecard and AUS Bankruptcy Documentation Chapter 7 Bankruptcy Chapter 13 Bankruptcy Disputed Accounts Analysis of Collections and Judgments Capacity Analysis of Collections and Judgments Consumer Credit Counseling CAIVRS Credit Inquiries Credit Reports Escrow Waivers / Impound Waivers Credit Score Requirements Debts Omitted from Credit Report Authorized User Accounts Delinquent Federal Debt Duplicate Public Records Foreclosures / Short Sales Housing History Privately Held Mortgages Multiple Mortgages Non-Traditional Credit Non-Arm s Length Transactions ASSETS Asset Verifications Cash Reserve Requirements Ineligible Assets for Cash Reserves Business Funds Cash Reserves Retirement Accounts Cash on Hand Private Savings Clubs Checking, Savings, CDs Joint Assets Large Deposits Commission from Sale Credit Card Financing Disaster Relief Grants / Loans Down Payment Earnest Money Deposit Employer Assistance Plans Employer Guarantee Plans Foreign Assets Gift Funds Ocwen Loan Servicing LLC Client Select 300-v

7 Gift Documentation Requirements Gift of Equity Down Payment Assistance Programs Individual Development Accounts Loans from Family Members Collateralized Loans Homeowners Bridal Registry Real Estate Proceeds Real Estate Tax Credit Rent Credit Retirement Funds Sale of Personal Property Savings Bonds Stocks and Bonds Sweat Equity Trade Equity Lender Credit Seller Contributions Unused Funds from Escrow Account CLOSING COSTS Allowable Fees Discount Points Rate Lock or Lock-In Fees UFMIP Real Estate Broker Fees Premium Pricing Higher Priced Mortgage Loans Safe Harbor Qualified Mortgage Loans Rebuttable Presumption Qualified Mortgage Loans Interest Credit MORTGAGE INSURANCE Overview Determining UFMIP MIP Premiums MIP Premiums (Cont d) UFMIP Refunds APPRAISAL REQUIREMENTS General Responsibilities Appraisal Logging AMC Management Appraiser Independence Safeguards Quality of Report Appraiser Eligibility Converted Appraisals Appraisal Portability / Transfers Acceptable Second Appraisals Re-using the Appraisal Appraisal Updates Photos Uniform Appraisal Dataset Appraisal Reporting Forms vi Ocwen Loan Servicing Client Select

8 Lead-Based Paint Standards Environmental Hazards Site Hazards Mineral Rights Property Conditions Termite Inspections Well Inspections Community Water Systems Individual Well Water Systems Shared Wells Well Location Septic / Sewage Inspections Roof Inspections Heating Source Public and Private Streets Carbon Monoxide Detectors Repair Escrow Holdback General Required Repairs Private Transfer Fees Unit Properties Construction Existing Construction less than One Year HUD Form Existing Construction, Less than One Year High Ratio (Over 90% LTV) Low Ratio (90% or less) NATURAL DISASTERS Overview Procedure Example Requirements for Affected Areas PROPERTY FLIPPING General Overview of FHA Flipping Policy Owner of Record day Flip Waiver Exceptions to 90 Day Restriction Resale Days Resale 91-One Year Date of Property Acquisition Anti-Flipping and the Sales Contract AUTOMATED UNDERWRITING SYSTEMS TOTAL Scorecard Resubmission DU AUS Resubmission AUS Tolerances Post Close Resubmissions AUS Reports Underwriting Issues Manual Downgrade Downgrade Triggers Ocwen Loan Servicing LLC Client Select 300-vii

9 APPLICATION, DISCLOSURES & COMPLIANCE General Electronic Signatures Laws Predatory Lending Compliance with Points & Fees Points and Fees Calculation High Cost Loans Face-to-Face Interview Sales Contract Disclosures Origination Disclosures Social Security Numbers Power of Attorney Review of Closing Disclosure (or Final HUD-1) CLOSING POLICIES & PROCEDURES Scheduling a Loan Closing Practices Verification of Employment Closing Protection Letter Taxes Insurance Seller Contributions Premium Pricing Credits Principal Reductions HUD Approval Process Funding viii Ocwen Loan Servicing Client Select

10 300 - Product Description Product Description Fixed and Adjustable Rate Loans that meet applicable Federal Housing Administration (FHA) government guidelines. Homeward purchases FHA loans that meet applicable Federal Housing Administration (FHA) government guidelines. IMPORTANT: Refer to the for all FHA guidelines not addressed in this product summary. Please note for FHA Casefile Numbers pulled on or after 9/14/15, please reference the guidelines from the Single Family Housing Guide on the HUD Website and Homeward FHA Overlays. andbook_ Notice This FHA 203(b) lending guide is an addendum to the HUD 4155 and all corresponding Mortgagee Letters and updates. Brokers who are approved to submit Ocwen Loan Servicing LLC FHA loans should refer to the most recent published HUD guidelines for the Overview, Eligibility Standards, Quality Control, Representations and Warranties, Registration and Commitments, and Compliance not referenced herein. AUS Guidelines All Loans must be submitted through FHA TOTAL Scorecard, except for Streamline Refinance transactions. Brokers may use Fannie Mae s Desktop Underwriter. See Loans Downgraded to a Manual Underwrite section for requirements on when Ocwen will approve loans that have been run through TOTAL Scorecard, but were downgraded to a manual underwrite. IMPORTANT: All FHA loan approvals, whether through AUS or manually underwritten, are at the discretion of the DE Underwriter. Ocwen Loan Servicing LLC Client Select 300-1

11 Product Description, Continued FRM Product Codes The following Product Code Matrix outlines the applicable product codes for FHA FRM Loan products. Product Name Product Code Product Feature Options FHA Fixed Rate G1000BEF Years: 10 FHA Fixed Rate: G1500BEF Years: G2000BEF Years: G2500BEF Years: G3000BEF Years: Amortizations 10 to 30 years in 12 month increments. Loan Purpose: Purchase, Rate Term Refinance, and Cash Out Refinance available. FHA High Balance NOTE: For loan amounts >$417,000 G1512BEF Years: G3015BEF Years: CREDIT QUALIFYING STREAMLINE REFINANCE PRODUCT CODES Product Name Product Code Product Feature Options FHA Fixed Rate GS1000BEF Years: 10 FHA Fixed Rate: GS1500BEF Years: GS2000BEF Years: GS2500BEF Years: Amortizations 10 to 30 years in 12 month increments. Loan Purpose: Qualifying Streamline Refinance available. GS3000BEF Years: FHA High Balance NOTE: For loan amounts >$417,000 GS1512BEF Years: GS3015BEF Years: Ocwen Loan Servicing Client Select

12 Product Description, Continued NON-CREDIT QUALIFYING STREAMLINE REFINANCE PRODUCT CODES Product Name Product Code Product Feature Options FHA Fixed Rate GSNC1000BEF Years: 10 FHA Fixed Rate: GSNC1500BEF Years: GSNC2000BEF Years: GSNC2500BEF Years: Amortizations 10 to 30 years in 12 month increments. Loan Purpose: Qualifying Streamline Refinance available. GSNC3000BEF Years: FHA High Balance NOTE: For loan amounts >$417,000 GSNC1512BEF Years: GSNC3015BEF Years: Ocwen Loan Servicing LLC Client Select 300-3

13 Product Description, Continued ARM Product Codes The following Product Code Matrix outlines the applicable product codes for FHA ARM Loan products. Product Name Product Code Product Feature Options FHA Adjustable Rate GA3100BEF 3/1 Treasury ARM FHA Adjustable Rate: FHA High Balance NOTE: For loan amounts >$417,000 GA5100BEF GA7100BEF GA3115BEF GA5115BEF 5/1 Treasury ARM 7/1 Treasury ARM 3/1 Treasury ARM 5/1 Treasury ARM Amortizations 30 years. Loan Purpose: Purchase, Rate Term Refinance, and Cash Out Refinance available. GA7115BEF 7/1 Treasury ARM CREDIT QUALIFYING STREAMLINE REFINANCE PRODUCT CODES Product Name Product Code Product Feature Options FHA Adjustable Rate GAS3100BEF 3/1 Treasury ARM FHA ARM Rate: FHA High Balance NOTE: For loan amounts >$417,000 GAS5100BEF GAS7100BEF GAS3115BEF GAS5115BEF 5/1 Treasury ARM 7/1 Treasury ARM 3/1 Treasury ARM 5/1 Treasury ARM Amortizations 30 years. Loan Purpose: Qualifying Streamline Refinance available. GAS7115BEF 7/1 Treasury ARM Ocwen Loan Servicing Client Select

14 Product Description, Continued NON-CREDIT QUALIFYING STREAMLINE REFINANCE PRODUCT CODES Product Name Product Code Product Feature Options FHA Adjustable Rate GASNC3100BEF 3/1 Treasury ARM FHA ARM Rate: FHA High Balance NOTE: For loan amounts >$417,000 GASNC5100BEF GASNC7100BEF GASNC3115BEF GASNC5115BEF 5/1 Treasury ARM 7/1 Treasury ARM 3/1 Treasury ARM 5/1 Treasury ARM Amortizations 30 years. Loan Purpose: Qualifying Streamline Refinance available. GASNC7115BEF 7/1 Treasury ARM Ineligible FHA Programs The following are ineligible by Ocwen Loan Servicing LLC: FHA 203K Renovation Loans $100 Down Payment Program FHA loans to nonprofit organization borrowers FHA Military Impacted Area loans FHA refinance Loans for Borrowers in Negative Equity Position FHA Section 8 Loans Hawaiian Homeland Loans Hope for Homeowners program HUD 184 Program (Indian Home Loan Guarantee Program) Texas Section 50(a)(6) HUD Good Neighbor Next Door (Teacher, Law Enforcement, Fire Fighter, EMT) Buydowns FHA 203(h) Mortgage Insurance for Disaster Victims Ocwen Loan Servicing LLC Client Select 300-5

15 Product Description, Continued ARM Features The FHA ARM features detailed below provide definitions and other important loan details: Features Interest Only Feature Index Conversion Option Prepayment Penalty Assumable Negative Amortization Not Available. Comments The weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year. None Not Permitted Assumable permitted subject to conditions and fees. None Caps 3/1: 1/1/5 Rate Adjustments 5/1: 1/1/5 7/1: 2/2/6 The interest rate is fixed for the initial period and is then subject to change on an annual basis thereafter, using the most recent index figure 45 days prior to the interest rate adjustment. The interest rate is rounded to the nearest 1/8 of one percent point after adding the mortgage margin to the index Floor Margin 2.000% Refer to the ARM Interest Adjustable Table within this summary. The floor rate is never lower than the margin. Note Rate All plans qualify at Note Rate. ARM Plans 3/1: /1: /1: Ocwen Loan Servicing Client Select

16 Product Description, Continued ARM Interest Adjustment Table The below are exact first payment change dates based on loan disbursement date required by HUD since FHA ARM loans only adjust 4 times per year. IMPORTANT: DocMagic will return a Fatal Warning if the interest change date does not match one of the months below; data entry must be reviewed and cross-referenced with the below dates to ensure accuracy. If the First Payment of the New Loan is: FHA 3/1 ARM Interest Adjustment Date The last day to Fund: The First Interest Rate Change Date Must Be: January, February, March /07/ /01/2019 April, May, June /07/ /01/2019 July, August, September /07/ /01/2019 October, November, December /07/ /01/2020 If the First Payment of the New Loan is: FHA 5/1 ARM Interest Adjustment Date The last day to Fund: The First Interest Rate Change Date Must Be: January, February, March /07/ /01/2021 April, May, June /07/ /01/2021 July, August, September /07/ /01/2021 October, November, December /07/ /01/2022 If the First Payment of the New Loan is: FHA 7/1 ARM Interest Adjustment Date The last day to Fund: The First Interest Rate Change Date Must Be: January, February, March /07/ /01/2023 April, May, June /07/ /01/2023 July, August, September /07/ /01/2023 October, November, December /07/ /01/2024 Ocwen Loan Servicing LLC Client Select 300-7

17 Product Description, Continued Case Number Assignment and Cancellation Requesting Case Numbers FHA Connection requires users to: Certify, via a checkbox question, that they have an active loan application for the subject property. Provide the subject borrower s name and social security number for all existing construction and existing construction less than one year old. NOTE: Ocwen does not accept FHA loan that are considered Proposed Construction. Automatic Case Number Cancellation FHA Connection automatically cancels any uninsured case number where there has been no activity for six months since the last action except for: Loans where an appraisal update has been entered, and/or Loans that have received the UFMIP. Last action includes; Case number assigned, Appraisal information entered, Firm commitment issued by FHA, Insurance application received and subsequent updates, and Notice of Return and resubmissions. Last action does NOT include updates to borrower names and/or property addresses. Case Number Reinstatement FHA will not reinstate any automatically cancelled case numbers, including case numbers for condominium units, unless: The mortgagee provides verification that not reinstating the case number causes an undue hardship to the borrower that is not related to recent updates to premiums and underwriting requirements, or The mortgagee provides verification that the subject loan closed prior to cancellation of the case numbers, such as a Closing Disclosure (or HUD-1 Settlement Statement) Ocwen Loan Servicing Client Select

18 Product Description, Continued Transferring Case Numbers Ocwen will accept loans where the Case Number was transferred from another lender. Transferring lenders are expected to cooperate in the transfer of case numbers. At the borrower s request, the lender must assign the case number to Ocwen using the Case Transfer function in the FHA Connection. Additionally, the transferring lender: Is not entitled to a fee for the transfer of a streamline refinance case number, regardless of the current stage of processing for the loan, May be entitled to any lock-in fee collected from the borrower at the time of application, Is required to provide Ocwen with the appraisal, but is not required to provide any processing documents. NOTE: If processing documents are provided, the transferring lender must negotiate the fee with Ocwen, and is not authorized to charge the borrower a separate fee for the transfer of the processing documents. If a case number transfer involves a new borrower using an existing appraisal, Ocwen Collects an appraisal fee from the new borrower, and Sends the fee to the original lender, who, in turn, refunds the fee to the original borrower. If the transfer involves a rejected loan, the original lender must complete the Mortgage Credit Reject function in FHA Connection prior to transferring the loan. Ocwen Loan Servicing LLC Client Select 300-9

19 Product Description, Continued HUD Handbooks & Mortgagee Information This product description contains only a portion of HUD s various lending Handbooks and Mortgagee Letters. It is the responsibility of the originating office to ensure that mortgages processed for 203(b) loans meet HUD s guidelines. See the following HUD Handbooks for further clarification or for complete guidelines: Mortgagees Handbook Application through Insurance (Single Family) Singly Family Direct Endorsement Program FHA Title II Mortgage Approval Handbook Architectural Processing and Inspections for Home Mortgage Insurance Valuation Analysis for Home Mortgage Insurance Valuation Analysis for Single Family One to Four Unit Dwellings Mortgage Credit Analysis for Mortgage Insurance on Oneto-Four-Family Properties Lender s Guide to Single Family Mortgage Insurance Processing Endorsement for Insurance for Home Mortgage Programs (Single Family) Handbooks and Mortgagee Letters can also be obtained from HUD s general web site, HUD Section of the Act and ADP Codes HUD Section of Act and ADP Codes Section Description ADP Code 203(b) Basic Home Mortgage Insurance FRM 703 Basic Home Mortgage Insurance ARM (c) Condominium FRM 734 Condominium ARM Ocwen Loan Servicing Client Select

20 Loan Terms Loan Terms Fixed Rate 10, 15, 20, 25 or 30 years (increments of 12 months) Adjustable Rate: 3/1, 5/1 and 7/1 terms The maximum term of any refinance with an appraisal is 30 years. The maximum term for a Streamline refinance mortgage without an appraisal is the lesser of: 30 Years, or the remaining term of the mortgage plus 12 years Maximum Loan Amount Effective with case numbers assigned on or after January 1, 2015: Maximum Loan Amounts (Continental U.S) Units Floor Limits Maximum Standard Loan Limits Maximum High Balance Loan Limits 1 $271,050 $417,000 $625,500 2 $347,000 $533,850 $800,775 3 $419,425 $645,300 $967,950 4 $521,250 $801,950 $1,202,925 Maximum Loan Amounts (Alaska and Hawaii) Units Floor Limits Maximum Standard Loan Limits Maximum High Balance Loan Limits 1 $271,050 $625,500 $938,250 2 $347,000 $800,775 $1,201,150 3 $419,425 $967,950 $1,451,925 4 $521,250 $1,202,925 $1,804,375 NOTE: Maximum loan amounts by MSA/County can be located in the FHA Forward limit type at Base loan amounts cannot exceed the limit set for the individual county. Minimum Loan Amount Ocwen does not have a minimum loan amount. Ocwen Loan Servicing LLC Client Select

21 Loan Terms, Continued Base Loan LTVs are determined using the base loan amount. The base loan is the maximum loan amount prior to adding any financed mortgage insurance premium. The type of transaction will determine the calculation of the base loan amount. Maximum LTV Primary Residence LTV Limitations # of Units LTV Minimum Credit Score Purchase %¹ 620 (all loan amounts) Rate/Term Refinance %² 620 (all loan amounts) Cash Out Refinance %³ 620 (Standard Loan Amounts) 640 (High Balance Loans) 1 Ocwen accepts Secondary Financing only from Family Members for Purchase Transactions. The Maximum CLTV is 96.50%. 2 The maximum CLTV allowed for fully qualifying and documented Rate / Term Refinance transactions is 97.75%. 3 The maximum CLTV for a Cash Out Refinance transaction is 85.00%. LTV Limitations # of Units LTV Minimum Credit Score All Streamline Refinance with or %/97.75% without an Appraisal Ocwen Loan Servicing Client Select

22 Loan Terms, Continued Identity of Interest Transactions Identity of Interest Transactions are transactions between family members, business partners or other business affiliates. Identity-ofinterest transactions are restricted to a maximum LTV of 85%. However, maximum financing above 85% is permissible under the following circumstances: o A family member purchases another family member s home as a principal residence. o If the property is sold from one family member to another and is the seller s investment property, the maximum mortgage is the lesser of: 85% of the appraised value, or The appropriate LTV factor applied to the sales price, plus or minus required adjustments. NOTE: The 85% limit may be waived if the family member has been a tenant in the property for at least six months immediately predating the sales contract. A lease or other written evidence must be submitted to verify occupancy. o An employee of builder purchasing one of the builder s new homes or models as a principal residence. o A current tenant (including a family member) purchasing a home that the tenant has rented for at least six (6) months predating the sales contract, (with lease or other written evidence), and o When a corporation transfers an employee to another location, purchases the employee s home and sells the home to another employee. For identity-of-interest transactions, a family member includes a child, parent, grandparent (biological, foster or step), sister, step-sister, brother, step-brother, legally adopted son or daughter, a child who is a member of the borrower s household due to placement by an authorized agency for legal adoption, aunt, or uncle. Ocwen Loan Servicing LLC Client Select

23 Loan Terms, Continued Non- Occupying Co- Borrowers A non-occupying borrower transaction involves two or more borrowers where one or more of the borrower(s) will not occupy the property as his/her primary residence. Non Occupying Co-Borrowers are restricted to a maximum LTV of 75%. However, maximum financing above 75% is permissible under the following circumstances: o borrowers are related by blood, marriage, or law, (spouses, parents/children, siblings, stepchildren, aunts/uncles and nieces/nephews) or o unrelated individuals that can document evidence of a family-type, longstanding and substantial relationship not arising out of the loan transaction, and o the subject property is a one unit property. All borrowers, regardless of occupancy status, must sign the security instrument and the mortgage note. If a parent is selling to a child, the parent cannot be the co-borrower with the child on the new mortgage, unless the LTV is 75% or less. New non-occupant co-borrowers are not permitted on cash-out transactions Ocwen Loan Servicing Client Select

24 Loan Terms, Continued Three and Four Unit Properties Maximum mortgage is limited so that the ratio of the monthly mortgage payment (PITI plus Homeowners association dues, if applicable) divided by the monthly net rental income does not exceed 100%. The monthly payment includes principal, interest, taxes, insurance, monthly mortgage insurance, and homeowner s association dues computed at the note rate. Net rental is the appraiser s estimate of fair market rent from all units, including the unit the borrower will occupy, less the appraisers estimate for vacancies and maintenance or vacancy factor used by the jurisdictional Homeownership Center (HOC). The projected rent may be considered only as gross income for qualifying purposes, and not used to offset the monthly mortgage payment. Three (3) months reserves (PITI) after closing are required on all transactions. (Reserves may not be derived from a gift.) Building On Own Land Building on own land is not eligible for sale to Ocwen. Ocwen Loan Servicing LLC Client Select

25 Loan Terms, Continued Paying Off Land Contract If a borrower does not receive cash at closing, the new mortgage may be processed as a purchase or refinance transaction with maximum FHA-insured financing if the borrower uses the loan to complete payment on a o Land contract o Contract for deed, or o Other similar financing arrangements in which the borrower does not have title to the property. Lenders should process cash-out transactions to pay off land contracts, or refinances on properties subject to ground rents as if they were cash-out refinances on properties held in fee simple, as described in the cash out Refinance Transactions section of this guide. If the property was acquired fewer than 12 months earlier, and the loan proceeds are to be used to pay off the outstanding balance on the land contract, plus eligible repairs and renovations, the loan-to-value (LTV) ratio is applied to the lesser of the o A value of the land and improvements, or o Total cost to acquire the property, which includes the original purchase price, plus any documented costs the borrower incurred for rehabilitation, repairs, renovation, or weatherization, closing costs and reasonable discount points, if treated as a refinance. Equity in the property (original sales price minus the amount owed) may be used for the borrower s entire cash investment. However, if the property was acquired fewer than 12 months earlier, and the borrower receives more than $500 cash at closing, the loan is limited to 85% of the lesser of the o Appraised value of the land and improvements, or o Total cost to acquire the property, which includes the original purchase price, plus any documented costs the borrower incurred for rehabilitation, repairs, renovation, weatherization, closing costs and reasonable discount points, if treated as a refinance. NOTE: Replenishing the borrower s own cash expended for repairs, improvements, renovation, or weatherization is not considered cash back, provided that the borrower can substantiate with cancelled checks and paid receipts all out of pocket funds for the improvements Ocwen Loan Servicing Client Select

26 Loan Terms, Continued Occupancy of Former Investment Property The maximum mortgage amount available for borrowers who reoccupy their former investment property as their primary residence and wish to refinance are subject to the following restrictions: If occupancy of the former investment property was 12 months or more prior to the loan application date, then maximum financing as an owner-occupant is allowed (97.75% for rate/term refinances; 85% for cash-out refinances) If occupancy of the former investment property was less than 12 months prior to the loan application date, then the loan is eligible as a rate/term refinance only with a maximum LTV of 85%. Required Minimum Cash Investment The minimum cash investment by the borrower is three and one half percent (3.50%) of the lesser of the appraised value of the property or the sales price. Funds used to cover the required minimum cash investment (down payment), as well as closing costs and fees, must come from the borrower s own funds or an acceptable sources as quoted within HUD s B.1.b (Acceptable Sources of Borrower Funds) and must be verified and properly documented. Ocwen Loan Servicing LLC Client Select

27 Loan Terms, Continued Maximum Number of Ocwen will limit the number of FHA loans to a borrower to one (1) unless the borrower meets the circumstances in which a borrower may keep his current FHA-insured mortgage below. Relocating The borrower is relocating and re-establishing residency to another area that is not within reasonable commuting distance from the current HUD insured home. There is no need to reduce the principal balance or sell the current home. Other items of clarification are shown below. The relocation need not be employer mandated. If the borrower returns to an area where he/she owns a property with an FHA Mortgage, it is not required that the borrower reestablish primary residency in that property in order to obtain another FHA mortgage. Family Size Increase The borrower s family has increased in the number of legal dependents and the present home no longer meets the family needs and the following applies: o Satisfactory evidence must be provided of the increase in dependents and an explanation of why the property no longer meets the family needs; and o The outstanding mortgage balance on the present home is paid down to a maximum LTV of 75% (excluding financed MIP). o A current residential appraisal must be used to determine LTV compliance. Co-Borrower for Family Member The borrower will be a non-occupying co-borrower on property being purchased as a primary residence by other family members, may have a joint interest in that property as well as his own primary residence, which is a FHA-insured mortgage too. Vacating a Jointly Owned Property The borrower is vacating a residence that will remain occupied by a co-mortgagor. Acceptable situations include following a divorce where the borrower is purchasing a new home or where the borrower is vacating the property Ocwen Loan Servicing Client Select

28 Loan Terms, Continued Financed Properties and Maximum Exposure Maximum of four (4) financed residential properties (including subject) combined for all borrowers. Maximum total exposure of one Borrower with Ocwen is the lesser of four (4) loans or $3,000,000. Ocwen Loan Servicing LLC Client Select

29 Eligible Transactions General Information Temporary Buydowns Not Permitted Construction Construction Financing requires all of the below: Building on own land is not eligible Borrower may not be in title or have ownership of the lot. Borrower may not have the construction loan in their name. Borrower may not be their own general contractor. Status of construction at the time of underwriting is at the discretion of the underwriter. (NOTE: Property must be 100% complete prior to closing the loan) Ocwen Loan Servicing Client Select

30 Housing History In scenarios as indicated, the borrower must report: AUS Approval: No more than 1x30 within the most recent 12 months for Purchase and Rate Term Refinance transaction. Manual Underwrite: No more than 0x30 within the most recent 12 months for Purchase and Rate Term Refinance transactions. All Approval Methods: No more than 0x30 within the most recent 12 months for cash out Refinance transactions. NOTE: Mortgages with less than 6 months of payment history are not eligible for a cash out refinance. Properties owned free and clear are eligible for a cash out refinance. NOTE: Refer to the Credit section for additional details. For Refinances: Verification of a satisfactory mortgage payment history must be provided through the month prior to closing, ensuring that all payments have been made within the month due for the previous 12 months. An updated credit report or Verification of Mortgage (VOM) is required, if the mortgage payment history provided in the loan file is not reporting through the month prior to loan closing. Ocwen Loan Servicing LLC Client Select

31 Eligible Transactions, Continued General Information Eligible Borrowers Any co-borrower or co-signer being added to the Note must be an occupant of the subject property. New non-occupant co-borrowers or co-signers are not permitted. Occupancy Cash-out refinances are eligible only for primary residences. Primary residences owned free and clear must be refinanced as cashout transactions. Owner-occupied One-to-four (1-4) unit dwellings are eligible. Paying Off Debt If the borrower is paying off revolving debt at closing on the Closing Disclosure (or HUD-1), careful evaluation of this type of transaction is required. The Underwriter should review the Borrowers carefully when they are paying off debts in order to qualify. The credit history and the Borrower s use of credit should be a factor in determining whether it is appropriate to exclude debts for qualification purposes Ocwen Loan Servicing Client Select

32 Eligible Transactions, Continued Purchase Transaction Purchase The borrower must make a cash investment at least equal to 3.5% down payment from an acceptable source of funds. NOTE: When seller tax proration reduces cash from borrower at closing to < 3.5% per the Closing Disclosure (or HUD-1), it is acceptable as long as assets were verified in the file which would cover the 3.5% minimum investment into the transaction. At no time may the borrower receive cash back due to the seller tax proration. The borrower may not be on title prior to the loan closing. The seller that is on title (the vested owner of record) must be the individual who executes the sales contract. Additionally, the seller must be on title prior to when the Closing Disclosure (or HUD-1) and closing documents are executed. Seller must be the vested owner of records in all cases, including relocation scenarios. Purchase agreements renegotiated after the completion of the appraisal that increases the sales price are only acceptable under the following circumstances: The sales price adjustment is due to price overruns that impact the tangible value of the property on new construction. An updated appraisal must be obtained to verify the value of the modifications. A renegotiation of only seller paid closing costs and/or prepaids occurs where seller paid closing cost/prepaids are common and customary for the market and supported by comparables. Changes in the purchase contract resulting from renegotiating terms of sale may require review by the appraiser and delays could result. Ocwen Loan Servicing LLC Client Select

33 Eligible Transactions, Continued Refinances Refinances Ocwen offers the following types of refinance transactions: Cash out Refinance (85.00% LTV), Rate/Term Refinance, and Streamline Refinances (FHA loan to FHA loan,) Credit Qualifying with an appraisal Credit Qualifying without an appraisal Non-Credit Qualifying with an appraisal Non-Credit Qualifying without an appraisal Ocwen Loan Servicing Client Select

34 Eligible Transactions, Continued Refinances, (Cont d) General Refinance Requirements A new FHA appraisal is required for each refinance transaction requiring an appraisal. An appraisal used for the purchase of the property cannot be used again for a subsequent refinance even if 120 days has not passed. All Rate/Term refinance and Streamline Refinance transactions must have a payoff statement in the file. The payment due in the month the loan is closing must be paid either prior to closing or included in the payoff amount at closing. (i.e., if the borrower closes and funds on a refinance in the month of December, the borrower does not need to have made the December payment. However, if the loan doesn t close/fund until January, the December payment cannot be included in the loan amount and the borrower will need to pay the December payment from his/her own cash.) All subordinated financing, whether it will be subordinated to the new refinance or will be paid off by the new refinance (unless FHA s more restrictive twelve (12) month period applies), must be seasoned for at least six (6) months with 0x30 day late payments (i.e., six (6) permanent mortgage payments made) prior to application for the new Ocwen. Confirm the borrower is current on the mortgage being refinanced for: The month prior to the month in which they close, and The month they close. NOTE: The borrower has the option to make the current payment at the beginning of the month or include it in the payoff amount at closing, when closing within the month the payment is due. Ocwen Loan Servicing LLC Client Select

35 Eligible Transactions, Continued Refinances, continued FHA Refinance Credit Query If the existing loan is a FHA loan, there could be a refund of a portion of the Upfront MIP. If the new loan will also be a FHA loan, this refund is applied as a credit in determining the new loan amount. FHA provides Refinance Credit Query to use in determining this amount upfront. The Refinance Credit Query is used to determine the amount of the MIP credit available for an active FHA-insured loan that is being refinanced. It provides 30-day and 60-day calculations based on the projected closing date of the new loan. This feature can be used to determine the credit or refund without ordering a new case number. This enables users to know the amount of the MIP credit or refund at the pre-application stage. The refund schedule for FHA-to-FHA refinances is modified to a three (3) year time period for those mortgages endorsed for insurance on or after December 8, In order to accurately determine the correct UFMIP has been charged, DE Underwriters must complete a FHA Case Query on each borrower to verify the accuracy of the case number assignment date. A copy of the case query results must be included in the loan file. Additionally, users MUST investigate, resolve and document in the loan file, any other case number matches that are found under the borrower s social security number. County Loan Limits Ocwen currently does not permit FHA-to-FHA refinance transaction to exceed the new county loan limits Ocwen Loan Servicing Client Select

36 Eligible Transactions, Continued Rate Term Refinance Rate and Term Refinance (No Cash Out Refinance) The existing mortgage being refinanced can be either a current FHA, conventional, or VA loan. This transaction requires an appraisal, full processing documentation and underwriting. Occupancy Owner-occupied, primary residence only. LTV Calculation Seasoning Requirements If the subject property was purchased less than one (1) year prior to loan application and is not already FHA-insured, the maximum loan will be determined by using the lesser of the appraised value or the original sales price. If the subject property was purchased more than one (1) year prior to loan application, the maximum loan will be determined from the appraised value. Ocwen Loan Servicing LLC Client Select

37 Eligible Transactions, Continued Rate Term Refinance, (Cont d) Maximum Insurable Mortgage The maximum insurable mortgage is based on the lesser of: multiply the appraised value of the property by 97.75%, NOTE: If the property was acquired less than one year before the loan application and is not already FHA-insured, the lesser of the current appraised value or original sales price of the property must be used; Or, Existing Debt defined as the amount of the existing first mortgage which includes the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA-insured mortgages), any prepayment penalties assessed on a conventional mortgage or an FHA Title I loan, late charges, escrow shortages (may not include delinquent interest), plus any purchase money second mortgage, any junior liens over 12 months old, closing costs, prepaid expenses (per diem interest to the end of the month on the new loan, hazard insurance premium deposits, monthly mortgage insurance premiums, and any real estate tax deposits needed to establish the escrow account), and discount points minus any refund of UFMIP. NOTE: If the balance or any portion of an equity line of credit in excess of $1000 was advanced within the last 12 months and was for purposes other than repairs and rehabilitation of the property, that portion above and beyond $1,000 of the line of credit is not eligible for inclusion in the new mortgage. The resulting figure is the existing debt. The total FHA mortgage is limited to 100% of the appraised value, including any financed upfront mortgage insurance premium (UFMIP). NOTE: Any appraisal requirements, including, repairs, must be complied with before the mortgage is eligible. See the FHA Refinance Loan Amount Worksheet for assistance in calculating the loan amount. Ocwen does not allow the maximum mortgage to exceed the statutory limit, except by the amount of any new UFMIP Ocwen Loan Servicing Client Select

38 Eligible Transactions, Continued Rate Term Refinance, (Cont d) Maximum Cash Back to the Borrower The borrower may not receive cash back in excess of $500 at closing. Delinquent interest may not be included. The refinance does not permit a borrower to obtain cash back by not making a mortgage payment when due. Mortgage Payment History Requirements The mortgage being refinanced must be current for the month due. Ocwen requires no more than 1 x 30 within the most recent 12 months for all mortgage trade lines. The payment does not need to be paid for the month in which the loan closes/funds. The amount of the existing first mortgage may include the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA-insured mortgages). Ocwen Loan Servicing LLC Client Select

39 Eligible Transactions, Continued Rate Term Refinance, (Cont d) Subordinate Financing If new subordinate financing is being offered by a permitted entity, the CLTV is limited to 97.75% (the FHA-insured first mortgage and any new junior liens when added together). Existing subordinate financing may remain in place, but must be subordinated to the FHA- insured first mortgage, provided the borrower qualifies for making scheduled payments on all liens. The CLTV is limited to 97.75%. The maximum accessible credit limit of the existing subordinate lien must be used to calculate the CLTV ratio. All existing liens (to be paid off or remain subordinate to the new first mortgage) must be seasoned for at least six (6) months (i.e., six (6) permanent mortgage payments made), with an acceptable payment history (i.e., no late payments of 30 days or beyond). Many subordinate lien holders request modifications to the terms of the lien (typically a reduction in the amount of the lien) in exchange for remaining in a subordinate position. Modifying a subordinate lien in this manner often results in re-executing the lien at closing, which is acceptable. In this case, FHA does not consider the lien a new subordinate lien. Subordinate financing, except purchase money seconds, must be seasoned twelve (12) months (i.e. twelve [12] permanent mortgage payments made) to be included in the loan amount. New and existing subordinate financing is permitted up to a maximum CLTV of 97.75%. Refinance Buyouts When the purpose of the new loan is to refinance an existing mortgage in order buy-out an ex-spouses or other co-borrower s equity, the specified equity is considered property related indebtedness and can be included in the new mortgage. The specified equity must be documented in a recorded property settlement agreement or divorce decree. If the borrower is newly separated and no property settlement agreement has been prepared, a legally recorded document prepared by an attorney specifically outlining the division of equity is acceptable Ocwen Loan Servicing Client Select

40 Eligible Transactions, Continued Rate Term Refinance, (Cont d) Short Payoffs To be eligible for refinancing with a short payoff, a borrower must be current on his/her mortgage. FHA will insure the first mortgage where the existing note holder(s) write off the amount of the indebtedness that cannot be refinanced into the new FHA insured mortgage if There is insufficient equity in the home based on its current appraised value, and/or The borrower has experienced a reduction in income and does not have the capacity to repay the existing indebtedness against the property. For instances where the existing note holders are reluctant to write down indebtedness, a new subordinate lien may be executed for the amount by which the payoff is short. If payments on subordinate financing are required, they must be included in the qualifying ratios unless payments have been deferred for no less than 36 months. This policy applies only to no cash out (rate and term) refinances with short payoffs. Ocwen Loan Servicing LLC Client Select

41 Eligible Transactions, Continued Cash Out Refinance Cash Out Refinance HUD considers cash out refinances for debt consolidation a high risk, especially if borrowers have not demonstrated a significant increase in income and appears to be heavy credit users. These transactions should be scrutinized more carefully. Maximum LTV/CLTV A combined CLTV of 85% of the appraised value may be used if the borrower has owned and occupied the subject property as their primary residence for at least one (1) year prior to loan application. If the borrower has owned and occupied the subject property as their primary residence for more than 6 months and less than one (1) year prior to loan application, the maximum loan is limited to a combined CLTV of 85% of the lesser of: Appraised value (no closing costs, discount points or prepaid items), or The original sales price of property (no closing costs, discount points or prepaid items). NOTE: A sales price need not be considered if the property was acquired as the result of inheritance and is, or will become, the borrower s primary residence Ocwen Loan Servicing Client Select

42 Eligible Transactions, Continued Cash Out Refinance, (Cont d) Secondary Financing If new subordinate financing is being offered by a permitted entity, the CLTV is limited to 85% (the FHA-insured first mortgage and any new junior liens when added together). Existing subordinate financing may remain in place, but must be subordinated to the FHA- insured first mortgage, regardless of the total indebtedness or CTLV ratio, provided the borrower qualifies for making scheduled payments on all liens. The maximum accessible credit limit of the existing subordinate lien must be used to calculate the CLTV ratio. All existing liens (to be paid off or remain subordinate to the new first mortgage) must be seasoned for at least six (6) months (i.e., six (6) permanent mortgage payments made), with an acceptable payment history (i.e., no late payments of 30 days or beyond). Many subordinate lien holders request modifications to the terms of the lien (typically a reduction in the amount of the lien) in exchange for remaining in a subordinate position. Modifying a subordinate lien in this manner often results in re-executing the lien at closing, which is acceptable. In this case, FHA does not consider the lien a new subordinate lien. Ownership Seasoning Requirements The borrower must have been in title to the subject property for 6 months prior to the application date to be eligible for a cash out refinance transaction. Ocwen Loan Servicing LLC Client Select

43 Streamline Refinances Streamline Refinances Streamline refinances are designed to lower the monthly principal and interest (P&I) on a current FHA mortgage and must involve no cash back to the borrower, except for minor adjustments at closing not to exceed $500 ($0 in Texas). Ocwen offers the following types of streamline refinance transactions: Credit Qualifying Streamline Refinance with an appraisal, Credit Qualifying Streamline Refinance without an appraisal, Non-Credit Qualifying Streamline Refinance with an appraisal, Non-Credit Qualifying Streamline Refinance without an appraisal, Loan Terms Streamline Refinance without an appraisal: Term is lesser of 30 years, or Remaining term plus 12 years. NOTE: A reduction in the loan term without a net tangible benefit must be processed, underwritten, and closed as a no cash-out (rate/term) refinance. Ineligible Non-Credit Qualifying Streamlines The below scenarios are not eligible for Non-Credit Qualifying Streamline Refinances and may only be processed as Credit Qualifying Streamlines: When a change in the mortgage terms result in an increased mortgage payment of more than 20%. When deletion of a borrower(s) will trigger a due-on-sale clause. Following the assumption of a mortgage that (1) occurred less than six (6) months prior to AND does not contain restrictions (i.e. due-onsale) limiting assumption on a credit worth borrower; OR, Following the assumption of a mortgage that (1) occurred less than six (6) months prior to AND did not trigger the transferability restriction (i.e. due-on-sale) such as property transfer resulting from a divorce, by devise or descent Ocwen Loan Servicing Client Select

44 Streamline Refinances, Continued Max Loan Amount without Appraisal For both credit and non-credit qualifying streamlines without an appraisal, the maximum total loan amount may not exceed the outstanding principal balance, plus interest due on the current mortgage, minus the applicable refund of the UFMIP, plus the new UFMIP. Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, document in the file that the borrower has the assets to pay the discount point, along with any other financing costs that are not included in the new loan amount. Delinquent interest, late charges or escrow shortages may not be included in the outstanding principal balance of the mortgage being paid off for the maximum mortgage calculation. The base loan amount may not exceed the maximum county loan limits for the property. FHA will compute a new LTV by dividing the new loan amount, exclusive of any UFMIP, by the lower of the sales price or appraised value that is in their Single Family Insurance System (SFIS, i.e. Refinance Authorization) database for the existing loan being refinances. If there is missing information in the database and a computed value is not possible, only then will the new LTV default to 89.99%. Ocwen Loan Servicing LLC Client Select

45 Streamline Refinances, Continued Max Loan Amount Credit Qualifying with Appraisal The maximum insurable mortgage amount for a streamline refinance with an appraisal is the lesser of: NOTES: The existing principal balance minus the applicable refund of upfront mortgage insurance premium(ufmip) plus the new UFMIP that will be charged on the refinance transaction, or 97.75% of the appraised value of the property plus the new UFMIP that will be charged on the refinance. Loan amount may not be increased to include closing costs, prepaid items to establish the escrow account, or other financing costs. The outstanding principal balance may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but may not include delinquent interest, late charges or escrow shortages. Prepaid expenses may include per diem interest to the end of the month on the new loan, hazard insurance premium deposits monthly mortgage insurance premiums, and any real estate tax deposits needed to establish the escrow account, regardless of whether or not the lender refinancing the existing loan is also the servicing lender for that mortgage. Discount points may not be included in the new mortgage. If the borrower has agreed to pay discount points, the lender must verify that the borrower has the assets to pay them, along with any other financing costs not included in the new mortgage amount. The base loan amount may not exceed the maximum county loan limits for the property Ocwen Loan Servicing Client Select

46 Streamline Refinances, Continued Max Loan Amount Non- Credit Qualifying with Appraisal The maximum total loan amount may not exceed outstanding principal balance plus the new UFMIP. An appraisal may not be used to increase the insurable balance, nor add discount points, closing costs, prepaid items, or other financing costs. If the borrower has agreed to pay discount points, document in the file that the borrower has the assets to pay the discount point, along with any other financing costs that are not included in the new loan amount. Delinquent interest, late charges or escrow shortages may not be included in the outstanding principal balance of the mortgage being paid off for the maximum mortgage calculation. The base loan amount may not exceed the maximum county loan limits for the property. Ocwen Loan Servicing LLC Client Select

47 Streamline Refinances, Continued Net Tangible Benefit The borrower must receive one of the following net tangible benefits from the new Streamline transaction, with or without an appraisal: A 5% reduction to the principal and interest (P&I) of the mortgage payment plus the annual MIP, or Refinancing from an ARM to a fixed rate mortgage. Reducing the term of the mortgage alone is not a net tangible benefit. The table below illustrates the net tangible benefit requirements for streamline refinances. Refinancing to a Fixed Rate From a Fixed Rate A Reduction of at least 5% of P&I and MIP is required. From a One-Year ARM the new interest rate must be no greater than two percentage points above the current interest rate of the existing ARM. From a Hybrid ARM During Fixed Period A Reduction of at least 5% percent of P&I and MIP is required. From a Hybrid ARM During Adjustable Period the new interest rate must be no greater than two percentage points above the current interest rate of the existing Hybrid ARM. Refinancing to a Hybrid ARM Rate From a Fixed Rate A Reduction of at least 5% of P&I and MIP is required. From a One-Year ARM the new interest rate must be at least two percentage points below the current interest rate of the existing ARM. From a Hybrid ARM During Fixed Period A Reduction of at least 5% percent of P&I and MIP is required. From a Hybrid ARM During Adjustable Period the new interest rate must be at least two percentage points below the current interest rate of the existing Hybrid ARM. Evidence that the borrower received one of the above net tangible benefits must be documented within the loan file Ocwen Loan Servicing Client Select

48 Streamline Refinances, Continued Seasoning Requirements On the date of the new FHA case number assignment, The borrower must have made at least six (6) payments on the existing FHA first mortgage. At least six (6) full months must have passed since the first payment due date of the refinanced first mortgage, and At least 210 days must have passed from the closing date of the current mortgage being refinanced. Max Cash Back to Borrower Streamline refinances are designed to lower the monthly principal and interest (P&I) on a current FHA mortgage and must involve no cash back to the borrower except for minor adjustments at closing not to exceed $500 or as limited by state law ($0 in Texas). Secondary Financing New subordinated financing is not allowed on any Streamline refinance transactions Existing secondary financing may be subordinated. The maximum CLTV is 97.75%: Occupancy and Property Types Eligible for owner occupied only. 1-unit only. NOTE: Re-warranting of condo and PUD projects is not required for streamlines without a new appraisal. Ocwen Loan Servicing LLC Client Select

49 Streamline Refinances, Continued Employment / Income Verification Credit Qualifying Standard employment/income documentation requirements must be met as outlined in the Income topic subsequently presented in this lending guide. Non-Credit Qualifying Salaried borrowers require a verbal VOE. Self-employed borrowers required 3 rd party verification of business. Retirement/Social Security require award letters or most recent bank statements with direct deposit. Other income that is the only source of income will require documentation as outlined in the Income topic subsequently presented in this lending guide. Social Security Validation Evidence of valid Borrower s Social Security number continues to be required in all cases. For Non-Credit Qualifying scenarios in which a W-2 and/or paystub is not required, additional satisfactory evidence of social security number(s) must be provided Ocwen Loan Servicing Client Select

50 Streamline Refinances, Continued Qualifying Ratios - For Case Numbers Assigned prior to April 21, 2014 Credit Qualifying 31% / 43%. Housing ratios exceeding 31% may be acceptable ONLY if significant compensating factors, as defined within the Liabilities and Qualifying Ratios section of this guideline, are documented and recorded on the FHA Loan Underwriting and Transmittal Summary (HUD LT). Total debt ratios may not exceed 43.00%. The maximum DTI for Ocwen on any Manually Underwritten Transaction is 43.00%. Non-Credit Qualifying Ratios are not calculated. NOTE: Streamline refinances are not eligible for TOTAL Scorecard, they must be manually underwritten. ARM transactions are qualified at the Note Rate. Ocwen Loan Servicing LLC Client Select

51 Streamline Refinances, Continued Qualifying Ratios - For Case Numbers Assigned on or after April 21, 2014 Borrowers With Minimum Decision Credit Scores of 620 or More and No Compensating Factors The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 620 or more and no compensating factors are as follows: Total monthly mortgage payment may not exceed 31% of gross effective monthly income (33% for Energy Efficient Homes); and Total monthly fixed payment may not exceed 43% of gross effective monthly income. Borrowers With Minimum Decision Credit Scores of 620 or More and One Compensating Factor The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 620 or more provided they meet one of the compensating factors specified below are as follows: Total monthly mortgage payment may not exceed 37% of gross effective monthly income; and Total monthly fixed payment may not exceed 43% of gross effective monthly income. Acceptable compensating factors are limited to the following: Verified and documented cash reserves that equal or exceed three total monthly mortgage payments (one and two units) or that equal or exceed six total monthly mortgage payments (three and four units); New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less, and there is a documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous twelve months. Residual income (see below). NOTE: See the following section below in this Lending Guide for full detail on Compensating Factors and Residual Income: Compensating Factors (For Case Numbers assigned prior to April 21, 2014) Residual Income for Manually Underwritten Ocwen Loan Servicing Client Select

52 Streamline Refinances, Continued Qualifying Ratios For Case Numbers Assigned on or after April 21, 2014 (Cont d) Borrowers With Minimum Decision Credit Scores of 620 or More and Two Compensating Factors The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 620 or more provided they meet two of the compensating factors specified below are as follows: Total monthly mortgage payment may not exceed 40% of gross effective monthly income; and Total monthly fixed payment may not exceed 43% of gross effective monthly income. Acceptable compensating factors are limited to the following: Verified and documented cash reserves that equal or exceed three total monthly mortgage payments (one and two units) or that equal or exceed six total monthly mortgage payments (three and four units); New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less, and there is a documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous twelve months. Verified and documented significant additional income that is not considered effective income; and Residual income (See below) NOTE: See the following section below in this Lending Guide for full detail on Compensating factors and Residual Income: Compensating Factors (For Case Numbers assigned prior to April 21, 2014) Residual Income for Manually Underwritten Ocwen Loan Servicing LLC Client Select

53 Streamline Refinances, Continued Qualifying Ratios For Case Numbers Assigned on or after April 21, 2014 (Cont d) Borrowers With Minimum Decision Credit Scores of 620 or More with No Discretionary Debt The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 620 or more with established credit lines in their own name open for at least six months who carry no discretionary debt (housing payment is only account with an outstanding balance and borrower can document that revolving credit has been paid off in full monthly for at least the previous six months) are as follows: Total monthly mortgage payment may not exceed 40% of gross effective monthly income; and Total monthly fixed payment may not exceed 40% of gross effective monthly income. For borrowers meeting this criterion no other compensating factors are required Ocwen Loan Servicing Client Select

54 Streamline Refinances, Continued Maximum Qualifying Ratio Matrix The maximum total monthly mortgage payment to gross effective income ratios and total monthly fixed payments to gross effective income ratios applicable to manually underwritten loans are summarized in the matrix below. NOTE: See the following section below in this Lending Guide for full detail on Compensating factors and Residual Income: Compensating Factors (For Case Numbers assigned prior to April 21, 2014) Residual Income for Manually Underwritten Manual Underwriting Matrix For Case Numbers Issued on or After April 21, 2014 Lowest Minimum Decision Credit Score Maximum Qualifying Ratios (%) Acceptable Compensating Factors 620 and above 31/43 No compensating factors required. 620 and above 37/43 One of the following: Verified and documented cash reserves equal to at least three total monthly mortgage payments (1-2 units) or six total monthly mortgage payments (3-4 units). New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and a there is documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months. Residual Income 620 and above 40/40 Borrower has established credit lines in his/her own name open for at least six months but carries no discretionary debt (i.e., monthly total housing payment is only open installment account and borrower can document that revolving credit has been paid off in full monthly for at least the previous six months). 620 and above 40/43 Two of the following: Verified and documented cash reserves equal to at least three total monthly mortgage payments (1-2 units) or six total monthly mortgage payments (3-4 units). New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and a there is documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months. Verified and documented significant additional income that is not considered effective income (i.e., part-time or seasonal income verified for more than one year but less than two years). Residual Income. Ocwen Loan Servicing LLC Client Select

55 Streamline Refinances, Continued Credit Requirements Minimum credit scores for all borrowers on streamline refinances are: Credit Scores below 620 are not eligible. Ocwen requires ALL borrowers on the loan to meet the minimum credit score requirement. Non-Traditional Credit is not permitted NOTE: For Non-Credit Qualifying Streamline refinances, the file must contain either: A tri-merge credit report or a mortgage only credit report which contains mortgage account ratings with scores. Mortgage Payment History The borrower s payment history cannot reflect more than 1x30 day late over the most recent 12 month history for the first mortgage and has made all mortgage payments within the month due for the three months prior to the date of the loan application. 6 to 12 month payment history is acceptable as long as there are no late payments for the life of the loan. Asset Documentation Standard asset documentation requirements must be met as outlined in the Asset section below. NOTE: For FHA to FHA Non-Credit Qualifying streamline refinance transactions; the cash reserve requirement is not applicable. Appraisal Requirements Streamline refinances may be done with or without an appraisal. If an appraisal is obtained, Ocwen does not require repairs to be completed prior to closing the loan, unless the repairs impact the health and safety of the occupants Ocwen Loan Servicing Client Select

56 Streamline Refinances, Continued Loan Application Credit Qualifying The loan application (Form 1003) must be fully completed. Non-Credit Qualifying An abbreviated loan application (1003) omitting income, liabilities, and declaration (a) through (k) is allowed. The asset section may be omitted if funds for closing are not required. The current employer information is required to complete the Verbal Verification of Employment. CAIVRS Streamline refinances can be insured with or without an appraisal, and without HUD s Credit Voice Alert Interactive Response System (CAIVRS). Documentation of CAIVRS codes is not required. LPD/GSA List The underwriter comments section of the FHA Loan Underwriting and Transmittal Summary must reflect LDP/GSA information. TOTAL Scorecard Streamline Refinance transactions are eligible for traditional underwriting and should not be submitted through TOTAL Scorecard (via DU). Mortgage Insurance See the MIP Premiums for Streamline Refinances ONLY subtopic subsequently presented in the Mortgage Insurance topic for additional information on mortgage insurance for streamline refinance transactions. Ocwen Loan Servicing LLC Client Select

57 Streamline Refinances, Continued IRS Form 4506-T Non-Credit Qualifying: Signed at application and closing, but not process. Credit Qualifying: Signed at application, signed at closing and processed Ocwen Loan Servicing Client Select

58 Secondary Financing Overview Any financing other than the first mortgage that creates a lien against the property is considered secondary financing. Such financing is not considered a gift. The following documentation must be obtain and retained in the loan file from the secondary lien holder: documentation showing the amount of funds provided to the borrower for each transaction, and copies of the loan instruments. Permissible Sources Secondary Financing from Family Members Ineligible Secondary Financing Sources The following sources of Secondary Financing are ineligible for sale to Ocwen: Secondary Financing from Government Agencies Secondary Financing from a Nonprofit Agency Considered an Instrumentality of the Government Secondary Financing from a Nonprofit Agency not Considered an Instrumentality of the Government Secondary Financing from Private Individuals or Other Organizations (that require prior approval from HUD). Secondary Financing obtained with advance approval from HUD by borrowers 60 years of age or older as defined in Handbook Section 5-C-16. Ocwen Loan Servicing LLC Client Select

59 Secondary Financing, Continued Secondary Financing from Family Members for Purchase Transactions FHA permits lending from family members on a secured or unsecured basis, up to 100% of the borrower s required funds to close. This may include the down payment, closing costs, prepaid expenses, and discount points. If the loan from the family member, whether borrowed from an acceptable source or the family member s own savings, is secured by the subject property, only the family member provider may be the note holder. FHA will not approve any form of securitization of the note that results in any entity other than the family member being the note holder, whether at loan settlement or at any time during the mortgage life cycle. Borrowed Down Payment When the funds loaned by the family member are borrowed from an acceptable source, the borrower may not be a co-obligor on the note. Example: A son may not be the co-obligor on the note used to secure the money borrowed by his parents which, in turn, was loaned to the son for the down payment on the property Ocwen Loan Servicing Client Select

60 Secondary Financing, Continued Terms and Conditions Category Maximum insurable mortgage Combined loan-tovalue (CLTV)limit on financing Borrower cash back Secondary financing payments Second lien balloon payments Family member supplying borrowed funds Secondary financing documentation Terms and Conditions for Secondary Financing Provided by Family Members for Purchases The table below describes additional policies regarding the terms and conditions for FHA-insured loans with secondary financing provided by family members. Policy Description The maximum insurable mortgage amount is not affected by loans from family members. The combined loan-to-value (CLTV) limit on financing may not exceed 96.50% of the lesser of the property s Appraised value, or Sales price, plus normal closing costs, prepaid expenses, and discount points. A family member may lend 100% of the borrower s required funds to close, but cash back to the borrower at closing (beyond the refund of any earnest money deposit) is not permitted If periodic payments of the secondary financing are required, the combined payments may not exceed the borrower s reasonable ability to repay. NOTE: The secondary financing payments must be included in the total debt to income ratio (i.e. the back end ratio) for qualifying purposes. The second lien may not provide for a balloon payment within five years from the date of execution. If the family member providing the secondary financing borrows the funds, the lending source may not be an entity with an identity-of-interest in the sale of the property, such as the Seller Builder Loan officer, or Real estate agent. Mortgage companies with retail banking affiliates may have the affiliate loan the funds to the family member. However, the terms and conditions of the loan to the family member cannot be more favorable than they would be for any other borrowers. Example: There may not be any special consideration given between the Making of the mortgage, and Lending of funds to family members to be used for secondary financing for the purchase of the home. An executed copy of the document(s) describing the terms of the secondary financing must be included in the loan file, and another executed copy provided in the endorsement binder. Ocwen Loan Servicing LLC Client Select

61 Secondary Financing, Continued Completion for Secondary Financing The following items need to be indicated on the FHA Loan Underwriting and Transmittal Summary (HUD LT): 2nd mortgage proceeds, 2nd mortgage monthly payment, and Underwriter comments - provide details on 2nd mortgage (i.e., lender, term, payment). Modified HELOC HCLTV limits must be calculated using the full amount of the line of credit available based on recording or title information unless updated by a formal modification; letters or other alternative forms of documentation regarding changes to line amounts are not acceptable. For example, if the value for a property is determined to be $100,000, the new first mortgage is $50,000, the current outstanding balance of a line of credit being subordinated is $20,000 and the full amount of the line of credit being subordinated based on the recording and title information or formal modification agreement is $30,000, the LTV/CLTV/HCLTV would be 50.00%/70.00%/80.00%. ($50,000/$100,000 = 50.00%) ($50,000 + $20,000 / $100,000 = 70.00%) ($50,000 + $30,000 / $100,000 = 80.00%) Ocwen Loan Servicing Client Select

62 Geographic Restrictions Approved States Ocwen Loan Servicing currently lends in the states of Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, DC, Florida, Georgia, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming. Ocwen Loan Servicing LLC Client Select

63 Occupancy and Property Property Types Ocwen will accept 1-4 family units (1 Unit only for Streamline Refinance transactions). The mortgaged premises must be a detached or semi-detached dwelling, row dwelling, townhouse, or unit within a condominium project or PUD. Primary Residence The primary borrowers, for the majority of the calendar year, must occupy the property. Occupancy must take place within 60 days after signing the security instrument, with continued occupancy for one (1) year. Ineligible: Second Homes and Investment Properties 3-4 Units Properties Three and four-unit properties must be self-sufficient, i.e., the maximum mortgage is limited so that the ratio of the monthly mortgage payment divided by the monthly net rental income does not exceed 100 percent. The monthly payment is defined as principal, interest, taxes, and insurance, including mortgage insurance (PITI), as well as any homeowner s association dues, computed at the note rate. Net rental income is the appraiser s estimate of fair market rent from all units, including the unit chosen by the borrower for occupancy, less the FHA office s allowance for vacancies and maintenance (or 25% if the local FHA has not established a separate allowance). The above calculation is used only to determine the maximum loan amount. Borrowers must still qualify for the mortgage based on income, credit, cash to close, and the projected rents received from the remaining units. The projected rent may only be considered as gross income for qualifying purposes; it may not be used to offset the monthly mortgage payment. The borrower must have a reserve of three (3) months mortgage payments (PITI) after closing on all transactions. Reserves cannot be derived from a gift. FHA s Hotel and Transient Use Certification (HUD form 92561) must be signed by the borrower and included in the case binder file Ocwen Loan Servicing Client Select

64 Occupancy and Property, Continued Condos HUD Review & Approval Process (HRAP): Under this option, the applicable project documentation is submitted to HUD for their review and approval of the condo project. To confirm if the project is HUD approved, visit HUD s website at: IMPORTANT: A print out confirming HUD s approval from the above website must be included in the loan package. Ocwen Condo questionnaire required. The loan must be insured by FHA prior to HUD s project expiration date; this will require the loan to close and fund well within project approval period or the HOA will need to submit the necessary documents directly to HUD for recertification. Spot loans and Direct Endorsement Lender Review and Approval Process (DELRAP) are NOT ALLOWED, including DELRAP approvals listed on HUD s website. Refer to HUD Mortgagee Letter B for full details. PUD s PUDs do not require pre-approval by FHA or the underwriter. A PUD is defined as a mixed-use residential development of singlefamily dwellings in conjunction with rental, condominium, cooperative or town house properties. A residential development should be processed as a PUD if it has the following minimum characteristics: A homeowner association that holds either title in fee or a lease of prescribed length on the common area, Mandatory membership of all unit owners (or units) in the association, The right of all unit owners to participate by vote in the operation of the association, Lien supported assessment of the members to meet the association s budgeted operating costs (special assessments may be handled differently), and The appraisal for a detached PUD must be ordered as a detached PUD, not as a single family residence. Ocwen Loan Servicing LLC Client Select

65 Occupancy and Property, Continued HUD REO HUD may contribute up to three percent (3.00%) of the property s gross purchase price towards the borrower s allowable closing costs, including up to one percent (1.00%) of the loan origination fee. If the borrower s total closing costs reflected on the Closing Disclosure (or HUD-1 Settlement Statement) are less than the amount indicated as being paid by HUD on the sales contract, HUD will credit ONLY the actual costs charged and will not credit the purchaser with any difference, either in cash or through a reduced purchase price. A valid HUD REO sales contract must be ratified within 120 days of the appraisal effective date, or a new appraisal or an Appraisal Update and/or Completion Report (Fannie Mae form 1004D/Freddie Mac form 442) must be obtained. HUD REO appraisal reports are valid for 120 days from the effective date of the appraisal report. The appraiser MUST be state certified with an unexpired license. See Ordering New Appraisals for REO Properties below. HUD REO properties that are approved for the reduced down payment option (HUD REO $100 Down Payment Program) are not eligible for sale to Ocwen. The UFMIP can be financed into the total loan amount. The total loan amount may never exceed 100% of the as is appraised value. Closing costs and pre-paids may not be included in the mortgage. Ordering New Appraisals for HUD REO Properties Mortgagees must order a new appraisal that is valid for a HUD REO property financed with an FHA-insured mortgage if any of the conditions in the following chart exists: NOTE: A new appraisal is a full appraisal of a HUD REO property that must meet the requirements of Mortgagee Letter and any superseding policy Ocwen Loan Servicing Client Select

66 HUD REO, (Cont d) Condition There are material deficiencies with the current HUD REO appraisal, as determined by the Direct Endorsement (DE) Underwriter. The purchaser of a HUD REO property is applying for a 203(k) loan, and an asrepaired appraisal is required. NOTE: Homeward does not participate in the 203(k) program. The REO sales contract was not ratified within 120 days of the HUD-REO appraisal s effective date. The appraisal ordered by HUD is no longer valid. The contract sales price on a property securing the FHAinsured loan is greater than the value of the appraisal ordered by HUD and/or the as-is appraised value is not available. Maximum FHA insurable mortgage amount (subject to underwriting requirements for down payments, financing of closing costs, etc.) will be: Based on the value of the property as determined by the new appraisal. Based on the value of the property as determined by the new appraisal. Based on the value of the property as determined by the new appraisal. Based on the value of the property as determined by the new appraisal. Limited to the lesser of (a) the contract sales price, (b) the new appraisal value, or (c) the initial list price of the HUD REO property. Ocwen Loan Servicing LLC Client Select

67 Occupancy and Property, Continued HUD REO, (Cont d) If a new FHA appraisal is ordered, then: The original appraisal ordered by HUD may not be used to underwrite the loan; HUD will not reimburse the mortgagee for the cost of the new appraisal. Consequently, the borrower/purchaser can be charged for the expense of the new appraisal as part of the borrower s closing costs on the Closing Disclosure (or Form HUD-1 Settlement Statement); The mortgagee must provide a written justification for ordering a new appraisal; and The mortgagee must retain copies of all appraisals available to the mortgagee in its loan file. Establishing Market Value for REO Properties To ensure that HUD REO properties are sold at or near market value, mortgagees and appraisers are reminded of FHA s definition of market value. A market value price should reflect the price appropriate for properties sold in a competitive and open market, under all conditions requisite to a fair sale, with the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this characterization is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: Buyer and seller are typically motivated; Both parties are well-informed/well-advised and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of a financial arrangement comparable thereto; and The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale Ocwen Loan Servicing Client Select

68 Occupancy and Property, Continued HUD REO, (Cont d) Comparables for Appraisals When considering sales to be used as comparables, the appraiser must note the conditions of sale and the motivations of the sellers and purchasers. If REO sales and pre-foreclosure sales (PFS)/short sales are part of the market competing with the subject property, the appraiser must analyze the effect that these types of sales transactions have on the market and specifically on the subject property. In some markets, REO and PFS sales may constitute the majority of recent transactions of similar properties and, thus, are significant in the analysis of the property for which financing is sought. However, in developing an opinion of market value, REO sales and PFS sales transactions should not automatically be chosen as comparables. If there is compelling evidence in the market to warrant their use, the appraiser must provide an additional explanation on the appraisal form. Transfers to a mortgagee or entity owning the mortgage loan by deed of trust through foreclosure sale or sheriff s sale are not acceptable as comparable sales under any circumstances. Repair Escrows Not Permitted Ocwen Loan Servicing LLC Client Select

69 Occupancy and Property, Continued Deed Restrictions Properties with resale restrictions are not eligible (except for age restricted). Listed for Sale Properties currently listed for sale are not eligible for refinancing Listing agreement must have been cancelled prior to application date for rate & term refinance. Listing agreement must have been cancelled six (6) months prior to application date to be eligible for a cash out refinances. Ineligible Property Types The following property types are not eligible for sale under the FHA product to Ocwen: Manufactured Housing Commercial properties Cooperatives Multi-family dwellings over 4 units Mobile homes Condo-tels Farms or working ranches Non-warrantable Condominiums Timeshares Unimproved land Properties with resale restrictions, other than age restricted communities Common Interest Apartments Properties that do not meet local health and safety standards Properties currently listed for sale on all refinance transactions Properties in Hawaii Lava flow Hazard Zones one (1) and Two (2) Condominiums in Florida Community Land Trust Ocwen Loan Servicing Client Select

70 Occupancy and Property, Continued Leasehold Estates A Leasehold Estate is an interest in real property held by virtue of a lease. Leasehold refers to land that is leased to the individual who owns appurtenant structures on the land. The leasehold estate may consist of both the improvement and the land, although in most cases the improvement is purchased in fee simple, subject to ground rent. Ground rent is rent paid for the right to use and occupy land. When the term of the lease expires, all rights to possession and use revert back to the lessor / fee simple owner and the Leasehold Estate terminates. Requirements Properties that are secured by Leasehold Estates are acceptable provided they conform to all of the following: The lease is for the rental of a property with a fee ownership interest Residential properties in the area consisting of leasehold or ground rent estates are readily marketable and acceptable in the subject area The leasehold is in full force and effect and is not subject to any prior lien or encumbrance by which the leasehold could be terminated or subjected to any charge or penalty The remaining term or exercised renewal of the lease with any renewals enforceable by the mortgage do not terminate earlier than ten years after the maturity date of the loan Lease Requirements The lease must comply with the following: The lease (including all amendments) is recorded and no party is in any way in breach of any provision of the lease or amendment Leases may not contain restrictions of assignability In most cases, the lease must allow for an option to purchase. For exceptions see Section 6-31 in the HUD Handbook Rev 1 For a complete list of all leasehold estate requirements, refer to section 6-31 of HUD Handbook Rev 1, Chapter 6 Approaches To Value. Ocwen Loan Servicing LLC Client Select

71 Occupancy and Property, Continued Ground Rents Ground rent is established in the local market place, but in no case may the annual rental exceed the lesser of: 12 percent of the site value or The mortgage interest rate at the time of underwriting, less two percent, times the site value. Ground rent may increase periodically, subject to the following: Rent may not be increased for the first three years of the lease term. Subsequent rent increases may occur no more than once every 12 months Increases must be stated in the lease document in exact dollar amounts Establishment of future rentals by negotiation or by formula is not permitted Increases in any 12-month period may equal no more than 2% of HUD's original site valuation, but at no time may annual ground rental exceed 12% of HUD's original site valuation For complete information on the Capitalization Process of Ground Rents and Ground Leases and calculation of ground rent, refer to HUD Handbook Rev 1 Chapter 6 Approaches To Value, Section Ocwen Loan Servicing Client Select

72 Eligible Borrowers Number of Borrowers Ocwen limits the number of borrowers on a loan to 4. Borrower Requirements Ocwen does not lend to business entities; it is required that all Borrowers be individuals. Any person who signs the application is to be considered a Borrower and all Borrowers must sign the Note. All Borrowers must meet one of the following: U.S. Citizen: It is necessary that Borrower(s) have a valid social security number and be a citizen of the United States. Permanent Residents: In order to verify a borrower has the necessary Permanent Resident card ( green card ), a copy of the Form I-551 is required. Borrower must have a valid social security number. Non-Permanent Residents: If a Borrower is a non-permanent resident, the following will need to be verified: A valid social security number Appropriate documentation that supports eligibility to work in the U.S. A copy of current work authorization documentation is needed (such as H Visa, L, E-1, G series and TN Visa; EAD may be acceptable evidence of work status, refer to HUD A.3.d for additional requirements). Ocwen Loan Servicing LLC Client Select

73 Eligible Borrowers, Continued Borrower Identity Verification The identity of the borrower(s) must be verified by reviewing an acceptable form of identification, with a photo. All parties involved in the transaction are also responsible (i.e. Closing Agent, Attorney, etc.) to also follow these procedures. Our description of acceptable forms of identification includes: Valid state driver s license, with photo Valid state non-driver s license, with photo Military photo ID Work ID with photo US passport, with photo Permanent Resident Card, with photo Borrower must have a valid social security number. Verification can be made by viewing the social security card, pay-stub, or W-2. Social security number should be consistent on all documentation, including credit report. Resolution of any discrepancies is required to Ocwen s satisfaction. Borrower Names Borrower names must match the title commitment exactly. If the borrower s name changes during loan application, such in cases of marriages, the following items must be cured prior to closing: Social Security card must have been applied for to reflect the new name. Copy of new card or evidence of change made by SSA will be required. Signed AKA Letter Case Number Assignment must be corrected to the new name. It is imperative that if the borrower s last name, generational suffix (Sr., Jr.) and/or social security number is entered incorrectly, the DU data entry must be corrected immediately and a new credit report run Ocwen Loan Servicing Client Select

74 Eligible Borrowers, Continued Co-Borrowers / Co-Signors A co-borrower is eligible under the following conditions: Must be on the title, note and security instrument. The co-borrower s income, liabilities, assets and credit history is used to determine creditworthiness, The co-borrower does not have an interest in the transaction (i.e., seller, builder or real estate agent), exceptions may be granted if seller and co-borrower are related to the owner by blood, marriage or law), If the parent is selling to a child, the parent cannot be co-borrower with the child on the new mortgage unless the loan-to-value is 75.00% or less, and The co-borrower must be eligible for participation (not suspended or debarred or owe any delinquent Federal debts). Non-occupant co-borrowers must have a principal residence in the U.S. unless otherwise exempted (i.e., military service with overseas assignments, U.S. citizens living abroad). While FHA does not object to legitimate transactions where non-occupant borrowers assist in the financing of the property, this arrangement may not be used by non-occupant borrowers to develop a portfolio of rental properties. A non-occupant co-borrower is only eligible on a one (1) unit property. When there are two (2) or more borrowers, but one or more will not occupy the property as a principal residence, the maximum mortgage is usually limited to 75.00% LTV; however, maximum financing is available for borrowers related by blood, marriage or law that meet the requirements shown in the Identity of Interest Transactions in this sellers guide. Ocwen Loan Servicing LLC Client Select

75 Eligible Borrowers, Continued HUD Employees Loan applications for HUD employees may be processed and underwritten by Ocwen; however, they must be submitted to the attention of the Processing and Underwriting Division at the jurisdictional HOC for final signoff and approval PRIOR to closing. Ocwen will accept a Purchase, Streamline Refinance, Rate/Term or Cash Out Refinance transaction. Streamline refinance applications do not require Closing Disclosure (or final HUD-1 Settlement Statement) sign-off prior to closing. Living Trust Property held in a living trust is eligible for FHA mortgage insurance when an individual borrower Remains the beneficiary, and Occupies the property as a principal residence. The DE Underwriter must be satisfied that the trust provides reasonable means to assure that it will be notified of any changes to the trust regarding Occupancy changes, or Transfer of beneficial interest. Although mortgages defined under the terms of Living Trust may be exempt from Ability to Repay under the Truth-in-Lending Act and its implementing regulations, Ocwen will require such mortgages to meet all requirements within the Lending Guide, including meeting the Qualified Mortgage and Ability to Repay (ATR covered loan) definitions. Living Trusts and Security Instrument The name of the living trust must appear on the security instrument, such as the mortgage, deed of trust, or security deed. The individual borrower must appear on the security instrument when required to create a valid lien under state law. The owner-occupant, and other borrowers, if any, must also appear on the note with the trust. The individual borrower is not required to appear on the property deed or title Ocwen Loan Servicing Client Select

76 Eligible Borrowers, Continued Certification of Trust A certification of trust or a summary of trust is acceptable if required by state law Trust Loan Documentation Requirements The loan file must contain either: A complete copy of the trust agreement; or In states that require a lender to rely on an abstract, summary or certification of the trust agreement instead of the trust agreement, a copy of the abstract, summary or certification. Military Personnel Military personnel are eligible for maximum financing if a member of the immediate family will occupy the subject property as a principal residence, even if the active duty borrower is stationed elsewhere. Non- Purchasing Spouse If it is required by state law in order to perfect a valid and enforceable first lien, the non-purchasing spouse may be required to sign either the security instrument or documentation evidencing that he/she is relinquishing all rights to the property. If the non-purchasing spouse executes the security for such reasons, he/she is not considered a borrower for HUD s purposes and does not need to sign the loan application. Except for those obligations specifically excluded by state law, the debts of the non-purchasing spouse must be considered in the qualifying ratios if the borrower resides in a community property state or the property to be insured is located in a community property state. If the borrower resides in a community property state or the property is located in a community property state, a credit report on the nonpurchasing spouse must be obtained. The non-purchasing spouse s credit history is not to be considered a reason for credit denial. HUD requires that DE underwriters know the state laws concerning community property and apply them appropriately to ensure that there is no increased risk to HUD. Ocwen Loan Servicing LLC Client Select

77 Eligible Borrowers, Continued Mandatory Rejection of a Borrower A borrower is not eligible to participate in FHA-insured mortgage transactions if he/she is suspended, debarred, or otherwise excluded from participating in HUD programs. A borrower must be rejected from participation if the borrower is on the: HUD Limited Denial of Participation (LDP) list. The HUD LDP list can be found on the HUD website or on the FHA Connection (FHAC). U.S. General Services Administration (GSA) List of Parties Excluded from Federal Procurement or Non-procurement Programs. The GSA List can be found at or on the FHAC, and/or HUD s Credit Alert Interactive Voice Response System (CAIVRS), A borrower must also be rejected if he/she is presently delinquent on any Federal debt or has a lien placed against his/her property for a debt owed to the United States Government. If, after checking public records, credit information or CAIVRS, a borrower is found to be presently delinquent on any Federal debt or has had a lien (including taxes) placed against his/her property for a debt owed to the Federal government, he/she is not eligible for an FHA mortgage until The delinquent account is brought current, paid, or otherwise satisfied, or A satisfactory repayment plan is established between the borrower and the Federal agency owed, which is verified in writing. Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage Ocwen Loan Servicing Client Select

78 Eligible Borrowers, Continued Borrower Waiting Period Waiting Period for Borrowers With Past Delinquencies, Defaults or Claims on If the borrower has had past delinquencies or has defaulted on an FHA-insured loan, there is a three-year waiting period before he/she can regain eligibility for another FHA-insured mortgage. The three-year waiting period begins when FHA pays the initial claim to the lender. This includes deed-in-lieu of foreclosure, as well as judicial and other forms of foreclosures. DE Underwriters may contact the Homeownership Center (HOC) having jurisdiction over the area where the property subject to default is located for information such as the: Date the claim was paid, and Date of the initial default. Eligibility for Federal Related Credit Tax Liens and Eligibility for Federally Related Credit The Internal Revenue Service (IRS) routinely takes a second lien position without the need for independent documentation. For this reason, eligibility for FHA mortgage insurance is not jeopardized by outstanding IRS tax liens remaining on the property, unless there is information that the IRS has demanded a first-lien position. Tax liens may remain unpaid if the lien holder subordinates the tax lien to the FHA-insured mortgage. NOTE: If any regular payments are to be made, they must be included in the qualifying ratios. Effect of Past Delinquencies on Eligibility Although a borrower s eligibility for an FHA-insured mortgage may be established by performing the actions described previously in this topic, the overall analysis of the borrower s creditworthiness must consider a borrower s previous failure to make payments to the Federal agency in the agreed-to manner, and document the analysis as to how the previous failure does not represent a risk of mortgage default. Ocwen Loan Servicing LLC Client Select

79 Eligible Borrowers, Continued Ineligible Parties A mortgage loan application is not eligible for FHA mortgage insurance if the name of any of the following parties to the mortgage transaction is found on HUD s LDP list or the GSA List: Borrower Seller Listing or selling real estate agent, or Loan officer. Exception: A seller on the GSA list is exempt if the property being sold is his/her principal residence. Documenting Borrower Eligibility To determine whether a borrower is eligible to participate in an FHA mortgage loan transaction or must be rejected, the DE Underwriter must: Examine HUD s LDP list, the GSA List and CAIVRS, and Document the reviews on the HUD LT, FHA Loan Underwriting and Transmittal Summary Ocwen Loan Servicing Client Select

80 Income General Income HUD generally requires all income to continue through, at a minimum, the first three (3) years of the mortgage loan. If the borrower intends to retire during this period, the effective income must be the amount of documented retirement benefits, social security payments, etc. Borrowers that change jobs frequently within the same line of work, who continue to advance in income or benefits, should be considered favorably. In this instance, income stability takes precedence over job stability. Stable Monthly Income Stable monthly income is defined as income that has a two year history of receipt from either part time or full time employment, with a likelihood of continuation for at least three years. A Borrower who has frequently changed jobs is acceptable and stable as long as it is evident that earnings remained at a consistent level and the Borrower has consistently met their obligations. It is necessary to the determination that income is stable for every source of income being used for qualification purposes. Satisfactory verification of income for the prior two years and probability of continuance must be provided, as detailed in this chapter. If there are indications that the income will terminate within the next three years, the income cannot be used for qualification purposes. Income that cannot be documented or verified is not acceptable. Employment History Verification of applicant s previous 2-year employment history is required. If employment has changed in the previous 2 years one or a combination of the following are required to verify the applicants 2 year employment history: W-2(s) for all jobs VOE(s) for all jobs School college transcripts, Diploma/Degree Military discharge papers Ocwen Loan Servicing LLC Client Select

81 Income, Continued Verbal VOE A verbal verification must be performed within 5 business days prior to the date of the note. Ocwen defines the Note date as the date the borrowers sign the Note and will validate the signing date by using the Notary Date from the closing documents. The employer should be contacted and you should verbally confirm the borrower s current employment status and job title. A verbal verification form must specifically document the following information: Date of the verification Source used to obtain the phone number (i.e. directory assistance, internet, etc.) Name and title of person at the employer s office who confirmed the employment Name and title of the person who completed the Verbal VOE Exception: If the borrower is in the military, a Leave and Earnings Statement (dated within 30 days of the note date) may be used in lieu of the Verbal VOE. Verification of Employment for salaried, hourly and commission income using Third Party Verification Sources If the Employer will not verbally verify the employment, but uses a Third Party Verification source (i.e. The Work number), this will be acceptable. A Verification from the Third Party within 5 business days prior to the Note Date must be obtained Ocwen Loan Servicing Client Select

82 Income, Continued Verbal VOE Self-Employed It is necessary to verify the existence of the Borrower s business within 30 calendar days prior to the note date. Ocwen defines the Note date as the date the borrowers sign the Note and will validate the signing date by using the Notary Date from the closing documents. This verification can be made with a third party, such as CPA, regulatory agency or applicable licensing bureau, or by verifying the phone listing and address for the business using a telephone book, the Internet or directory assistance. It is also necessary to verify the phone listing and address for the business. The written Verbal VOE form should include: Date of the verification Source of verification of the phone listing and address of the business (i.e. internet) Name and title of CPA or details of other source used to verify the business; or Name and title of the person who completed the Verbal VOE AUS Documentation The DU Findings Report will provide specific messages on the following income types when identified correctly: Base salary for salaried borrower, Base salary for self-employed borrower, Commission, bonus, and overtime income, Positive net rental income, Social security and disability income, Alimony and child support, and Pension or retirement income. For all other income types, standard FHA guidelines apply. Ocwen Loan Servicing LLC Client Select

83 Income, Continued IRS Form 4506-T Prior to April 15 th For loans receiving an approval through TOTAL, obtain tax transcripts for the number of years of income documentation required on the Desktop Underwriter Findings Report (DU). Ocwen requires the most recent Tax Return Transcript for all borrowers. For loans underwritten (defined as the last run date in DU) before April 15, 2015, if the borrower has NOT filed their 2014 tax returns, obtain the number of year(s) income documentation according to the DU findings. If the borrower has filed 2014, then follow instructions under the prior to June 15 th section. For Salaried Borrowers: If DU requires 1 year documentation, obtain 2013 tax transcript, current paystub and 2013 W-2. If DU requires 2 years documentation, obtain 2012 and 2013 tax transcripts, current paystub and 2013 and 2014 W-2s. NOTE: W2 transcripts for the required years are permitted in lieu of tax return transcripts. For Self-Employed Borrowers: DU requires 2 years documentation therefore obtain 2012 and 2013 tax returns and transcripts unaudited P&L and must be signed by the borrower; declining incomes will be taken into account. Note 2014 income may not be used in qualifying when only an unaudited P&L is provided Ocwen Loan Servicing Client Select

84 Income, Continued IRS Form 4506-T prior to June 15 th For loans underwritten (defined as the last run date in DU) prior to June 15, 2015, if the borrower has filed their 2014 tax returns, and the tax transcripts are not yet available, the tax transcript request will be returned from the IRS and reflect No Record Found, the following must be provided: 2014 Tax Transcript showing No record of return filed ; and, For Salaried Borrowers: o If DU requires 1 year documentation, obtain 2013 tax transcript, current paystub and 2014 W-2. o If DU requires 2 years documentation, obtain 2012 and 2013 tax transcripts, current paystub and 2013 and 2014 W-2s. NOTE: W2 transcripts for the required years are permitted in lieu of tax return transcripts. For Self-Employed Borrowers: o DU requires 2 years documentation therefore obtain 2012 and 2013 tax returns and transcripts. o In declining income scenarios, the 2014 unaudited P&L is required and must be signed by the borrower; declining incomes will be taken into account for qualifying ratios. o In increasing income scenarios, the 2014 audited P&L is required in order to be used for qualifying purposes. o Copy of the 2014 Tax Return reflecting proof of filing and evidence of tax payment. NOTE: See below if borrower filed an extension. Ocwen Loan Servicing LLC Client Select

85 Income, Continued IRS Form 4506-T after June 15 th For loans underwritten on or after June 15, 2015, the 2014 Tax Return Transcripts must be provided. If a borrower has filed an extension, the following must be provided: Evidence that the extension was filed and evidence of tax payment; and, A 2014 Tax Transcript showing No record or return filed ; and, For Salaried Borrowers: See above directions based on DU recommendations. For Self-Employed Borrowers: See above directions based on DU recommendations unaudited P&L and must be signed by the borrower; declining incomes will be taken into account. The official IRS period for extension expires October 15,2015; therefore, loans closing after this date will require 2013 tax returns for income verification. File must include a copy of the signed 2014 returns and if the IRS transcripts indicate No Record of Return Filed, then the below must be documented: Stamped copy of the tax returns from the IRS; OR If the borrower(s) E-filed their returns, then obtain evidence that the return was accepted by the IRS. IRS Form 4506-T Not Required to File Borrowers Not Required to File a 2013 Tax Return If a borrower is not required to file a 2013 tax return and the source of income cannot be validated through the 4506-T process, alternative documentation must be obtained. Examples of documentation include 1099 transcripts or an award letter with a bank statement Ocwen Loan Servicing Client Select

86 Income, Continued Salaried / Wage Income All of the following documentation is required: Pay stubs for the most recent 30 day period, W-2 s for the previous two (2) years, Verbal verification of employment from the current employer as noted above, and Signed IRS form 4506-T. Paystub and W2 Requirements The pay-stub must cover the most recent 30-day period. The paystub must not be any older than 120 days as of the Note date. The Pay-stub must be computer generated (typed) and clearly identify the borrower as the employee, all necessary information to calculate income, including gross year-to-date earnings, base salary with pay period specified, and must clearly specify the employer s name. If the borrower receives handwritten pay stubs, Ocwen will accept provided the following is obtained: Written Verification of Employment Most recent two years of computer generated W-2s Copies of the borrowers filed individual federal tax returns signed, with all schedules, for the most recent two years. IRS W-2 forms must be computer generated (typed) and clearly identify the Borrower, Borrower s address, social security number and Employer s Name. Ocwen Loan Servicing LLC Client Select

87 Income, Continued Alimony, Child Support, Maintenance Fannie Mae DU If Approve/Eligible, the following is required: o A copy of the front page of the divorce decree, o Copies of applicable pages from the divorce decree that provide details of support payments, including verification that the income will continue for at least three (3) years after loan closing, and o Verification of receipt of income for the last three (3) months, Bank statements or cancelled checks are acceptable. Manually Underwritten Income received from alimony, child support or maintenance payments must continue the first three (3) years after closing. o A copy of the divorce decree, legal separation agreement, voluntary agreement, or court order specifying the amount of support and the period of time over which it will be received is required. o Evidence (i.e., deposit slips, bank statements, front and back of canceled checks, court records or Federal tax returns) must be provided to reflect that the funds have been received for the last 12 months. o Period of less than 12 months may be acceptable provided the payer s ability and willingness to make timely payments is adequately documented. Properly documented child support income may be grossed up under the same terms and conditions as other non-taxable sources. See the subtopic Non-Taxable Income subsequently presented in this topic for additional information Ocwen Loan Servicing Client Select

88 Income, Continued Auto Allowances and Expense Account Payments Only the amount that an auto allowance and/or expense account exceeds actual expenditures can be considered as income. Income is documented with the most recent two (2) years tax returns (IRS Form Employee Business Expenses). The employer must verify that the allowance/account will continue. The borrower s car payment is treated as a recurring debt and cannot be offset by the car allowance. If there is a loss between the allowance and actual expenditures, that amount is considered a recurring debt and counted in the total debt ratio. If the borrower uses the standard per-mile rate in calculating auto expenses, as opposed to the actual cost method, the portion that the IRS considers depreciation may be added back to income. Capital Gains Capital gains (or loss) as shown on Schedule D of the Individual Tax Returns (IRS form 1040) generally occurs only one (1) time and should not be considered in determining effective income. If the borrower has a constant turnover of assets resulting in gains or losses, the capital gain or loss may be considered in determining the income, provided the borrower has at least three (3) years tax returns evidencing capital gains. Example: An individual who purchases old houses, remodels them and sells them for a profit. Must obtain copies of the borrowers filed individual federal tax returns signed, with all schedules, for the most recent three years. Schedule D reflects the Capital Gain income. A three year average must be completed when using Capital Gain income as qualifying income. Ocwen Loan Servicing LLC Client Select

89 Income, Continued Commission Income Commission income can be used to qualify: Must obtain copies of the borrowers filed individual federal tax returns signed, with all schedules, for the most recent two years, along with his/her most recent pay stub. The commission income is averaged over the two (2) year period. NOTE: commission income showing a decrease requires significant compensating factors to justify loan approval. Any un-reimbursed business expenses (Schedule A of tax returns) must be deducted from the borrower s income. Income received between one (1) and two (2) years may be considered if the underwriter is able to make a sound rationalization for acceptance and can document the likelihood of continuance. Employer Differential Payments If the employer subsidizes the mortgage payment, the amount of the payments is considered gross income. It may NOT be used to offset the mortgage payment directly, even if the employer pays the servicing lender directly. Employment by Family Owned Business The borrower must provide the Salary and Hourly Wage Earner Income as defined above, as well as evidence of not being an owner of the business. This evidence may include one of the following: A signed copy Federal personal tax returns, and/or A signed copy of the Federal corporate tax return showing ownership percentages (usually evidenced on the Schedule K-1), if applicable Ocwen Loan Servicing Client Select

90 Income, Continued Employment Gaps A borrower s income may be considered effective and stable when recently returning to work after an extended absence if he/she: Is employed in the current job for six (6) months or longer, and Can document a two (2) year history prior to an absence from employment using: Traditional employment verifications and/or Copies of W-2 forms or paystubs. NOTE: An acceptable employment situation includes an individual who took several years off from employment to raise children, then returned to the workforce. IMPORTANT: Employment situations not meeting the criteria listed above may only be considered as compensating factors. Extended absence is defined as six (6) months. Government Assistance Programs Government assistance in the form of workman s compensation, welfare programs, payments for foster children, unemployment income, etc. may be used to qualify the borrower. Documentation must be provided from the agency paying benefits to verify that the benefits are likely to continue for at least three (3) years after closing. If continuance of such income is not expected for three (3) years, it may be considered as a compensating factor. Unemployment income must be documented for two (2) years. Reasonable assurance of its continuance is also required. This applies to individuals employed on a seasonal basis, such as farm workers, resort employees, etc. Ocwen Loan Servicing LLC Client Select

91 Income, Continued Section 8 Home Ownership Vouchers Procedures for loan applications where the homebuyer receives a monthly homeownership assistance payment under the housing choice voucher homeownership program (Section 8) are shown below. All Section 8 subsidized mortgage loans must have 88 entered as the program identification code in the FHA Connection or its functional equivalent. FHA will assume that the subsidy will continue for at least three (3) years so that it may be considered effective income. The methods for qualifying the borrower are shown below. The homeownership assistance payment must be paid directly to the homeowner/borrower. The amount of the monthly subsidy may only be considered as income in determining the borrower s qualifying ratios. Qualifying instructions for this scenario are shown below. The amount of the non-taxable subsidy that is received directly by the homeowner may be grossed up by 25%. The amount of the subsidy plus 25% of that subsidy may be added to the borrower s income from employment and/or other sources in calculating the qualifying ratios. NOTE: Although HUD allows the homeownership assistance payments to be made directly to the servicing lender to offset the mortgage payment, Ocwen is unable to facilitate the procedure for receiving or allocating these funds. Therefore, the requirements shown above must be adhered to for eligibility purposes, without exception. Interest and Dividend Income Evidence required showing that the borrower still owns the assets generating the income used to qualify. Interest and dividend income must be documented as received for the past two (2) years. A two (2) year average is required to use such income to qualify for the mortgage. Two (2) years signed Federal tax returns or account statements must be provided. Funds used for down payment and/or closing costs must be subtracted before the interest is calculated Ocwen Loan Servicing Client Select

92 Income, Continued Military Income In addition to base pay, military personnel may be entitled to additional forms of pay provided its continuance is verified by a written Verification of Employment: Flight or hazard pay, BAS, Basic Allowance for subsistence (rations), Clothing allowance, Proficiency pay, and BAH, Basic Allowance for housing. Mortgage Credit Certificate If a government entity subsidizes a mortgage payment, either through direct payments or tax rebates, these payments are considered as acceptable income if verified in writing. Either type of subsidy may be added to gross income or used to offset the mortgage payment before calculating the qualifying ratios. New Employment If a borrower is about to begin a new job, there must be a guaranteed, non-revocable contract, fully executed by employee and employer, to begin the new position within 60 days of closing, and the income is acceptable for qualifying purposes. If the loan will close more than 60 days before the employment begins, the loan is not eligible for endorsement. There must be sufficient, verified income/cash reserves to support debt during the interim between closing and start of employment. Ocwen Loan Servicing LLC Client Select

93 Income, Continued Non-Taxable Income If a portion or all of the borrower's income comes from a source which is not subject to federal income tax, the amount of the tax savings on the non-taxable portion of income may be added to the borrower's gross income ("grossed up"). The percentage which may be added may not exceed the appropriate tax rate for that income. The underwriter must justify the "grossed up" portion and document the source of the tax rate. The underwriter should use the tax rate used to calculate the past year's tax. If the borrower is not required to file a federal income tax return, a rate of 25% may be used. Note Receivable Income Income received from the repayment of a note must be verified by a copy of the note to establish the amount and length of payments. Payments must continue for the first three (3) years after closing. Evidence (i.e., front and back of canceled checks, deposit slips or Federal tax returns) must be provided evidencing that the funds have been received consistently for the past 12 months Ocwen Loan Servicing Client Select

94 Income, Continued Overtime / Bonus Income Overtime and bonus income is treated as salaried income. Overtime or bonus income may be used to qualify the borrower if it meets the following guidelines: There must be a two (2) year history. The likelihood that the overtime or bonus income will continue must be written on the verbal verification of employment or verified on the written verification of employment. The income is averaged over the most recent two (2) year period. If there is a decline in income, there must be justification for using it as qualifying income. If the income is not consistent from year to year, more than two (2) years income must be averaged to calculate an acceptable qualifying income. If received less than two (2) years, the income may be acceptable if it can be documented that it will continue. A trend must be established and analyzed. The reason for using the income for qualifying purposes must be justified and documented in writing. Ocwen Loan Servicing LLC Client Select

95 Income, Continued Second Job Income HUD defines part-time income (second job income) as income from a job taken in addition to a borrower s regular employment that supplements the borrower s income. If a borrower s regular employment is less than the typical 40 hour work week, the stability of that income should be evaluated as any other regular, on-going primary employment. Part-time income from second job may be used if it can be verified as having been uninterrupted for the previous two (2) years and if it has a strong likelihood of continuation. A seasonal part-time or second job (such as that received by a person who works part-time at a department store during the Christmas shopping period) can be considered as uninterrupted if the borrower has worked in the same job in season for the past two years and expects to be rehired for the next season. (i.e., umpiring baseball games in summer). Income from a part-time position that has been received for less than two (2) years may be included as effective income provided that the continuance of such income can be verified, and use of this income is justified and documented in the file. Income that does not meet these requirements may be considered as a compensating factor Ocwen Loan Servicing Client Select

96 Income, Continued Projected Income Projected or hypothetical income is not acceptable for qualifying purposes. However, exceptions to this rule are permitted as shown below. Income from bonuses, cost-of-living adjustments, or performance raises (must be well documented with verification from the borrower s employer) may be used if documentation verifies that it will be received within 60 days after closing. Income from an accepted (but not yet started) job with a guaranteed, non-revocable contract for employment beginning within 60 days of loan closing may be used in qualifying. However, it must be verified that there will be sufficient income or cash reserves to support the mortgage payment and other obligations during the interim period between loan closing and start of employment. (i.e., teachers whose contracts begin with the new school year, or physicians who will begin residency after the loan is scheduled to close.) If the loan will close more than 60 days before the borrower s employment begins, the loan is NOT eligible for insuring until receipt of a pay stub or other acceptable evidence that the borrower has begun the new job. Recent Return to Work Force Borrowers who have been out of the work force for a significant period of time may use income they receive from returning to work provided the following guidelines are met: The borrower must be employed in his/her current job for at least six (6) months, A two-year work history prior to the absence from the work force (i.e., written verification of employment or W-2 s) must be documented, and Income from employment may only be considered as a compensating factor if these requirements cannot be met. Ocwen Loan Servicing LLC Client Select

97 Income, Continued Rental Income Rent received for other properties owned by the borrower is acceptable if documented that the rental income is stable. Rent received from additional units in the subject property (if a 2-4 unit property) may be used for qualifying purposes. See the subtopic Conversion of Existing Primary Residence to Rental Property or Second Home for additional information on rental income. Net rental income is calculated by taking the gross rents, minus the twentyfive percent (25.00%) reduction (or local office s percentage reduction for vacancies and repairs), then subtract the monthly payment of PITI. If this yields a positive number, add it to the borrower s monthly gross income; if negative, consider it a recurring monthly obligation. Rental income is verified using one (1) of the following documentation methods: Schedule E of IRS Form 1040 (any depreciation is added back to the net income or loss reflected on the Schedule and the current ownership of the properties listed on Schedule E must be compared to the real estate owned section of the loan application), or NOTE: To be considered stable income, when tax returns are used to calculate the rental income and a current lease (or agreement to lease) is not provided, the 24-month rental history must be free of any unexplained gaps greater than three (3) months. Current leases (if the property was acquired since the last income tax year and is not listed on Schedule E, a current signed lease or other rental agreement must be provided and the gross rental is reduced by 25%* to allow for vacancies and maintenance before calculating net rental income). NOTE: Please check your HOC for their specific vacancy factor. To calculate rental income using the 1040 Schedule E, use the net income plus depreciation for both tax years and average the figures over the 24 month period. Using this calculation, you will not include the mortgage payment in the total debt as the debt is already reflected in the net income after expenses. *Note: If income has declined from previous year, take the same considerations as declining self-employed income to determine the stability for qualification. When using a lease is necessary to calculate rental income, use the gross monthly amount of the lease less the appropriate jurisdictional HOC vacancy factor and include the payment in the debt ratios. Income from boarders is acceptable when it is received from a relative and can be shown on the borrower s Federal tax returns. Otherwise, it may be used as a compensating factor. If six (6) or more units are owned in the same general area, a map disclosing the locations must be submitted evidencing compliance with FHA s seven (7) unit limitation Ocwen Loan Servicing Client Select

98 Income, Continued Rent Loss Insurance When rental income is being used to qualify AND the subject property is secured by a 2-4 unit primary residence, Ocwen will require the borrower to obtain rent loss insurance to cover at least six (6) months of gross monthly rent. Rent loss insurance is not required if rental income from the subject property is not being used to qualify. Rent loss coverage must be included as a part of the hazard insurance policy as an endorsement. The yearly hazard insurance premium must include the additional premium the borrower must pay for this coverage. The rent loss coverage provided in the hazard insurance policy must cover a minimum of six (6) months of gross monthly rent. If the insurance company will not issue an endorsement to the hazard insurance policy for the rent loss coverage, the acceptance of a separate insurance policy will be considered on a case-by-case basis. Current published hazard insurance policy requirements (i.e., policy term, policy prepayment, escrow collection, etc.) will apply for the separate policy. Rent loss insurance covers rental losses that are incurred during the period that a property is being rehabilitated following a casualty. Ocwen Loan Servicing LLC Client Select

99 Income, Continued Retirement and Social Security Retirement income must be verified with documentation from the former employer or with the most recent Federal tax returns. The income must continue for at least three (3) years after closing; otherwise, it can be used only as a compensating factor. Income received from the Social Security Administration (SSA) which can include Supplemental Security Income (SSI), Social Security Disability Income (SSDI) and Social Security Income must be verified with a copy of the last Notice of Award letter or equivalent document that establishes award benefits to the borrower AND one (1) of the following: Most recent federal tax returns Most recent bank statement evidencing receipt of income from the SSA A Proof of Income Letter, also known as a Budget Letter or Benefits Letter A copy of the borrower s Social Security Benefit Statement, SSA 1099/1042S Documentation should establish the income is likely to continue for at least three (3) years after the date of the mortgage application. However, if the Notice of Award or equivalent document does not have a defined expiration date the income can be considered likely to continue. NOTE: Pending or current re-evaluation of medical eligibility for benefit payments is not considered an indication the benefit payment is not likely to continue. Inquiries into or request for additional documentation concerning the nature of the disability or medical condition of the borrower are not allowed. Self-Employed Overview Individuals who own twenty-five percent (25.00%) or more interest in a business are considered self-employed Ocwen Loan Servicing Client Select

100 Income, Continued Effective Income Effective Income The total net profit of the business if a sole proprietorship with depreciation or depletion added back to the adjusted gross. The amount of the draw or bonus taken from the capital account if the business is a partnership plus the borrower s share of the net profit. Or The amount of wages or salary as shown on the W-2 if the business is a corporation, plus any bonus or other compensation, deducting any spousal income. Income Analysis Establish an earnings trend over the previous two (2) years. Three (3) years may be used if all three (3) years tax returns are provided. Quarterly tax return income may be included through the period covered by the tax filings. If no quarterly returns, the income shown on the P&L statement may be included provided the income stream is consistent with the previous years earnings. If the P&L shows an income stream considerably greater than previous years, the analysis must be based solely on the income verified through the tax returns. Careful analysis of the business financial strength, the source of its income, and the general economic outlook for similar businesses in the area. A borrower whose business shows a significant decline in income over the period analyzed is not acceptable, even if current income and debt ratios meet HUD guidelines. A borrower s withdrawal of cash from the business may have a severe negative impact on the ability of the business to continue operating and must be carefully considered in the analysis. Ocwen will accept the use of business funds only when the borrower is a Schedule C. The file must contain the conclusion that the withdrawal of the business funds will not negatively affect the operation of the business. Examples of supporting documents in the analysis are (but not limited to) a CPA letter or 12 month business account bank statements. Ocwen Loan Servicing LLC Client Select

101 Income, Continued Length of Time in Business If the borrower has been in business for at least two (2) years, income may be considered stable and effective. If the borrower has been in business between one (1) and two (2) years, he/she must have at least two (2) years previous employment or a combination of one (1) year employment and formal schooling or training in the occupation. If the borrower has been in business less than one year, income is not eligible due to lack of earnings history Ocwen Loan Servicing Client Select

102 Income, Continued Self-Employed Income Documentation Fannie Mae DU The borrower must provide two (2) years of individual federal tax returns and corporate or partnership federal tax returns (if applicable to business). If Approve/Eligible, the borrower is not required to provide business tax returns if ALL of the following can be met: Individual Federal tax returns show increasing self employed income over the past two (2) years, Funds to close are not coming from business accounts, The loan is not a cash out refinance. NOTE: A business credit report is not required for a corporation or S corporation. A profit and loss statement (P&L) and a balance sheet is required if more than a calendar quarter has elapsed since date of most recent calendar year or fiscal-year end tax return was filed by the borrower. If income used to qualify the borrower exceeds the two-year average of tax returns, an audited P&L or signed quarterly tax returns obtained from the IRS are required. Manually Underwritten Signed and dated Federal individual income tax returns with all schedules for the two (2) most recent previous years (if current year taxes have been filed, proof of filing may be required (i.e. IRS stamp on the tax return). Signed and dated current financial statement, including a year-to-date balance sheet and income statement. If the business is a corporation or partnership signed and dated Federal business tax returns for the most recent two (2) years with all schedules (if current year taxes have been filed, proof of filing may be required, i.e., canceled checks or IRS stamp on the tax return). Business credit report on corporations and S corporations. Reference: See HUD Handbook Chapter 4 Section D ( D.70b) for additional information on analyzing Individual, Corporate, S Corporation, and Partnership tax returns. Ocwen Loan Servicing LLC Client Select

103 Income, Continued Foreign Income Borrower must be US citizens receiving foreign employment income generated from a non-u.s. employment source. Borrower(s) must provide a two (2) year history of receipt, as well as a three (3) year continuance after loan application must be established for the income to be used to qualify. Non-US source of income may not include sanctioned countries administered by OFAC. Foreign income must be supported by: The most recent two (2) years signed U.S. federal tax returns, and Standard income documentation and requirements, based on source and type of income (i.e., year-to-date paystub and W-2s or other comparable documents). The income must be translated into US dollars. Foreign tax returns translated into U.S. dollars are NOT acceptable. Underwriter must use due diligence in determining continuance of income and focus on borrower s occupation, tenure, past employment history, probability of continued employment. Tip Income Must have been received for at least the most recent two (2) years. Documentation that the current employer expects the tip income to continue is required. Tip income should be averaged over the past two (2) years to determine the amount of income that may be considered in qualifying the borrower. NOTE: Tip income must be entered in DU as Other Types of Income Ocwen Loan Servicing Client Select

104 Income, Continued Temporary Leave and Short Term Disability Income Temporary leave from employment is generally short in duration and may encompass various circumstances such as maternity, medical, short-term disability, or other temporary leaves with or without pay. The period of time that a borrower is on temporary leave is determined by various factors such as applicable law, employer policies, and short term insurance and/or benefit terms. Leave from work ceases being considered temporary when the borrower does not intend to return to the current employer or does not have a commitment from the current employer to return to work. Underwriters must determine the allowable qualifying income as follows: If the borrower will return to work prior to the first mortgage payment, then the borrower s regular employment income that will be received upon their return to work may be used for qualifying. If the borrower will return to work after the first mortgage payment, then the borrower s temporary leave income is used for qualifying. Documentation evidencing amount, duration, and consistency for all temporary leave income sources must be obtained when used for qualifying. Verify the borrower s pre-leave income and employment, regardless of leave status. Obtain documentation from current employer confirming the borrower s statutory right to return to work (or employer s commitment to permit the borrower to return to work), the confirmed date of return, and the borrower s post-leave employment and income. Obtain written statement signed by the borrower confirming that they will return to their current employer and stating the confirmed date of return. When a borrower is currently receiving short-term disability payments that will decrease to a lesser amount within the next three (3) years because they are being converted to long-term benefits, the amount of the long-term payments must be used in determining the borrower s stable income. In addition to the above guidelines, the following applies for worker s compensation: Benefits that have a defined expiration date must have a remaining term of at least three (3) years from the date of the mortgage application in order to be used for qualifying the borrower. A copy of the borrower s disability policy or benefits statement must be obtained to verify the amount of the disability payments and to determine whether there is a contractually established termination or modification date. A statement from the benefits payer (insurance company, employer, or other qualified and disinterested party) must be obtained to confirm the borrower s current eligibility for the disability benefits. Ocwen Loan Servicing LLC Client Select

105 Income, Continued Trailing Spouse Not Permitted. Trust Income A copy of the Trust Agreement or the Trustee s statement confirming the amount, frequency and duration of payments must be provided. The income must continue for at least three (3) years after closing. Lump sum distributions made before loan closing may be used for down payment or closing costs if they are verified by a copy of the check or the Trustee s letter that shows the distribution amount. If a distribution was made that reduces the Trust income, the reduction must be taken into consideration in computing the income. VA Benefits Income received in the form of VA benefits must be documented by a letter or distribution form from the Veterans Administration. The income must continue for at least three (3) years after closing. Education benefits are not acceptable income, as it offsets education expenses Ocwen Loan Servicing Client Select

106 Income, Continued Borrowers on Strike The guidelines below apply to a borrower who is currently out of work due to a strike at his/her place of employment. The file must contain evidence that the borrower has returned to work. One of the following methods may be used for confirmation: A written verification from the employer confirming the borrower is back to work, or A verbal verification with either the Human Resources Department, Payroll Department or the borrower s supervisor. NOTE: Ocwen must be able to verify and obtain the information directly with the employer (no third party documentation). Ocwen Loan Servicing LLC Client Select

107 Liabilities and Qualifying Ratios Alimony Payment of alimony may be treated in one (1) of two (2) ways: as a reduction from the borrower s gross income, or as a monthly obligation. DE Underwriter should choose whichever method benefits the borrower the most. Child Support Child support must be treated as a monthly obligation. Authorized User Accounts All monthly debt obligations on authorized user accounts must be included in the debt-to-income ratio or the borrower must be removed as an authorized user. Condominium Fees With proper verification, that portion of the condo fee that clearly covers the utilities may be subtracted from the mortgage payment before computing ratios Ocwen Loan Servicing Client Select

108 Liabilities and Qualifying Ratios, Continued Contingent Liability A contingent liability exists when a borrower holds a joint obligation with another person or persons. Obligations where the borrower is a co-signer must be listed as the borrower s debt, unless the borrower can provide conclusive evidence from the debt holder that there is no possibility the debt holder will pursue debt collection against him/her should the other party default. Mortgage Debt: If a borrower is obligated on an outstanding HUD, VA or conventional mortgage secured by a property which has been sold by assumption, contract for Deed or traded within the last twelve (12) months without a release of liability, or a property was transferred because of divorce, contingent liability must be considered a recurring liability unless the following circumstances apply: o The Servicer of the assumed loan provides a payment history showing that the mortgage has been current during the previous twelve months, or o An appraisal or closing statement from the sale of the property supports a value that results in a seventy-five percent (75.00%) LTV ratio (i.e., the outstanding balance on the mortgage loan, minus any UFMIP, cannot exceed seventy-five percent (75.00%) of the appraised value or sales price). o A copy of the divorce decree ordering the former/separated spouse to make payments or the assumption agreement and the deed showing transfer of title out of the borrower s name is required. o If Approve/Eligible, the following is required: o obtain a copy of the divorce decree ordering the other spouse to make payments, or o The assumption agreement and the deed showing transfer of title out of the borrower s name. There is no twelve (12) month payment history requirement. Co-Signed Obligations: If the borrower is a co-signer, or otherwise co-obligated on a car loan, student loan, mortgage, or any other obligation, contingent liability applies unless documentation is obtained to prove the primary obligor has been making payments during the previous 12 months on a regular basis and does not have a history of delinquent payments on the loan. Business Paid Debt. For a Partnership, Corporation, or S-Corporation, Installment and Revolving debt paid by the borrower s owned business may be omitted from debt calculation with 12 month canceled checks from the business. If the business structure is a Schedule C/Sole Proprietor, then the debt cannot be excluded from ratios. Ocwen Loan Servicing LLC Client Select

109 Liabilities and Qualifying Ratios, Continued Conversion of Existing Primary Residence Conversion of existing Primary Residence to a Second Home or Investment Property: This guidance applies solely to a principal residence being vacated in favor of another principal residence. The housing payments for the current primary residence and the new proposed primary residence must be included in the debt to income calculation. Underwriters are not permitted to include rental income from a primary residence being vacated in favor of another principal residence unless one of the following applies: The homebuyer has a 75% LTV/CLTV or less, as determined by a current residential appraisal (no more than six months old as of the Note Date and may be exterior-only) on the current primary residence, OR The homebuyer is relocating with a new employer, or being transferred by the current employer to an area that is not within a reasonable commuting distance. Required for either scenario above: Evidence of a properly executed lease agreement of at least one year in term after the loan closing date and evidence of the security deposit and/or the first month s rent was paid to the homeowner must be in the loan file. Traditionally underwritten loans must document the following reserve requirements: Three (3) months reserves on BOTH properties, if the homebuyer cannot provide evidence of a seventy-five percent (75.00%) LTV/CLTV or less on the current primary residence, Two (2) months reserves on BOTH properties, if the homebuyer can provide evidence of a seventy-five percent (75.00%) LTV/CLTV or less on the current primary residence. NOTE: TOTAL Scorecard will determine reserve requirements for AUS approved transactions Ocwen Loan Servicing Client Select

110 Liabilities and Qualifying Ratios, Continued Installment Debt Generally, installment debt with less than ten (10) remaining payments is not considered in the qualifying ratios. If the debt is other than a fixed installment, the underwriter must verify that the monthly installments plus interest are equal to an amount that can be paid off within ten (10) months. Reliance solely on the credit report is insufficient. Thus, it will be necessary to obtain a copy of the borrower s pay statement, or other documentation, to determine the interest rate and number of payments required to satisfy the debt. If the monthly payment on debts with less than ten (10) remaining payments is large enough to seriously affect the borrower s ability to make the mortgage payment in the months immediately following closing, the monthly payment must be included in the debt ratios. An exception may be granted if the borrower has sufficient cash reserves after loan closing to supplement his/her income for payment of the debt. FHA TOTAL Scorecard: If a liability has less than ten (10) remaining payments and the payment is less than $100, it is not counted in the borrower s debt ratio. All other liabilities listed on the 1003 will be considered in the borrower s ratio. Manually Underwritten: All liabilities listed on the 1003 will be considered in the borrower s ratio. Obligations not considered as Debt Federal/state/local taxes, FICA or other retirement contributions such as 401Ks (including repayment of debt secured by these funds), Commuting costs, Union dues, 401(k) payments, Automatic deductions to savings accounts, Child care, and Other voluntary deductions. Open Accounts with zero balances Ocwen Loan Servicing LLC Client Select

111 Liabilities and Qualifying Ratios, Continued Projected Debt If a debt, such as a student loan or balloon note, is scheduled to begin repayment or to become due within the first 12 months of loan closing, the client must include the monthly obligation or take into consideration the note when qualifying the borrower. Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month timeframe. PITIA The taxes, insurance and HOA assessments, if applicable, due on a property owned by a borrower must always be considered in the borrower s debt to income ratios, including properties that are currently owned free and clear. Generally, for a current FHA insured loan it is assumed that, if the mortgage has been reported to the credit repositories, the payment includes taxes and insurance. This assumption also includes mortgages that are not on the credit report and other verification has been provided. However, for non-fha insured current loans, the underwriter should confirm taxes and insurance(s) are included. If the mortgage is with a private individual, it is assumed that the payment does NOT include taxes and insurance. If the borrower discloses that the mortgage payment does not include taxes and/or insurance or the mortgage is with a private individual, the following applies: The borrower must provide the amount of taxes and/or insurance (translated into a monthly figure), The monthly taxes and/or insurance must be treated as a liability, and Documentation of the taxes and/or insurance is determined by underwriter discretion based on the borrower s cash reserves Ocwen Loan Servicing Client Select

112 Liabilities and Qualifying Ratios, Continued Qualifying Ratios For Case Numbers Assigned prior to April 21, 2014 If Approve/Eligible, no explanation is required for qualifying the borrower at ratios above FHA guidelines when this occurs. For Manually Underwritten Loans, housing ratios exceeding 31% may be acceptable ONLY if significant compensating factors, as defined below, are documented and recorded on the FHA Loan Underwriting and Transmittal Summary (HUD LT). Total debt ratios may not exceed 43.00%. The maximum DTI for Ocwen on any Manually Underwritten Transaction is 43.00%. The housing ratio includes the PITI of the new mortgage, mortgage insurance, homeowner s association dues, and payments on secondary financing. The debt ratio includes housing ratio items, installment loans, revolving credit, other mortgage payments and any other monthly debt. Victims of a Presidentially-Declared Major Disaster Area may have a debt ratio up to 45% without compensating factors. This debt ratio may be exceeded with appropriate compensating factors. Evidence that the borrower resided in the disaster area during the occurrence must be provided. This remains in effect for up to one-year from the date of the President s declaration. Check the FEMA website to obtain specific affected counties and corresponding declaration dates for the Major Disaster Areas. Ocwen Loan Servicing LLC Client Select

113 Liabilities and Qualifying Ratios, Continued Qualifying Ratios - For Case Numbers Assigned on or after April 21, 2014 If Approve/Eligible, no explanation is required for qualifying the borrower at ratios above FHA guidelines when this occurs. Manually Underwritten Loans: Borrowers With Minimum Decision Credit Scores of 620 or More and No Compensating Factors The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 620 or more and no compensating factors are as follows: Total monthly mortgage payment may not exceed 31% of gross effective monthly income (33% for Energy Efficient Homes); and Total monthly fixed payment may not exceed 43% of gross effective monthly income. Borrowers With Minimum Decision Credit Scores of 620 or More and One Compensating Factor The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 620 or more provided they meet one of the compensating factors specified below are as follows: Total monthly mortgage payment may not exceed 37% of gross effective monthly income; and Total monthly fixed payment may not exceed 43% of gross effective monthly income. Acceptable compensating factors are limited to the following: Verified and documented cash reserves that equal or exceed three total monthly mortgage payments (one and two units) or that equal or exceed six total monthly mortgage payments (three and four units); New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less, and there is a documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous twelve months. Residual income (see below). NOTE: See the following section below in this Lending Guide for full detail on Compensating factors and Residual Income: Compensating Factors (For Case Numbers assigned prior to April 21, 2014) Residual Income for Manually Underwritten Ocwen Loan Servicing Client Select

114 Liabilities and Qualifying Ratios, Continued Qualifying Ratios - For Case Numbers Assigned on or after April 21, 2014 (Continued) Borrowers With Minimum Decision Credit Scores of 620 or More and Two Compensating Factors The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 620 or more provided they meet two of the compensating factors specified below are as follows: Total monthly mortgage payment may not exceed 40% of gross effective monthly income; and Total monthly fixed payment may not exceed 43% of gross effective monthly income. Acceptable compensating factors are limited to the following: Verified and documented cash reserves that equal or exceed three total monthly mortgage payments (one and two units) or that equal or exceed six total monthly mortgage payments (three and four units); New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less, and there is a documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous twelve months. Verified and documented significant additional income that is not considered effective income; and Residual income (See below) NOTE: See the following section below in this Lending Guide for full detail on Compensating factors and Residual Income: Compensating Factors (For Case Numbers assigned prior to April 21, 2014) Residual Income for Manually Underwritten Ocwen Loan Servicing LLC Client Select

115 Liabilities and Qualifying Ratios, Continued Qualifying Ratios - For Case Numbers Assigned on or after April 21, 2014 (Continued) Borrowers With Minimum Decision Credit Scores of 620 or More with No Discretionary Debt The maximum allowable qualifying ratios for borrowers with minimum decision credit scores of 620 or more with established credit lines in their own name open for at least six months who carry no discretionary debt (housing payment is only account with an outstanding balance and borrower can document that revolving credit has been paid off in full monthly for at least the previous six months) are as follows: Total monthly mortgage payment may not exceed 40% of gross effective monthly income; and Total monthly fixed payment may not exceed 40% of gross effective monthly income. For borrowers meeting this criterion no other compensating factors are required Qualifying Ratios - NOTES For Case Numbers Assigned on or after April 21, 2014 NOTE: The maximum DTI for Ocwen on any Manually Underwritten Transaction is 43.00%. The housing ratio includes the PITI of the new mortgage, mortgage insurance, homeowner s association dues, and payments on secondary financing. The debt ratio includes housing ratio items, installment loans, revolving credit, other mortgage payments and any other monthly debt. Victims of a Presidentially-Declared Major Disaster Area may have a debt ratio up to 45% without compensating factors. This debt ratio may be exceeded with appropriate compensating factors. Evidence that the borrower resided in the disaster area during the occurrence must be provided. This remains in effect for up to one-year from the date of the President s declaration. Check the FEMA website to obtain specific affected counties and corresponding declaration dates for the Major Disaster Areas Ocwen Loan Servicing Client Select

116 Liabilities and Qualifying Ratios, Continued Maximum Qualifying Ratio Matrix The maximum total monthly mortgage payment to gross effective income ratios and total monthly fixed payments to gross effective income ratios applicable to manually underwritten loans are summarized in the matrix below. NOTE: See the following section below in this Lending Guide for full detail on Compensating factors and Residual Income: Compensating Factors (For Case Numbers assigned prior to April 21, 2014) Residual Income for Manually Underwritten Manual Underwriting Matrix For Case Numbers Issued on or After April 21, 2014 Lowest Minimum Decision Credit Score Maximum Qualifying Ratios (%) Acceptable Compensating Factors 620 and above 31/43 No compensating factors required. 620 and above 37/43 One of the following: Verified and documented cash reserves equal to at least three total monthly mortgage payments (1-2 units) or six total monthly mortgage payments (3-4 units). New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and a there is documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months. Residual Income 620 and above 40/40 Borrower has established credit lines in his/her own name open for at least six months but carries no discretionary debt (i.e., monthly total housing payment is only open installment account and borrower can document that revolving credit has been paid off in full monthly for at least the previous six months). 620 and above 40/43 Two of the following: Verified and documented cash reserves equal to at least three total monthly mortgage payments (1-2 units) or six total monthly mortgage payments (3-4 units). New total monthly mortgage payment is not more than $100 or 5% higher than previous total monthly housing payment, whichever is less; and a there is documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months. Verified and documented significant additional income that is not considered effective income (i.e., part-time or seasonal income verified for more than one year but less than two years). Residual Income. Ocwen Loan Servicing LLC Client Select

117 Liabilities and Qualifying Ratios, Continued Compensating Factors For Case Numbers assigned prior to April 21, 2014 Compensating factors may be used if a borrower s debt ratios exceed the guidelines if an approval is granted. Underwriters must state in the underwriter comments section of the FHA Loan Underwriting and Transmittal Summary (HUD LT) the compensating factors used to justify their loan approval. Some common examples of compensating factors listed below: Borrower has substantial documented cash reserves after closing. (At least three (3) months worth of liquid or readily convertible to cash without retirement or job termination. Other exclusions are gift funds, funds borrowed against IRAs, thrift savings plans, 401(k)s, etc., equity in other properties or proceeds from a cash out refinance). Borrower has demonstrated the ability to accumulate savings. Borrower makes a large down payment (ten percent (10%) or more.), Borrower has demonstrated a conservative use of credit. Borrower has demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage over the past months. Previous credit history shows that the borrower has the ability to devote a greater portion of income to housing expenses. the borrower receives documented compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits. There is only a minimal increase in the borrower s housing expense. The borrower has substantial non-taxable income (if no adjustment made previously in the ratio computations). The borrower has potential for increased earnings, as indicated by job training or education in the borrower s profession, or The home is being purchased as the result of relocation of the primary wage earner and the secondary wage-earner has an established history of employment, is expected to return to work, and there is reasonable prospects for securing employment in a similar occupation in the new area. The Underwriter must address the availability of such possible employment. NOTE: It is not permissible to require the borrower to make advance payments on his mortgage for consideration as a compensating factor Ocwen Loan Servicing Client Select

118 Liabilities and Qualifying Ratios, Continued Compensating Factors For Case Numbers assigned on or after April 21, 2014 Verified and Documented Cash Reserves Compensating factors cited to support the underwriting decision must be recorded in the Underwriter Comments section of Form HUD LT, FHA Loan Underwriting and Transmittal Summary. Documentation supporting the compensating factors cited must be included in the endorsement case binder including, if applicable, a worksheet attached to Form HUD LT reflecting the calculation of residual income. The table below describes the compensating factors (and the documentation required to support the compensating factors) that may be used to justify approval of manually underwritten loans with ratios that exceed FHA standard qualifying ratios: Verified and documented cash reserves may be cited as a compensating factor subject to the following requirements. Rare equal to or exceed three total monthly mortgage payments (one and two units); or Reserves are equal or exceed six total monthly mortgage payments (three and four units). Funds and/or assets that are not to be considered as cash reserves include Gifts; Equity from another property; Borrowed funds; and Cash received at closing in a cash-out refinance transaction or incidental cash received at closing in the loan transaction. The mortgagee may use a portion of a borrower's retirement account (IRA, Thrift Savings Plan, 401k, and Keogh accounts) to calculate cash reserves, subject to the following conditions: To account for withdrawal penalties and taxes, only 60% of the vested amount of the account, less any outstanding loans, may be used. The mortgagee must document the existence of the account with the most recent depository or brokerage account statement. In addition, evidence must be provided that the retirement account allows for withdrawals under conditions other than in connection with the borrower's employment termination, retirement, or death. If withdrawals can be made only in connection with the borrower's employment termination, retirement, or death, the retirement account may not be used to calculate the borrower s cash reserves. If any of these funds are also to be used for loan settlement, that amount must be subtracted from the amount included as cash reserves Minimal Increase in Housing Ocwen Loan Servicing LLC Client Select A minimal increase in housing payment may be cited as a compensating factor subject to the following requirements: The new total monthly mortgage payment does not exceed the current total

119 Payment No Discretionary Debt Significant Additional Income Not Reflected in Gross Effective Income Residual Income monthly housing payment by more than $100 or 5%, whichever is less; and There is a documented twelve month housing payment history with no more than one 30 day late payment. In cash-out transactions all payments on the mortgage being refinanced must have been made within the month due for the previous 12 months. If the borrower has no current housing payment mortgagees may not cite this compensating factor. Reference: Refer to HUD Handbook , Chapter 1, Section B.2.a for information on documenting the previous housing payment No discretionary debt may be cited as a compensating factor subject to the following requirements: The borrower s housing payment is the only open account with an outstanding balance that is not paid off monthly; The credit report shows established credit lines in the borrower s name open for at least six months; and The borrower can document that these accounts have been paid off in full monthly for at least the past six months) Borrowers who have no established credit other than their housing payment, no other credit lines in their own name open for at least six months, or who cannot document that all other accounts are paid off in full monthly for at least the past six months, do not qualify under this criterion. Credit lines not in the borrower s name but for which he or she is an authorized user do not qualify under this criterion. Additional income from bonuses, overtime, part-time or seasonal employment that is not reflected in gross effective income can be cited as a compensating factor subject to the following requirements The mortgagee must verify and document that the borrower has received this income for at least one year, and it will likely continue; and The income, if it were included in gross effective income, is sufficient to reduce the qualifying ratios to not more than 37/47. Income from non-borrowing spouses or other parties not obligated for the mortgage may not be counted under this criterion. This compensating factor may be cited only in conjunction with another compensating factor when qualifying ratios exceed 37/47 but are not more than 40/50. Residual income may be cited as a compensating factor provided it can be documented and it is at least equal to the applicable amounts for household size and geographic region found on the Table Of Residual Incomes By Region found in VA Pamphlet Ocwen Loan Servicing Client Select

120 Liabilities and Qualifying Ratios, Continued Residual Income for Manually Underwritten VA Guidance on Residual Income FHA has modeled the calculation of residual income on underwriting guidance provided by the Department of Veterans Affairs (VA) in Chapter 4 of VA Pamphlet 26-7 at as modified in this Mortgagee Letter. FHA is also using the tables from the VA guidelines for the determination of whether residual income is sufficiently high to qualify as a compensating factor. Calculating Residual Income Residual income is calculated in accordance with the following: Calculate the total gross monthly income of all occupying borrowers. Deduct from gross monthly income the following items: Residual Income, Deductions From Gross Monthly Income State income taxes Federal income taxes Municipal or other income taxes Retirement or Social Security Proposed total monthly fixed payment Estimated maintenance and utilities Job related expenses (e.g., child care) NOTE: Evidence of Job Related Expense must be in the file.) Subtract the sum of the deductions from the table above from the total gross monthly income of all occupying borrowers. The balance is residual income. Reference: Total monthly fixed payment is defined in HUD Handbook , Chapter 4, Section F.2.c. Ocwen Loan Servicing LLC Client Select

121 Liabilities and Qualifying Ratios, Continued Residual Income for Manually Underwritten (Cont d) Calculating Gross Monthly Income Gross monthly income should be calculated only for the occupying borrowers consistent with the requirements of HUD Handbook , Chapter 4, Section D. Do not include bonus, part-time or seasonal income that does not meet the requirements for effective income as stated in HUD Handbook , Chapter 4, Section 2.b-e. Do not include income from non-occupying co-borrowers, co-signers, nonborrowing spouses, or other parties not obligated on the mortgage. Because taxes are taken into account in the calculation of residual income, non-taxable income may not be grossed up. Calculating Monthly Expenses If available, mortgagees must use Federal and state tax returns from the most recent tax year to document state and local taxes, retirement, Social Security and Medicare. If tax returns are not available, mortgagees may rely upon current pay stubs. For estimated maintenance and utilities in all states, mortgagees should multiply the living area of the property (square feet) by $0.14. Example: 1,500 square feet x.14 $ per month Ocwen Loan Servicing Client Select

122 Liabilities and Qualifying Ratios, Continued Residual Income for Manually Underwritten (Cont d) To use residual income as a compensating factor, count all members of the household of the occupying borrowers without regard to the nature of their relationship and without regard to whether they are joining on title or the note. Exception: As stated in the VA Guidelines, the mortgagee may omit any individuals from "family size" who are fully supported from a source of verified income which is not included in effective income in the loan analysis. These individuals must voluntarily provide sufficient documentation to verify their income to qualify for this exception. From the table below, select the applicable loan amount, region and household size. If residual income equals or exceeds the corresponding amount on the table, it may be cited as a compensating factor. Table of Residual Incomes by Region For loan amounts of $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 member up to a family of seven Table of Residual Incomes by Region For loan amounts of $80,000 and above Family Size Northeast Midwest South West 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 member up to a family of seven Ocwen Loan Servicing LLC Client Select

123 Liabilities and Qualifying Ratios, Continued Residual Income for Manually Underwritten (Cont d) Region Northeast Midwest South West States Included in Regions The Regions on the Table of Residual Income include the following states: CT, MA, ME, NH, NJ, NY, PA, RI, VT States 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 NOTE: HUD is adopting this VA guidance solely for the purposes of calculating residual income for use as a compensating factor on manually underwritten loans. Other VA underwriting policies cannot be used in connection with FHA loans, or cited as compensating factors Ocwen Loan Servicing Client Select

124 Liabilities and Qualifying Ratios, Continued Undisclosed Debt Information disclosed on the loan application must be accurate and current through loan closing. This information includes (but is not limited to) any additional credit applied for or incurred during the application process and through loan closing. If the borrower indicates new debt has been incurred which is not present on the initial application or on the credit report, documentation must be obtained from the borrower which indicates the balance and payment of the debt. This information must be included as a liability on the 1003 and the borrower must be requalified and/or the loan re-priced based on this new information. If any additional liabilities or an increase in existing credit is revealed during the loan application process, the borrower must be re-qualified based on this new information. Requalification may include, but is not limited to, obtaining a new credit report including an updated credit score, which may impact the qualifying interest rate and pricing, as well as, the borrower s ability to qualify based on current program information. Revolving or Open-Ended Debt Monthly payments on revolving, 30-day (American Express type accounts) or open-end accounts, regardless of balance, must be included in the borrower s monthly debt payment. If there is no balance, there is no monthly payment. In the absence of a stated payment, the greater of 5% of the outstanding balance or $10 will be used as the required monthly payment. NOTE: Cash out refinancing for debt consolidation represents considerable risk, especially if the borrowers have not had a corresponding increase in income. Careful evaluation of this type of transaction is required. The Underwriter should review the Borrowers carefully when they are paying off debts in order to qualify. The credit history and the Borrower s use of credit should be a factor in determining whether it is appropriate to exclude debts for qualification purposes. Ocwen Loan Servicing LLC Client Select

125 Liabilities and Qualifying Ratios, Continued Student Loans If the debt repayment is scheduled to begin within twelve months from the date of the mortgage loan closing, the anticipated monthly obligation must be included in the debt ratio, unless written evidence that the debt will be deferred to a period outside this timeframe is provided. If the credit report does not reflect a monthly payment amount, a copy of the Note or a letter from the lender must be used to determine the monthly payment amount Ocwen Loan Servicing Client Select

126 Credit General The overall analysis and underwriting of a borrower s credit is to determine a borrower s ability and willingness to repay a mortgage debt through: Considering the type of income the borrower needs in order to qualify, Analyzing the borrower s liabilities to determine creditworthiness, and Reviewing ratios, including debt-to-income, and compensating factors. TOTAL Scorecard and AUS The use of Desktop Underwriter (DU) is initially required for nonstreamline scenarios; however, if the loan does not receive Approval then a manual underwriter is permitted. The mortgage credit portion of loan applications receiving an Approve risk classification will be deemed acceptable unless otherwise stated with applicable overlays detailed within this Lending Guide. Approval is at the discretion of the DE underwriter. In all cases, Ocwen remains accountable for compliance with FHA guidelines and those credit, capacity, and documentation aspects not addressed by the AUS system. A FHA-registered DE underwriter must review the appraisal on all loans, and must fully underwrite those applications where either system Refers the file to an individual underwriter or a manual downgrade is required. If a borrower s current address is outside of the United States, the AUS systems will not issue a recommendation. The loan must then be manually underwritten. Streamline refinances do not have the option of TOTAL scorecard approval and must be manually underwritten. Ocwen Loan Servicing LLC Client Select

127 Credit, Continued Bankruptcy Documentation Copy of the bankruptcy petition, Schedule of Debts and Discharge, and Written explanation from borrower. If the bankruptcy was discharged at least 2 years from the date of the loan application and the risk-classification is acceptable through TOTAL, then no further documentation regarding the bankruptcy is required Ocwen Loan Servicing Client Select

128 Credit, Continued Chapter 7 Bankruptcy Bankruptcy must have been discharged for at least two (2) years to be eligible for AUS. There cannot be any new derogatory credit information, unless TOTAL Scorecard approves the transaction and the credit report accurately reflects the derogatory credit information. Note, Underwriter review and approval continues to be required in addition to TOTAL Scorecard approval. DOWNGRADE: Bankruptcies discharged less than 2 years from the date of loan application or incorrectly reported on the credit report require the mortgage application to be downgraded to a Refer and submitted to a DE Underwriter for manual underwrite. If bankruptcy is discharged for at least one year (but not less than 12 months), it may be acceptable if it occurred due to extenuating circumstances beyond the borrower s control (i.e., death of principal wage earner, or serious long-term illness) and are not likely to recover, Provide documentation that the borrower s current situation indicates that the events that led to the bankruptcy are not likely to reoccur. The borrower must have re-established good credit, or has chosen not to incur new credit obligations, NOTE: If the bankruptcy included a foreclosure, the more restrictive three (3) year wait still remains in effect. This three (3) year waiting period is based on the date the claim is paid. Refer to Foreclosures within this guide for additional information. NOTE: Multiple bankruptcies are not permitted. Ocwen Loan Servicing LLC Client Select

129 Credit, Continued Chapter 13 Bankruptcy A borrower paying off debts under a court approved wage earner s plan pursuant to Chapter 13 of the Bankruptcy Act may be eligible if he/she is: Otherwise meets credit standards, including minimum credit score requirements, Bankruptcy must have been discharged for at least two (2) year to be eligible for AUS, and There cannot be any new derogatory credit information, unless TOTAL Scorecard approves the transaction and the credit report accurately reflects the derogatory credit information. Note, Underwriter review and approval continues to be required in addition to TOTAL Scorecard approval. DOWNGRADE: Bankruptcies discharged less than 2 years from the date of loan application or incorrectly reported on the credit report require the mortgage application to be downgraded to a Refer and submitted to a DE Underwriter for manual underwrite. If borrower is currently in a Chapter 13 bankruptcy for at least one year (but not less than 12 months), it may be acceptable if: One (1) year of the pay-out period has elapsed, The performance under the plan has been satisfactory and all required payments have been made on time, The borrower receives court approval to enter into the mortgage transaction, In lieu of an established credit history, credit letters covering the past 12 months from two of the following are acceptable: telephone, cable, gas or electric companies, etc., and There cannot be any new derogatory credit information. NOTE: If the bankruptcy included a foreclosure, the more restrictive three (3) year wait still remains in effect. This three (3) year waiting period is based on the date the claim is paid. Refer to Foreclosures within this guide for additional information. NOTE: Multiple bankruptcies are not permitted Ocwen Loan Servicing Client Select

130 Credit, Continued Disputed Accounts Derogatory Disputed Accounts: If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a Refer and the loan must be manually underwritten. Disputed medical accounts are excluded from the $1,000 limit and do not require documentation. Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use are also excluded from the $1,000 limit; however, the credit report, letter from the creditor or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges, must be provided and included in the case binder. Defined to include disputed charge-offs, disputed collection accounts or disputed accounts with late payments reported within the most recent 24 months. Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a Refer. Non-derogatory disputed accounts are excluded from the $1,000 cumulative total. If the total outstanding balance of all disputed, derogatory credit accounts, excluding medical, are less than $1,000, a downgrade to a manual underwrite is not required. Non-derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report: Defined to include disputed accounts with zero balance, disputed accounts with late payments aged 24 months or greater and disputed accounts that are current and paid as agreed. If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the loan is not required to be downgraded to a Refer ; however, the underwriter must analyze the effect of the disputed accounts on the borrower s ability to repay the loan. If the dispute results in the borrower s monthly debt payments utilized in computing the debt-toincome ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments. Ocwen Loan Servicing LLC Client Select

131 Credit, Continued Analysis of Collections and Judgments TOTAL Scorecard Underwrite: There are no documentation or letter of explanation requirements for loans with collection accounts or judgments run through TOTAL Mortgage Scorecard receiving an Accept/Approve despite the presence of collection accounts or judgments as these accounts have already been taken into consideration and evaluated within the borrower s credit score. If TOTAL Mortgage Scorecard generates a Refer, the loan must be manually underwritten with the below applicable guidance as to collection accounts and judgments. Manual Underwrite: The following criteria apply for loans that do not receive an Accept/Approve through TOTAL: Underwriter must provide comments on the FHA Loan Underwriting and Transmittal Summary (HUD LT) regarding his/her analysis of the collections and the borrower s willingness to repay obligations. Borrower(s) must provide a letter of explanation with supporting documentation for each outstanding collection account and judgment. The explanation and supporting documentation must be consistent with other credit information in the file. NOTE: Regardless of underwriting method, medical collections and medical charge off accounts are excluded from this guidance Ocwen Loan Servicing Client Select

132 Credit, Continued Capacity Analysis of Collections and Judgments Collections If the total outstanding balance of all collection accounts for all borrowers is equal to or greater than $2,000, then any one of the below capacity analysis is required: Payment in full of the collection account at the time of or prior to closing (verification of acceptable source of funds is required); or The borrower(s) makes payment arrangements with the creditor. If the borrower has entered into a payment arrangement with the creditor, a credit report or letter from the creditor verifying the monthly payment is required. The monthly payment must be included in the borrower s debt-to-income ratio; or If evidence of a payment arrangement is not available, the underwriter must calculate the monthly payment using 5% of the outstanding balance of each collection, and include the monthly payment in the borrower s debt-to-income ratio. TOTAL Mortgage Scorecard: Regardless of the Accept/Approve/Refer recommendation by TOTAL Mortgage Scorecard, the payment amount must be included in the calculation of the borrower s debt-to-income ratio. NOTE: All medical collections and medical charge off accounts are excluded from this guidance and do not require resolution. Judgments FHA requires judgments to be paid off before the mortgage loan is eligible for FHA insurance. An exception to the payoff of a court ordered judgment may be made if the borrower has an agreement with the creditor to make regular and timely payments. The borrower must provide a copy of the agreement and evidence that payments were made on time in accordance with the agreement, and a minimum of three (3) months of scheduled payments have been made prior to credit approval. Borrowers are not allowed to prepay scheduled payments in order to meet the required minimum of three (3) months of payments. Furthermore, underwriters must include the payment amount in the agreement in the calculation of the borrower s debt-to-income ratio. FHA requires judgments of a non-purchasing spouse in a community property state to be paid in full, or meet the exception guidance for judgments above, unless excluded by state law. Ocwen Loan Servicing LLC Client Select

133 Credit, Continued Consumer Credit Counseling Voluntary participation in CCCS along with an approval through TOTAL does not required further information from the borrower. Manual Underwrite The following must be documented for loans that do not receive an approval through TOTAL: One year of the pay-out period has elapsed under the plan, The borrower s payment performance has been satisfactory and all required payments have been made on time, and The borrower has received written permission from the counseling agency to enter into the mortgage transaction Ocwen Loan Servicing Client Select

134 Credit, Continued CAIVRS The CAIVRS code is required on all FHA loans except streamline refinances. The CAIVRS system will verify if the borrower(s) has had an insurance claim paid in the three (3) years prior to loan application on a previous HUD-insured mortgage or if there is a current delinquency on a HUDinsured mortgage. If CAIVRS results show a claim delinquency, the loan in ineligible for sale to Ocwen. Ocwen will access the CAIVRs number through the FHA Connection on behalf of the broker. The authorization code and message provided for each borrower by the CAIVR system must be written on the FHA Loan Underwriting and Transmittal Summary (HUD LT). HUD does not allow credit bureaus to obtain the CAIVRS numbers. All borrowers must have a clear CAIVRS; Lenders may not simply clear a CAIVRS when in possession of independent evidence of erroneous or outdated information residing in CAIVRS. Credit Inquiries All inquiries within the most recent 90 days indicated on the credit report must be explained in writing by the borrower. If the explanation or any further investigation reveals new debt has been incurred which is not present on the initial application or the credit report, sufficient documentation must be obtained from the borrower indicating the current unpaid balance and the monthly payment of the debt. This information must be included as a liability on the 1003, AUS system if applicable and the borrower must be qualified based on this new information. Ocwen Loan Servicing LLC Client Select

135 Credit, Continued Credit Reports A merged in-file credit report from three (3) repositories is acceptable in lieu of a full Residential Mortgage Credit Report (RMCR). Credit Reports with truncated SSN s (Example: x-xx-1234) are acceptable under the following guidelines: The credit report must reflect a minimum of the last four digits of the borrower s social security number, The mortgage application (1003) must have the complete 9 digit social security number, The borrowers name, social security number and date of birth must be validated through FHA connection or its equivalent, and Lenders are responsible for verifying each borrower s social security number as well as each borrower s identity. All copies of all credit report must be retained along with a written analysis of the reasons for any discrepancies between the credit reports. If any information is received that is inconsistent with the information on the credit report, the inconsistency must be reconciled. Ocwen will not accept a Non-Traditional credit report (NTMCR) to offset derogatory references found in the borrower s traditional credit, such as collections and judgments. If applicable, the feedback certificate must identify the borrower s credit report used for TOTAL s risk evaluation. If the subject property is located in a community property state and the borrower has a non-purchasing spouse, individual credit reports are required. The non-purchasing spouse s report should be ordered outside of the AUS system, if applicable. Credit Report must be dated no more than 120 days prior to the Note Date. Escrow Waivers / Impound Waivers Waiver of tax and/or insurance escrow is not allowed Ocwen Loan Servicing Client Select

136 Credit, Continued Credit Score Requirements Ocwen requires ALL borrowers on the loan to meet the minimum credit score requirement regardless of credit factors and/or AUS recommendation. Non-Traditional Credit is not permitted The credit scores must be entered into the FHA Connection. Only one credit score is required for an occupant borrower for the loan to be eligible for the FHA TOTAL Scorecard. Purchase and Rate Term Refinance - Credit scores below 620 are not eligible Cash out Refinance - Credit scores below 620 are not eligible for Standard loan amounts Cash out Refinance - Credit scores below 640 are not eligible for High Balance Loan amounts Streamline refinance - Credit Scores below 620 are not eligible Debts Omitted from Credit Report Separate written verification must be obtained (this includes accounts listed as will rate by mail only or need written authorization ). Authorized User Accounts All monthly debt obligations on authorized user accounts must be included in the debt-to-income ratio or the borrower must be removed as an authorized user. Ocwen Loan Servicing LLC Client Select

137 Credit, Continued Delinquent Federal Debt A borrower is not eligible for a HUD insured loan if he/she has any outstanding Federal debt (this includes debt of borrower sponsor, general contractor, and all principal of these entities), until the delinquent account is brought current, paid, or satisfied. Federal debts include direct loans, HUD-insured mortgage loans, VAinsured mortgages, student loans, Small Business Administration loans, or judgments/liens against property for a debt owed the Federal Government. A borrower with prior Federal defaults or claims must submit an explanation of the circumstances surrounding the delinquency with the following documents: Detailed explanation of how delinquent debt was incurred, Letterhead advice from affected agency, signed by an officer and stating that the delinquent debt is current or that satisfactory arrangement for repayment has been made, Lender s reason(s) for recommendation of the borrower (can include worksheets and remark sections from processing documents or a cover letter), Note, a clear CAIVRS continues to be required. Duplicate Public Records If it is unclear from the credit report that an item is duplicated, each item should be treated individually and appropriate documentation must be obtained Ocwen Loan Servicing Client Select

138 Credit, Continued Foreclosures / Short Sales If the foreclosure, deed-in-lieu of foreclosure or short sale was completed at least three (3) years prior to loan application and receives an approval through TOTAL, then no further documentation is required. Note if the foreclosure was part of a bankruptcy, the more restrictive three (3) year recovery period remains in effect. Multiple foreclosures/short sales are not permitted. Manual Underwrite: The following must be documented for loans that do not receive an approval through TOTAL: There is an exception if the foreclosure was on the borrower s principal residence and was the result of extenuating circumstances beyond borrower s control (i.e., death of the principal wage earner, or serious long-term illness). In the case of an exception, the borrower must have reestablished new credit with no derogatory credit since the foreclosure and he/she provide a letter from the lender who held the lien showing no outstanding liability. Inability of a borrower to sell his/her home when transferred from one area to another is not an acceptable reason for foreclosure or deed-in lieu. Also divorce is not considered an extenuating circumstance; however, an exception may be considered where a borrower s loan was current at the time of his/her divorce, the ex-spouse was awarded the property and the loan was later foreclosed. Supporting evidence must be documented. NOTE: Deed-in-lieu is determined by date when the Deed of Release discharging the mortgage debt is completed, not recorded. Ocwen Loan Servicing LLC Client Select

139 Credit, Continued Housing History In scenarios as indicated, the borrower must report: AUS Approval: No more than 1x30 within the most recent 12 months for Purchase and Rate Term Refinance transaction. Manual Underwrite: No more than 0x30 within the most recent 12 months for Purchase and Rate Term Refinance transactions. All Approval Methods: No more than 0x30 within the most recent 12 months for cash out Refinance transactions. NOTE: Mortgages with less than 6 months of payment history are not eligible for a cash out refinance. Properties owned free and clear are eligible for a cash out refinance. The borrower s housing payment history must be determined through the below documentation: Credit report, Verification of rent directly from the landlord (for landlords with no identity-of interest with the borrower), If the landlord has an identity-of interest with the borrower or is an individual, Homeward will require 12 months cancelled checks as verification of rent payment. Verification of mortgage (VOM) directly from the mortgage servicer, or The review of canceled checks that cover the most recent 12 month period. Verification/documentation of the previous 12 months housing history must be obtained even if the borrower states they are living rent free. NOTE: If the loan receives an approval through TOTAL, the housing/rental history documentation requirement stated above is waived. Refer to Privately Held Mortgages subsequently presented for additional information regarding payment verification requirements for privately held mortgages. Downgrade: The loan must be manually downgraded to a Refer and traditionally underwritten if the following applies: The information was reported incorrectly on the credit report The account was not reflected on the credit report but direct verification outside of AUS reflects more than 1x30 day late in the last 12 months Ocwen Loan Servicing Client Select

140 Credit, Continued Privately Held Mortgages If a borrower is refinancing a privately held mortgage, the following payment verification requirements apply: A mortgage payment history of 12 months must be met. At a minimum, at least six (6) months mortgage payments on the current privately held mortgage must be verified. The remaining six (6) months can come from a previous mortgage or rental verifications. Evidence must be included in the loan file that the lien being paid off is a current recorded lien against the subject property. All other FHA credit history requirements apply. NOTE: These guidelines apply for all manually underwritten AND AUS processed FHA loans. Multiple Mortgages Maximum of four (4) financed properties for all borrower(s). Any person individually or jointly owning a home covered by a FHA insured mortgage in which ownership is maintained may not purchase other principal residence with FHA insurance, except in the following (refer to HUD , Chapter 4, Section B for complete details): Relocation Increase in family size Vacating a jointly owned property Cases of Non-Occupying Co-borrower Non- Traditional Credit If a borrower does not have traditional credit references with which to generate a credit score, the loan scenario is not eligible for financing with Ocwen. Non-Arm s Length Transactions See the Identity of Interest transactions notes in the Transactions That Affect Maximum Mortgage Calculations section above. Ocwen Loan Servicing LLC Client Select

141 Assets Asset Verifications If written verification forms are used, the file must contain the original form (or a faxed form) with a signature of the party completing the form. Verification forms must pass directly between the Broker and creditor without being handled by a third party. Internet downloads may be used but must be placed in the file in paper form. The documents must clearly identify the firm s name and source of information. Ocwen will ascertain the authenticity of the document by examining that information included on any headers, footers, and the banner portion of the print outs of the downloaded web pages(s). The printed web page(s) must also show the Uniform Resource Locator (URL) address and the date and time printed. The DE Underwriter is to verify the existence of the web site from which the documents were derived. The Internet downloaded documents must be identifiable as belonging to the borrower. Documents relating to credit, assets, employment or income of the borrowers that are handled by, transmitted from or through interested third parties (i.e., real estate agents, builders, sellers) or by using their equipment are not acceptable and may not be used as documentation. Cash Reserve Requirements Must verify all cash reserves that are submitted to the AUS system. Cash reserves after closing are not required but are evaluated in determining the risk classification of the loan. For example, cash reserves may be needed for a compensation factor if debt ratios exceed guidelines. For 3-4 Unit properties, three (3) months PITI reserves are required on all transactions types. For any Manually Underwritten Loan, the borrower must have reserves equal to or exceeding the following: 1 and 2 unit properties: Reserves must be equal to or exceed one (1) total monthly mortgage payment. 3 and 4 unit properties: Reserves must be equal to or exceed three (3) total monthly mortgage payments. NOTE: For FHA to FHA Non-Credit Qualifying streamline refinance transactions; the cash reserve requirement is not applicable Ocwen Loan Servicing Client Select

142 Assets, Continued Ineligible Assets for Cash Reserves The following assets are not considered cash reserves : Equity in other properties (not including a primary residence being sold with proceeds applied to the purchase of the subject property), Proceeds from a cash-out refinance (if this is the subject transaction), Funds that are borrowed against a liquid account (i.e., 401k loan). Any surplus gift funds that remain in the borrower s account following closing, subject to proper documentation, may be considered as cash reserves when scoring the mortgage application through TOTAL Scorecard. Business Funds A borrower s withdrawal of cash from the business may have a severe negative impact on the ability of the business to continue operating and must be carefully considered in the analysis. Ocwen will accept the use of business funds only when the borrower is a sole proprietor filing a Schedule C. The file must contain the conclusion that the withdrawal of the business funds will not negatively affect the operation of the business. Examples of supporting documents in the analysis are (but not limited to) a CPA letter or 12 month business account bank statements. Ocwen Loan Servicing LLC Client Select

143 Assets, Continued Cash Reserves Retirement Accounts A portion of the borrower s retirement account may be used as cash reserves when scoring a mortgage application through TOTAL Scorecard subject to the conditions listed below: Only 60% of the VESTED amount of the account may be used to account for withdrawal penalties and taxes. The DE Underwriter must document the existence of the account with the most recent depository or brokerage account statement. Evidence must be provided that the retirement account allows for withdrawals for conditions other than in connection with the borrower s employment termination, retirement, or death. Retirement funds that can only be withdrawn under the conditions noted above may not be used as cash reserves. Any retirement funds that are also used for loan settlement must be subtracted from the amount included in cash reserves Ocwen Loan Servicing Client Select

144 Assets, Continued Cash on Hand Borrowers who have saved cash at home and are able to adequately demonstrate the ability to do so, are permitted to use this money as an acceptable source of funds to close. Funds must be verified either on deposit in a financial institution or held by the escrow/title company. If held by a title company or realtor, a company representative must verify the receipt of the funds, the amount of the deposit, the date received and person providing the funds. Additional documentation must include: A borrower budget letter, Evidence supporting ability to accumulate such a savings; and Written explanation from the Borrower on how such funds were accumulated, the amount of time taken to do so, why conventional depository sources were not used and explanation as to where funds were stored until their deposit. Borrower certification that the privately accumulated funds were not received from any party to the transaction, nor were they the proceeds of a gift or the result of the sale of an asset must be included in the loan file. Note income that is not reported to the IRS cannot be used for source of cash saved at home. The recognition of such funds carries with it the potential for abusive practices; therefore, each case should stand the test of reason and common sense. Ocwen Loan Servicing LLC Client Select

145 Assets, Continued Private Savings Clubs Some borrowers may choose to use non-traditional methods of saving money by making deposits into private savings club. Often these private savings clubs pool resources for use among the membership. If a homebuyer claims that the cash to close a FHA-insured mortgage is from savings held with a private savings club, the borrower must be able to adequately document the accumulation of those assets with the club. While such clubs are not supervised banking institutions, the clubs must at a minimum have account ledgers, receipts from the club, verification from the club treasurer, and identification of the club so that the information can be re-verified. It must also be determined that it was reasonable for the borrower to have saved the money claimed and that there is no evidence these funds were borrowed with an expectation of repayment. Checking, Savings, CDs The most recent bank statement (two bank statements for manually underwritten loans) may be used to verify savings and checking account. If there is a large increase in an account, or the account was opened recently, an explanation and documentation supporting the source of those funds will be required. Written Verification of Deposit (VOD) can be used as long as the most recent back statement has been received as well. Joint Assets When a borrower has a joint account with another individual who is NOT a borrower on the transaction, the following must be documented: Relationship between borrower and individual on the account, AND Confirmation that the borrower has full access to all funds in the account Ocwen Loan Servicing Client Select

146 Assets, Continued Large Deposits Purchase Transactions: If there is a large increase in an account, or the account was recently opened, the borrower must provide a signed and dated credible letter of explanation of the source of the funds. The DE Underwriter should use their discretion when analyzing asset statements for large deposits. At a minimum, the file should obtain an explanation and documentation for multiple deposits over the time covered by the bank statement in excess of 2% of the property sales price or any single deposit that exceeds 50% of the total monthly qualifying income for the loan. However, if the DE Underwriter determines a deposit (or series of deposits) is not within the savings pattern of the borrower, additional documentation should be obtained on those deposits. If the source of a large deposit is readily identifiable on the account statement, such as direct deposits where the source of the deposit is printed on the statement, further explanation or documentation is not required. However, if the source of the deposit is printed on the statement, but the DE Underwriter still has questions as to whether the funds may have been borrowed; additional documentation should be obtained. Refinance Transactions: If there is a large increase in an account, or the account was recently opened, the borrower must provide a credible explanation of the source of the funds. The DE Underwriter should use their discretion when analyzing asset statements for large deposits. At a minimum, the file should contain an explanation and documentation for any single deposit that exceeds 50% of the total monthly qualifying income for the loan. However, if the DE Underwriter determines a deposit (or series of deposits) is not within the savings pattern of the borrower, additional documentation should be obtained on those deposits. If the source of a large deposit is readily identifiable on the account statement, such as direct deposits where the source of the deposit is printed on the statement, further explanation or documentation does not need to be obtained. However, if the source of the deposit is printed on the statement, but the DE Underwriter still has questions as to whether the funds may have been borrowed; additional documentation must be obtained. Ocwen Loan Servicing LLC Client Select

147 Assets, Continued Commission from Sale If the borrower is a licensed real estate agent entitled to a real estate commission from the sale of the property being purchased, those funds may be used as part of the down payment. A letter from the Real Estate Agency must state how much will be credited to the Sales Agent (after any commission split or deduction of other fees) at closing on the Closing Disclosure (or HUD-1). A family member entitled to the commission may also gift the funds to the borrower. There is no required adjustment to the maximum mortgage. Credit Card Financing The actual cost of a credit report and appraisal may be charged on a credit card when these costs are paid outside of closing under then following conditions: A payment for the amount charged is included in the total debt ratio, and The borrower has sufficient assets (documentation in file) to pay charged fees, in addition to funds needed for other closing costs and the down payment. Disaster Relief Grants / Loans Eligible grants and loans that may be used for the down payment with no adjustment to the maximum mortgage include the following: Grants or loans from state and federal agencies that provide immediate housing assistance to individuals displaced due to natural disaster, and Secured or unsecured disaster relief loans administered by the Small Business Administration (SBA). If the SBA loan is secured by the subject property, it must be subordinate to the HUD insured first mortgage lien and the monthly payment must be included in the debt ratios Ocwen Loan Servicing Client Select

148 Assets, Continued Down Payment HUD requires a minimum down payment of three and one half percent (3.50%). The minimum down payment is based on the lesser of the appraised value or sales price (without considering closing costs) minus any required adjustments. The minimum down payment must be provided from borrower s own cash funds ( own cash is defined as inclusive of gifts, loans from family members, or loans from a governmental agency or instrumentality). Discount points or prepaid items, such as homeowners, flood insurance, HOA, taxes, cannot be used in meeting the cash investment requirements, whether paid at closing or outside of closing. Closing costs paid by the borrower, seller or interested party may not be used to meet the minimum investment requirement. Sweat equity is not permitted. NOTE: Down payment funds may not be provided by the seller or any other person or entity that financially benefits from the transaction; OR, any third party or entity that is reimbursed, directly or indirectly, by the seller or any other person or entity that financially benefits from the transaction. Earnest Money Deposit The earnest money deposit (EMD) amount and source of funds must be verified if it is two percent (2.00%) or more of the sales price, if it appears excessive based on the borrower s previous savings pattern or if the borrower is tight on closing funds. A copy of the canceled check (front and back) must be provided and the source of the funds must be verified. A certification from the deposit holder acknowledging receipt of funds is acceptable as long as it accompanies separate evidence of the source of funds. Evidence of source of funds includes a verification of deposit or bank statement showing at the time the deposit was made the average balance was sufficient to cover the amount of the EMD. Ocwen Loan Servicing LLC Client Select

149 Assets, Continued Employer Assistance Plans If the employer, in order to entice or keep a valuable employee, pays the borrower s closing costs, mortgage insurance premium, or any part of the down payment, no adjustment to the maximum mortgage amount is required. If the employer does this as a reimbursement after closing the borrower must show evidence of sufficient funds to close. Salary advances are not allowed as these are considered an unsecured loan. Employer Guarantee Plans If the employer guarantees to purchase the borrower s previous residence, as the result of relocation, the borrower must submit evidence of a relocation agreement and the net proceeds guaranteed. Foreign Assets If borrower s source of funds for the down payment and/or closing costs are from accounts located in a foreign county, additional due diligence is required to ensure compliance with all related OFAC restrictions, confirmation of exchange rates, borrower ownership of accounts, seasoning requirements and any additional conditions deemed responsible by the Underwriter Ocwen Loan Servicing Client Select

150 Assets, Continued Gift Funds A gift may be used for 100% of the borrower s closing costs and down payment. Gift funds cannot be used as reserves. If the borrower is receiving a gift for more than the amount to close, the excess cannot be used as reserves. Only the amount of funds that will be used for closing should be shown as gift funds not received, or as an asset. NOTE: Any gift funds that remain in the borrower s account following loan closing, subject to the proper documentation, may be considered as cash reserves when scoring the mortgage application through TOTAL. Eligible donors include the following: Close relative of the borrower, Close friend with a clearly defined and documented interest in the borrower, Borrower s employer or labor union. Ineligible donors include: Federal/State/Local government agency or instrumentality providing home ownership assistance without repayment or established lien requirements, A corporation established for humanitarian, welfare, or charitable purposes, or Those individuals with an interest in the sale of the property (i.e., builder or seller, real estate broker, marketing agent, or any person/corporation/organization associated with them). Gifts or credits from these sources are considered inducements to purchase and must be subtracted from the contract sales price. Nonprofit entities are not allowed to provide gifts to homebuyers for the purpose of paying off installment loans, credit cards, collections, judgments, and similar debts. Down Payment Assistance (DPA) programs are not permitted. Ocwen Loan Servicing LLC Client Select

151 Assets, Continued Gift Documentation Requirements Documentation of gift funds must a gift letter with donor s and borrower s signature that specifically states the following information: Dollar amount given, No repayment is necessary, the donor s name, address, telephone number and relationship to borrower, The address of the property being purchased/refinanced Donor s signature, and The gift letter must state, We ARE AWARE OF THE FOLLOWING : I/We fully understand that it is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements when applying for this mortgage, as applicable under the provision of Title 18, United States Code, Section 1014 and Section NOTE: It is not acceptable to notate the loan file/application with the above gift donor information in lieu of a gift letter. If the gift funds transfer before closing, the following documentation is required: A copy of the donor s canceled check or other withdrawal document showing that the withdrawal is from the donor s account, and The borrower s deposit receipt and bank statement showing the deposit. When gift funds are transferred at closing, the following verifications are required: The closing agent s receipt of the gift funds from the donor for the amount of the gift, and Evidence that those funds came from an acceptable source. If the gift funds transfer at closing and the transfer of funds is by certified check from the donor s account, the donor must provide the following documentation: A bank statement reflecting the withdrawal from the donor s personal account, and A copy of the certified check. If the gift funds transfer at closing and the donor purchased a cashier s check, money order, or other official bank check, the donor must provide a withdrawal document or canceled check for the amount of the gift to verify that the funds came from the donor s personal account. If the donor borrowed the gift funds and cannot provide the documentation from his/her bank or other savings account, the donor must provide evidence that those funds were borrowed from an acceptable source (i.e., not from a party to the transaction including the mortgage lender). Donors may borrow gift funds from any other acceptable source provided that the borrowers are not obligors to any note to secure money borrowed to give the gift. Cash on hand or mattress money is not an acceptable source of the donor s gift funds. The source of funds must be verifiable. IMPORTANT: Regardless of when or how the gift funds are made available to a borrower, the Underwriter must always be able to determine and adequately document that the gift funds were provided by an acceptable source and were the donor s own funds; therefore, a copy of the donor s bank statement is required Ocwen Loan Servicing Client Select

152 Assets, Continued Gift of Equity Only family members may provide equity credit as a gift on a property being sold to other family members. This must be reflected on the Closing Disclosure (or HUD-1 Settlement Statement). Down Payment Assistance Programs Not Permitted. Individual Development Accounts Not Permitted. Ocwen Loan Servicing LLC Client Select

153 Assets, Continued Loans from Family Members HUD will allow family member to make loans to borrowers for 100% of the funds required for closing. The loans may be secured or unsecured. A family member includes a child, parent, grandparent (biological, foster or step), sister, step-sister, brother, step-brother, legally adopted son or daughter, a child who is a member of the borrower s household due to placement by an authorized agency for legal adoption, aunt, or uncle. The following conditions must be met: The borrower cannot receive any cash back at closing (beyond the refund of any earnest money deposit), If period payments are required, the borrower must still qualify with the payment added to the total debt ratio (not housing ratio), The financing cannot provide for balloon payments within five (5) years from the date of the note, If the family member borrows the funds, the initial source of loan funds cannot be any party with an identity of interest in the sale of the property (i.e., seller, builder, loan officer, or real estate agent), and A family member can borrow the loan funds from the retail banking affiliate of a mortgage company as long as the financing made available is made under the terms and conditions that are available to all other borrowers (special considerations are not allowed). When the funds loaned by the family member are borrowed from an acceptable source, the borrower may not be a co-obligor on the note. The CLTV limit on financing may not exceed 96.50% of the lesser of the property s appraised value or sales price, plus normal closing costs, prepaid expenses and discount points Ocwen Loan Servicing Client Select

154 Assets, Continued Collateralized Loans HUD will accept collateralized loans for the total required investment as long as satisfactory evidence is provided that the funds are fully secured by investment accounts or real property and the borrower can qualify with the repayment. The payment is included in the total debt ratio. Such assets include those listed below. Investment Accounts Real Property (i.e., cars, trucks, boats) Real Estate (other than the property being purchased) Stocks and Bonds Certain types of loans that are secured against deposited funds in which repayment may be obtained through extinguishing the asset do not require consideration of a repayment for qualifying purposes. The asset securing the loan may not be included as assets to close or otherwise be considered as available to the borrower. The assets listed below are included in this category. Cash value of life insurance policies Loans secured by 401(k)s Loans secured by a Certificate of Deposit Verification of the loan terms (i.e., copy of the note) must be provided. If the loan was made after verification of deposit was completed, a copy of the check and the borrower s deposit receipt or bank statement must be furnished. The real estate agent or broker, lender, seller or other party to the transaction may not provide these funds. HUD Unacceptable Sources of Collateralized Loans Signature loans Cash advances on credit cards Borrowing against household goods and furniture Other similar unsecured financing (i.e., jewelry, tools) Homeowners Bridal Registry Refer to Mortgagee Letter HUD Guidelines for complete details. Ocwen Loan Servicing LLC Client Select

155 Assets, Continued Real Estate Proceeds The net proceeds from an arm s length sale of a currently owned property may be used for the down payment requirement. A fully executed Closing Disclosure (or HUD-1 Settlement Statement) must be provided as satisfactory evidence of the proceeds to the borrower. Real Estate Tax Credit In some states it is customary for a borrower to pay property taxes in arrears, (and he/she may not pay property taxes on the improvements until a year or more after closing). The credit from the seller at closing for the seller s portion of those taxes may be used to reduce the actual amount of cash that needs to be brought to the closing table. It may not be used to offset minimum investment or cash to close requirements. The use of the tax credit only facilitates the exchange of cash. All cash to close documentation requirements must be met (i.e., the mortgage amount is calculated the same, down payment requirements are the same, the verification of the money is the same.) Sufficient assets to close must be verified from the borrower s own funds without consideration to the tax credit. However, the borrower only needs to bring funds to the closing for the amount of the bottom line on the Closing Disclosure (or HUD-1 Settlement Statement), after the tax credit has been applied Ocwen Loan Servicing Client Select

156 Assets, Continued Rent Credit The cumulative amount of the rental payments that exceed the appraiser s estimate of fair market rent may be considered towards the borrower s down payment. Both the rent-with-option to purchase agreement and the appraiser s estimate of market rent must be included in the case binder file. If the sales agreement provides for a rent credit or a reduced rent and states that the credit is to apply toward the down payment requirement, one of the following applies: If the rent paid prior to the sale is less than the appraiser s estimate of rental value, the difference between the rent paid and the appraiser s estimate (multiplied by the number of months the borrower was living in the property) is deducted from the contract sales price, If the rent paid prior to the sale exceeds the appraiser s estimate of rental value, the amount paid in excess of the appraiser s estimate (multiplied by the number of months the borrower was living in the property) is applied towards closing funds, or If the borrower occupied the property (or one owned by the seller) rent free as an inducement prior to the sale, the appraiser s estimate of rental value (multiplied by the number of months the borrower was living in the property) is deducted from the sales price. NOTE: Exceptions may be granted in a situation whereby a builder fails to deliver a property at an agreed-to-time and then permits the borrower to occupy that or another unit for less-than-market rent temporarily until construction is complete. Ocwen Loan Servicing LLC Client Select

157 Assets, Continued Retirement Funds When utilizing retirement accounts as assets (even if not using for closing), 60% of the borrower s vested interest may be used unless the borrower provides documentation that a higher percentage may be withdrawn after subtracting any federal income tax, withdrawal penalties and any outstanding loans against the account. The borrower must provide all of the following: Copy of the most current retirement account statement, Copy of the check representing account funds, and Copy of the deposit receipt where funds were deposited into the borrower s account (or copy of the bank statement reflecting the deposit). Evidence of liquidation is not required unless more than 60% of the amount in the account is used. Funds from retirement accounts may be used as cash reserves. Refer to the Reserve Requirements within this Lending Guide for additional information. If approved through TOTAL, documentation of terms and conditions to include the following: Evidence that the account allows for withdrawals for conditions other than that related to the borrower s employment or death and that the borrower qualifies for withdrawal and/or borrowing, Proof of liquidation is not required. Sale of Personal Property If a borrower sells personal property for funds to close (i.e., cars, recreational vehicles, stamp or coin collections), conclusive evidence of the sale and an estimate of the value of the item being sold must be obtained. Value must be established through the Blue Book for cars, Philatelic Association for stamps, Numismatic Association for coins, or a qualified appraiser with no financial interest in the transaction who could provide a written appraisal of the item. The lesser of the estimate of value or actual sales price is used as assets to close Ocwen Loan Servicing Client Select

158 Assets, Continued Savings Bonds Government issued bonds are given to the value at the original purchase price. Exceptions may be made if eligibility for redemption and the redemption value are confirmed. The borrower s receipt of the funds at redemption must be verified. Stocks and Bonds The value of securities must be verified through the borrower s stockbroker or financial institution. If statements are available, the borrower must provide one of the following: Two (2) months of account statements, if received monthly, or Most recent quarterly account statement if received quarterly. Evidence of liquidation and borrower s receipt of the funds must be documented; not required if the loan receives an approval recommendation through TOTAL. Sweat Equity Sweat Equity is not an acceptable source of funds. Trade Equity The borrower may agree to trade his or her real property to the seller as part of the down payment. The amount of the borrower s equity contribution is determined by: Subtracting all liens against the property being traded (including real estate commission) from the lesser of that property s appraised value or sales/trade price. An appraisal on the trade property is required as well as evidence of ownership. The appraisal must be a residential appraisal (conventional, FHA, or VA) and cannot be more than six (6) months old. If the property being traded has an FHA mortgage, assumption processing requirements and restrictions apply. Ocwen Loan Servicing LLC Client Select

159 Assets, Continued Lender Credit Lender credit resulting from premium pricing is allowable by HUD under the requirements shown below. Lender credit may be applied to closing costs, prepaid items and discount points; however, it may not exceed the allowable fee permitted by the jurisdictional FHA Home Ownership Center (HOC). Lender credit cannot be applied to down payment or to outstanding obligations of the borrower, including missed (delinquent) mortgage payments. Lender credit is not considered a seller concession and is not subject to any limitations. If lender credit is applied to closing costs that are being financed into the loan in a refinance transaction, the amount of these closing costs must be deducted from the total acquisition before calculating the maximum base loan amount. Lender credit must be used to reduce the principal balance if the premium pricing agreement establishes a specific dollar amount for closing costs and prepaid expenses with any remaining funds, in excess of actual costs, reverting to the principal curtailment Ocwen Loan Servicing Client Select

160 Assets, Continued Seller Contributions Interested parties include, but are not limited to, the builder, developer, seller of the property and the real estate agent. Contributions from interested parties are acceptable with the following limitations: Maximum contribution is 6% of the property s sales price towards the buyers actual closing costs, prepaid expenses, discount points, and other financing concessions. Contributions exceeding 6% of sales price must be treated as an inducement to purchase thereby reducing the amount of the mortgage. FHA deems the payment of consumer debt by third parties to be an inducement to purchase. While FHA permits sellers and other parties to make contributions of up to six percent of the sales price of a property toward a buyer's actual closing costs and financing concessions, this policy applies exclusively to the provision of mortgage financing. Other expenses paid on behalf of the borrower must result in a dollar-for dollar reduction to sales price. Closing costs paid by the seller or other interested parties may not be used to meet the minimum investment requirement. Contributions may only be applied to closing costs and prepaids. If the contribution exceeds actual cost, the remainder may not be applied to the principal balance (including unpaid principal balance). When the seller makes a contribution to more than one expense for the borrower, the contributions must be itemized on page 2 of the Closing Disclosure (or HUD-1). Disclosing only lump sums is not acceptable. Seller contributions may not be used toward borrower s outstanding obligations. Contributions from sellers or other interested third parties to the transaction that exceed six (6) percent of the sales price, or other financing concessions, are to be treated as inducements to purchase, thereby reducing the amount of the mortgage. Each dollar exceeding the six (6) percent limit must be subtracted from the property s sale price before applying the appropriate loan-to-value (LTV) ratio. Job Loss Insurance is considered a sales concession, but does not require a dollar-fordollar reduction from the sales price when calculating the LTV and CLTV ratios. The dollar-for-dollar reduction to the sales price also applies when gift funds do not meet FHA requirements. Items typically paid by the seller (i.e., real estate commissions, charges for pest inspections, fees paid to release a deed of trust) are not considered contributions. If a seller (builder) is paying HOA dues or taxes that come due during the first year of the mortgage, the borrower must qualify on the full PITI (including the monthly tax escrow and HOA fee). In addition, when determining the borrower s three and one half (3.50%) down payment, these advance payments cannot lower the borrower s cash to close. Real estate broker fees paid to a buyer-broker by the seller on behalf of the borrower are not considered a seller concession as long as the seller is paying the sales commission that is typical for that market. The Closing Disclosure (or HUD-1 Settlement Statement) must be reviewed to ensure that the seller did not pay a sales commission separately inclusive of the buyer-broker fee. If the seller is charged for closing costs that are unallowable to the borrower by HUD (i.e., underwriting fee, tax service fee, or document review fee), the payment on such costs must be OUTSIDE of seller contributions listed on the contract. In addition, these unallowable costs should not be reflected on the Loan Estimate (or GFE). Unacceptable type of fees for seller contributions are those similar to one (1) year golf course fees, initiation fees into a club, etc. Ocwen Loan Servicing LLC Client Select

161 Assets, Continued Unused Funds from Escrow Account Effective with Case Number Assignments on or after November 1, 2013: Application of Unused Borrower-Funds from an Escrow Account on an Existing Mortgage to a Newly Originated FHA-Insured Refinanced Loan Mortgagees processing any FHA-insured refinance mortgage may apply unused borrower funds from an existing mortgage for any purpose authorized by the borrower. For example, the borrower may authorize the mortgagee to apply unused borrower funds from an existing mortgage to reduce the payoff amount on the existing mortgage (also referred to as netting escrows ); pay closing costs on a new FHA-insured mortgage; buy down the interest rate on the new FHA-insured mortgage; or set up an escrow account on the new FHAinsured mortgage loan. These examples are not all inclusive. NOTE: The return of unused borrower funds from an existing mortgage to the borrower at closing is not considered cash back to the borrower. Documentation Requirements for Unused Borrower Funds from an Escrow Account on an Existing Mortgage to a Newly Originated FHA- Insured Refinance Loan Obtain written authorization from the borrower to apply the unused borrower funds from an existing mortgage for any purpose prior to using them. The borrower s written authorization must clearly state the purpose(s) for which the authorization is provided. Include the borrower s written authorization in the Direct Endorsement case binder. Mortgagees are instructed to place the borrower s written authorization on the right side of the case binder directly after the Closing Disclosure (or HUD-1 Settlement Statement). Show a credit and document the purposed on the Closing Disclosure (or HUD-1 Settlement Statement) when a mortgagee either applies unused borrower funds from an existing mortgage to the new FHA-insured refinance transaction for the amount authorized to offset settlement charges associated with the new FHA-insured mortgage or establishes the new escrow account. The process for handling the netting of escrows at closing may differ depending upon whether the servicing mortgagee is the same as the originating mortgagee, and whether funds are netted from the payoff amount by the servicing mortgagee or all funds are sent to the closing table. It is up to the servicing mortgagee on the existing mortgage and the mortgagee on the new FHA-insured mortgage to work through the netting and the transfer of funds process to ensure that, depending on the use of funds, that they are accurately reflected on the payoff statement and the Closing Disclosure (or HUD-1 Settlement Statement) Ocwen Loan Servicing Client Select

162 Closing Costs Allowable Fees These include those FHA-approved non-recurring costs associated with the mortgage transaction, including the appraisal fee, any inspection fees, the actual cost of credit reports, the loan origination fee, settlement fee, deposit verification fees, home inspection service fees up to $300, the cost of title examination and title insurance, document preparation fees (if performed by a third-party), property survey fees, attorney s fees, recording fees, transfer stamps, and taxes, as well as test and certification fees, such as flood-zone determination fees, water tests, and other costs as determined by the appropriate HOC. The lender may only collect fair, reasonable, and customary fees and charges from the borrower for all origination services. FHA will monitor to ensure that borrowers are not overcharged. Furthermore, the FHA Commissioner retains the authority to set limits on the amount of any fees that a lender may charge a borrower(s) for obtaining an FHA loan. Additionally, FHA does not allow mark-ups. The cost for any item charged to the borrower must not exceed the cost paid by the lender, or charged to the lender by the service provider. Only the actual cost for the service may be charged to the borrower. Closing costs may not be used to help meet the minimum 3.5% down payment requirement. Closing costs are not considered in the mortgage amount or down payment calculation for purchase money mortgages. The appropriate Homeownership Center (HOC) may reject charges, based on what is reasonable and customary for the area. Discount Points Discount points paid by the borrower: Become part of the total cash required to close Are not eligible for meeting the minimum down payment requirements, and Must appear on Line 10 of Page 3 of form HUD A, HUD/VA Addendum to Uniform Residential Loan Application. Ocwen Loan Servicing LLC Client Select

163 Closing Costs, Continued Rate Lock or Lock-In Fees Lender may assess a rate lock fee but it is not considered a closing cost. Such fees provide a written guarantee that ensures the loan terms will not change for a definite period of time or are limited to the extent to which the terms may change. UFMIP Any upfront mortgage insurance premium (UFMIP) amounts paid in cash are added to the total cash settlement requirements. The UFMIP must be: Entirely financed into the mortgage, except any amount less than $1.00, or Paid entirely in cash and all mortgage amounts rounded down to a multiple of $ Ocwen Loan Servicing Client Select

164 Closing Costs, Continued Real Estate Broker Fees If a borrower is represented by a real estate broker and must pay any fee directly to the broker, that expense must: Be included in the total of the borrower s settlement requirements, and Appear on the Closing Disclosure (or HUD-1 Settlement Statement). If the seller pays the broker fee as part of the sales commission, it is not considered an inducement to purchase, or part of the seller contributions limitation, as long as the seller is paying only the normal sales commission for that market. Any additional seller-paid commission to the broker is considered an inducement to purchase. To determine if the seller paid a buyer-broker fee in addition to the normal sales commission for the market, a copy of the original listing agreement must be obtained, and compare it with the Closing Disclosure (or HUD-1 Settlement Statement). Premium Pricing Borrower s closing costs, and/or prepaid items may be paid from premium pricing. Closing costs paid in this manner do not need to be included as part of the seller contribution limitation. The funds derived from a premium priced mortgage: May never be used to pay any portion of the borrower s down payment Must be disclosed on the Loan Estimate (or GFE) and the Closing Disclosure (or HUD-1 Settlement Statement). Must be used to reduce the principal balance if the premium pricing agreement establishes a specific dollar amount for closing costs and prepaid expenses, with any remaining funds in excess of actual costs reverting to the borrower as principal curtailment, and May not be used for payment of debts, collection accounts, escrow shortages or missed mortgage payments, or judgments. Ocwen Loan Servicing LLC Client Select

165 Closing Costs, Continued Higher Priced Mortgage Loans Definition: A higher-priced mortgage loan is a consumer credit transaction secured by the consumer's principal dwelling with an annual percentage rate that exceeds the average prime offer rate for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for loans secured by a first lien on a dwelling, or by 3.5 or more percentage points for loans secured by a subordinate lien on a dwelling. NOTE: Ocwen does not offer subordinate lien financing. Tables of the average prime offer rates can be located on the FFIEC s website: Loans that are defined as higher priced mortgage loans are permitted for FHA products only and are subject to ALL of the following restrictions: Repayment ability; a creditor shall not extend credit based on the value of the consumer s collateral without regard to the consumer s repayment ability as of consummation. Therefore all borrowers must provide standard income and employment documentation as required within the FHA Lending Guide. Ratios will be calculated and must meet all guidelines. Due to its nature, HPML loans will not be permitted for Non-credit qualifying streamline refinance. If a NCQ loan is determined to be defined as a HPML, it may convert to a Credit Qualifying Streamline. Prepayment penalties are not permitted NOTE: Prepayment penalty options are not currently offered by Ocwen Loan Servicing). Escrow Accounts are required at time of closing and must be maintained for a minimum of 5 years NOTE: Escrow accounts are required for ALL FHA loans at time of closing and maintained for the life of the loan regardless of HPML classification per HUD guidelines). Evasion not permitted; a creditor shall not structure a home-secured loan as an openend plan to evade the requirements of this regulation NOTE: Ocwen Loan Servicing does not offer any open-ended/helocs product types). Adjustable Rate Mortgages with initial periods less than seven years are not eligible. IMPORTANT: HPML prohibited acts are mandated by Regulation Z from the Federal Reserve Board and may NOT be waived under any circumstances Ocwen Loan Servicing Client Select

166 Closing Costs, Continued Safe Harbor Qualified Mortgage Loans A Safe Harbor Qualified Mortgage (QM) as defined by HUD is a FHA loan transaction where the APR is less than or equal to the APOR for a comparable mortgage, as of the date the interest rate is set, plus the combined annual MIP (expressed by HUD in basis points or as a percentage) and 1.15% for first-lien transactions. Ocwen will fund Safe Harbor Qualified Mortgage (QM) FHA Loan transactions. Rebuttable Presumption Qualified Mortgage Loans A Rebuttable Presumption Qualified Mortgage (QM) is a FHA loan transaction where the APR exceeds the APOR for a comparable transaction, as of the date the interest rate is set, by more than the combined annual MIP (expressed by HUD in basis points or as a percentage) and 1.15% for a first-lien. To rebut the presumption of compliance, it must be proven that the mortgage exceeded the points and fees limit or that, despite the mortgage having been endorsed for insurance under the National Housing Act, the mortgagee did not make a reasonable and good faith determination of the mortgagor s repayment ability at the time of consummation, by failing to evaluate the mortgagor s income, credit, and assets in accordance with HUD underwriting requirements. Ocwen will fund Rebuttable Presumption Qualified Mortgage (QM) Loan transactions on FULLY Qualified FHA loan transactions only. Interest Credit PURCHASE LOANS: Permitted up to the 7 th day of the month. REFINANCE LOANS: Permitted up to the 10 th day of the month. Ocwen Loan Servicing LLC Client Select

167 Mortgage Insurance Overview An annual Mortgage Insurance Premium (MIP) is charged and collected in monthly installments on most FHA loans. The percentage amount of the annual premium is based upon the LTV and the term of the mortgage. There is also an initial Upfront Mortgage Insurance Premium (UFMIP) required on certain FHA loans which can be financed in the loan amount or paid in cash at closing. If any of the UFMIP is paid in cash, then the entire amount must be paid in cash. Determining UFMIP UFMIP is determined by multiplying the initial premium percentage by the base loan amount. The total FHA-insured mortgage amount is limited to 100% of the appraised value, and the UFMIP is required to be included within that limit. The UFMIP must be either: Entirely financed into the mortgage, with the mortgage amount rounded down to a whole dollar (with the exception of instances in which the borrower chooses to pay up to $49.99 of the UFMIP in cash, in which case it would not then be reflected in the total mortgage amount), or Entirely in cash and all mortgage amounts must be rounded down to a multiple of $1.00. The mortgage amount must be rounded down to a multiple of $1.00, regardless of whether the UFMIP is financed or paid in cash. The UFMIP amount, that is part of the total mortgage amount, is not considered when determining compliance with statutory loan limits or LTV limits. The base mortgage amount must comply with the requirements. The total mortgage amount may exceed this limit by the financed UFMIP amount. NOTE: Any UFMIP amounts paid in cash are added to the total cash settlement amount Ocwen Loan Servicing Client Select

168 Mortgage Insurance, Continued MIP Premiums MIP Premiums for Purchase and Refinances (including Streamline Refinances endorsed after May 31, 2009) For case numbers assigned on or after January 26, 2015 Upfront MIP; FOR ALL: 1.750% (Streamline Refinances endorsed on or before May 31, 2009: 0.01%) Annual MIP for Loan Amounts less than or equal to $625,500 Greater than 15 year terms 15 year or less terms LTV Annual LTV Annual > 95.00% 0.85% > 90.00% 0.70% <=95.00% 0.80% % 0.45% Annual MIP for Loan Amounts greater than $625,500 Greater than 15 year terms 15 year or less terms LTV Annual LTV Annual > 95.00% 1.05% > 90.00% 0.95% <=95.00% 1.00% % 0.70% <=78.00% 0.45% Annual MIP for Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, % (regardless of loan amount or term) For case numbers assigned Prior to January 26, 2015 Upfront MIP; FOR ALL: 1.750% (Streamline Refinances endorsed on or before May 31, 2009: 0.01%) Annual MIP for Loan Amounts less than or equal to $625,500 Greater than 15 year terms 15 year or less terms LTV Annual LTV Annual > 95.00% 1.35% > 90.00% 0.70% <=95.00% 1.30% % 0.45% Annual MIP for Loan Amounts greater than $625,500 Greater than 15 year terms 15 year or less terms LTV Annual LTV Annual > 95.00% 1.55% > 90.00% 0.95% <=95.00% 1.50% % 0.70% <=78.00% 0.45% Annual MIP for Streamline Refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009 Ocwen Loan Servicing LLC Client Select

169 0.55% (regardless of loan amount or term) Ocwen Loan Servicing Client Select

170 Mortgage Insurance, Continued MIP Premiums (Cont d) For all mortgages regardless of their amortization terms, any mortgage involving an original principal obligation (excluding financed Up-Front MIP (UFMIP)) less than or equal to 90 percent LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first. For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90 percent, FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first. UFMIP Refunds Borrowers are entitled to a partial refund of the UFMIP paid at closing if: The borrower is refinancing a current FHA loan to another FHA loan within 3 years; a refund credit may be applied to reduce the amount of the UFMIP paid on the refinanced loan. Refund calculations are the below (applicable) percentages multiplied by the original Upfront MIP. NOTE: On any refinance where the MIP refund exceeds the Upfront MIP required on the new loan, the overage will be refunded directly to the borrower from HUD. The lesser of the MIP refund or the new upfront MIP should be subtracted from the unpaid principal balance before calculating the new mortgage amount. 3 Year Refund Schedule: Upfront Mortgage Insurance Premium Refund percentages Month of Year Year Ocwen Loan Servicing LLC Client Select

171 Appraisal Requirements General All appraisals must be completed by an approved FHA appraiser. The information in the report must be accurate, internally consistent, written in clearly understandable language, fully supported, and sufficiently documented to FHA standards. The appraisal report must be dated within 120 days of the note date for all appraisals. If more than 120 days, then an update on FNMA Form 1004D must be provided dated prior to the expiration date of the original appraisal and must be dated within 120 days of the Note. If more than 240 days from the date of the appraiser s signature, then a new appraisal is required. If the appraisal is due to expire and the Borrower has a fully executed sales contract or the loan was approved prior to the expiration date of the appraisal, the expiration date may be extended up to 30 days to allow for the approval AND closing of the loan. Note that the 1004D may NOT be used in conjunction with the 30 day extension. See details within this summary regarding FHA Anti-Flipping Rule Operating Income Statement will be required on all 2-4 unit properties Appraiser must analyze the subject sales contract (on all purchase transactions). Must include Market Conditions Addendum (FNMA Form1004MC) NOTE: Reduced appraisal forms, including waivers, are not permitted. All loans must have a FHA case number assigned to the subject property. HUD assigns case numbers through FHA Connection. New FHA case numbers are required if the borrower changes properties. The FHA case number must be provided to the appraiser before the appraiser may release the appraisal. Responsibilities All appraisal practices utilized must (a) conform to the requirements of HUD, (b) comply with Appraiser Independence Requirements (AIR) issued by the Federal Housing Finance Agency, and (c) meet the minimum standards established under FIRREA Ocwen Loan Servicing Client Select

172 Appraisal Requirements, Continued Appraisal Logging The Appraisal Logging Screen in FHA Connection will require input of the appraiser information along with the following data: Appraiser's License ID Property Information Neighborhood Information Site Information Physical Improvement Information Reconciliation Information AMC Management Ocwen must always ensure that: an FHA appraiser is not prohibited by the company, the AMC or other third party, from recording the fee he/she was paid for performing the appraisal in the appraisal report, FHA roster appraisers are compensated at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised, the fee for the actual completion of an FHA appraisal does not include a fee for management of the appraisal process or any activity other than the performance of the appraisal, any management fees charged by an AMC or other third party must be for actual services related to ordering, processing or reviewing of appraisals performed for FHA financing, and AMC and other third party fees must not exceed what is customary and reasonable for such services provided in the market area of the property being appraised. Ocwen Loan Servicing LLC Client Select

173 Appraisal Requirements, Continued Appraiser Independence Safeguards FHA prohibits lenders from accepting appraisal reports completed by an appraiser selected, retained or compensated in any manner by a real estate agent. To ensure appraiser independence, FHA-approved lenders are also prohibited from accepting appraisals prepared by FHA roster appraisers who are selected, retained or compensated in any manner by a third-party sponsored originator or any member of a lender s staff who is compensated on a commission basis tied to the successful completion of a loan. Lenders, and third parties working on behalf of lenders, are prohibited from: Withholding or threatening to withhold timely payment or partial payment for an appraisal report Withholding or threatening to withhold future business from an appraiser Demoting or terminating, or threatening to demote or terminate, an appraiser Expressly or impliedly promising future business, promotions or increased compensation for an appraiser conditioning the ordering of an appraisal report or the payment of an appraisal fee, salary or bonus on the opinion, conclusion or valuation to be reached, or on a preliminary value estimate requested from an appraiser Requesting that an appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to the completion of that report Requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser's completion of an appraisal report. Providing to the appraiser an anticipated, estimated, encouraged or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase must be provided Providing stock or other financial or non-financial benefits to the appraiser, the appraisal company, the appraisal management company, or any entity or person related to the appraiser, appraisal company or management company Allowing the removal of an appraiser from a list of qualified appraisers, or the addition of an appraiser to an exclusionary list of qualified appraisers, used by any entity without prompt written notice to such appraiser, which notice shall include written evidence of the appraiser's illegal conduct, violation of the Uniform Standards of Professional Appraisal Practice (USPAP) standards, violation of state licensing standards or improper or unprofessional behavior or other substantive reason for removal Ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: There is a reasonable basis to believe that the initial appraisal was flawed or tainted and such appraisal is clearly and appropriately noted in the loan file Such appraisal or automated valuation model is done pursuant to written, preestablished bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and The lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value, or Any other act or practice that impairs or attempts to impair an appraiser's independence, objectivity or impartiality, or violates law or regulation, including, but not limited to the Truth in Lending Act (TILA) and Regulation Z and USPAP Ocwen Loan Servicing Client Select

174 Appraisal Requirements, Continued Quality of Report The DE Underwriter who is responsible for the quality of the appraisal report is allowed to communicate with the appraiser, to request clarifications and discuss components of the appraisal that influence its quality. The underwriter bears the primary responsibility for determining the eligibility of a property for FHA insurance. Appraiser Eligibility The FHA Roster appraiser selected to perform an appraisal must be listed as being active on the FHA Appraiser Roster at time of selection and at time in which the appraisal was performed. Mortgages predicated upon appraisals that were performed by appraisers who were not current on the FHA Appraiser Roster at time of effective date of appraisal will not be insured. The effective date of the FHA appraisal cannot be before the case number assignment date unless the DE Underwriter certifies, via the certification field in the Appraiser Logging Screen in FHA Connection, that the FHA appraisal was initially ordered for conventional lending, HUD REO, or government guaranteed purposes, but was performed by a FHA Roster Appraiser who subsequently converted the appraisal to meet FHA standards and will support the new FHA-insured mortgage. See additional requirements below. Must provide evidence such as signed initial and Loan Estimate (or new GFEs) official lender decision letters, etc. to document that such a change in borrower financing occurred. Must ensure that the appraisal was performed in accordance with FHA appraisal reporting requirements. Ensuring compliance with this requirement may entail a re-inspection of the property by the appraiser. Ocwen Loan Servicing LLC Client Select

175 Appraisal Requirements, Continued Converted Appraisals When a conventional loan flips to FHA and the appraisal pre-dates issuance of Case Number Assignment: A 1004D Update is required to be completed by the FHA appraiser confirming HUD minimum property standards are met. The recognized appraisal date = date on the 1004D. If the appraiser is not FHA approved, a new appraisal will be required. NOTE: Confirmation of the initial conventional financing request must be provided and documented within the loan file. Appraisal Portability / Transfers When a borrower changes from one lender to Ocwen, the initial lender must at the borrower s request transfer the case to the second. This requires the initial lender to: Transfer the FHA case number to the second lender using the Case Transfer functionality within FHA Connection. Provide Ocwen with a copy of the appraisal report ordered by and completed for the initial lender. Initial lender must provide written assurance such as an AIR Certification and borrower receipt that the appraisal was obtained in a manner consistent with AIR Compliance. NOTE: It is acceptable for the client name listed on the appraisal report to continue to reflect the initial lender. FHA does not require that the client name on the original appraisal to be changed into our name. IMPORTANT: The DE Underwriter should review the original appraisal as provided from the initial lender to determine if it is acceptable collateral as required by HUD. A Conditional Commitment issued by the first lender s DE Underwriter is not transferable and may not be utilized or considered by Ocwen Ocwen Loan Servicing Client Select

176 Appraisal Requirements, Continued Acceptable Second Appraisals A second appraisal under certain circumstances as indicated below: Where the first appraisal contains material deficiencies as determined by a DE Underwriter. Where the appraiser performing the initial appraisal has been excluded from the Ocwen s acceptable appraisers. Where failure of the first lender to provide a copy of the appraisal to Ocwen in a timely manner causing closing delays, thus creating potential harm to the borrower(s), such as interest rate lock expiring, sales contract expiration, accumulated late fees, etc. The DE Underwriter must document the loan file accordingly. IMPORTANT: Though delivered untimely, the initial appraisal must eventually be delivered and retained in the loan file. Additional guidance on ordering Second Appraisals when permitted: A new FHA Case Number must not be ordered. If the second appraisal is ordered from a different appraiser, the FHA Case Number Assignment screen must be updated to reflect the name of the new appraiser. The DE Underwriter must thoroughly document and retain within the loan file the explanation for ordering a second appraisal and explanation MUST meet the allowed for circumstances. Both appraisals must be retained within the loan file, including scenarios in which the initial appraisal is delivered in an untimely manner. Re-using the Appraisal Purchase Appraisal cannot be used for refinance transactions, even if less than six months. New appraisal is required for each refinance transaction requiring an appraisal. Ocwen Loan Servicing LLC Client Select

177 Appraisal Requirements, Continued Appraisal Updates FHA has adopted FNMA Form 1004D for the purposes of appraisal updates and/or completion reports. The 1004D Updated Appraisal must be dated prior to the expiration date of the appraisal report. The original FHA Roster appraiser continues to be required and must sign the update If the original appraiser is not available or no longer in good standing, then a NEW appraisal must be ordered. Property may not have declined in value Building improvements that contribute value to the property must be observable from the street or public way If the exterior inspection reveals deficiencies, then the 1004D may not be utilized. HUD continues to be required for new construction Per ML , an original appraisal report can only be updated one time via the Appraisal Update Report (1004D), limiting the use of the Appraisal Update Report to one time. The 1004D may not be used when ordered by a lender who is not identified as an intended user in the original appraisal report unless the appraiser incorporates the original report being updated by attachment rather than by reference per Advisory Opinion 3 of the Uniform Standards of Professional Appraisal Practice (USPAP). Photos The appraiser is required to take a picture of the front and rear of the subject property from oblique angles so as to include the sides as well as the front and rear of the property and all buildings on the subject property having contributory value. The appraiser must also take a frontal picture of each comparable used in the report. NOTE: The appraiser must take the pictures; it is not acceptable for the photos to be taken by anyone other than the appraiser. In addition, the appraiser is required to provide a copy of a local street map showing the subject and each comparable Ocwen Loan Servicing Client Select

178 Appraisal Requirements, Continued Uniform Appraisal Dataset Mortgagee Letter announced that FHA was adopting the Uniform Appraisal Dataset (UAD) for the Uniform Residential Appraisal Report (URAR, Fannie Mae Form 1004 and Individual Condominium Unit Appraisal Report, Fannie Mae Form 1073). Appraisal Reporting Forms The appraisal reporting form used depends on the type of property that is being appraised. The table below lists the appraisal forms used by the appraiser. Appraisal Form Uniform Residential Appraisal Report (URAR) (Fannie Mae Form 1004, March 2005) Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073, March 2005) Small Residential Income Property Appraisal Report (Fannie Mae Form 1025) Appraisal Update and/or Completion Report (Fannie Mae Form 1004D/Freddie Mac Form 442/March 2005) Form Usage Required to report an appraisal of A one-unit property, or A one-unit property with an accessory unit. Required to report an appraisal of a Unit in a condominium project, or condominium unit in a planned unit development (PUD). Required to report an appraisal of a two to four unit property. This is a dual-purpose form. Part A, Summary Appraisal Update Report provides for updates of existing appraisals when the appraiser concurs with the original appraisal report, and updates the appraisal by incorporating the original appraisal report. Part B, Completion Report, provides for compliance repair and completion inspections for existing and new construction dwellings. Ocwen Loan Servicing LLC Client Select

179 Appraisal Requirements, Continued Lead-Based Paint Standards If the property was built before 1978 the seller must disclose known information on lead-based paint and/or lead-based paint hazards before selling the house. The sales contract must include a Disclosure Of Information On Lead- Based Paint and/or Lead-Based Paint Hazards, and The buyer must receive a 10-day opportunity (or mutually agreed upon period) to conduct a risk assessment or inspection for the presence of lead based paint and/or lead-based paint hazards. FHA may insure a mortgage on a house, even with lead-based paint, if defective paint surfaces are treated. However, FHA will not pay the cost to have the lead-based paint removed, treated, or repaired. Environmental Hazards Properties may not violate any environmental law, rule or regulation with respect to the subject property, and may not contain toxic materials or other environmental hazards on, in or that could affect the subject property. Appraiser must disclose any known or suspected environmental hazards on or near the subject property, e.g., land fills, toxic waste dumps, or junk yards; including any hazardous conditions observed during the inspection of the subject property or information that he or she became aware of through the normal research involved in performing an appraisal. If an environmental hazard is located on or near the subject property, the appraiser must comment on any influence that the hazard has on the property s value and marketability and make appropriate adjustment in the overall analysis of the property s value. If any environmental hazard is suspected, an environmental study of the subject property is required prior to loan approval. In such cases, a nationally recognized and reputable environmental engineering firm must perform the written report. The report must include an analysis and detailed list of cleanup costs, if any. Ocwen will not fund a loan without acceptable evidence confirming any known or suspected environmental hazards will not have an adverse effect upon the marketability, livability, or appraised value of the subject property. This confirmation must be evidenced by either acceptable or documented clean-up efforts or by verification of comparable market data confirming no buyer resistance to the hazard Ocwen Loan Servicing Client Select

180 Appraisal Requirements, Continued Site Hazards The property site must be free of health and safety hazards. Mineral Rights If the rights are sold or leased, the title company must provide adequate title endorsement coverage to insure over any property disruption and/or damage. Property Conditions All appraisals must be completed with the UAD. The appraiser must assign standardized condition and quality ratings to identify the condition of the improvements and quality of construction for the subject property and comparable sales. Ocwen will accept loans where the appraisal is completed as is with the property s conditions rating C1 C5 and the quality of construction rating Q1-Q5. The subject property must be maintained in at least average condition. All subject properties must be habitable with safe water, sanitary facilities, adequate heating, domestic hot water and all appliances, plumbing, electrical, etc. must be functional and in good working condition. Termite Inspections Unless the appraiser indicates that there is active infestation or mandated by governmental jurisdictions (see Pest Control Tip Zone link below), termite inspections are not required. The above Pest Inspection references apply to existing properties over 1 year old; for all other properties, refer to the Construction sections within this summary. A copy of the termite/pest inspection report is required to be included in the file if evidence exists that a termite/pest inspection was ordered, requested, required and/or completed, even if the borrower elected to have it completed. Ocwen Loan Servicing LLC Client Select

181 Appraisal Requirements, Continued Well Inspections Connection to a Public Water System The appraiser is required to report on the availability of connection to public and/or community water system. The DE Underwriter is responsible for the determination of the feasibility for requiring connection. Generally, connection must be made to a public water system or community water system if connection costs to the public or community system are reasonable (3% or less of the estimated value of the property.) A written estimate or appraiser comment for the cost of connection must be obtained before the underwriter may waive this condition. If connection costs exceed 3%, the existing on-site systems will be acceptable provided they are functioning properly and meet the requirements of the local health department. Community Water Systems A community water system is a central system, owned, operated and maintained by a private corporation or a non-profit property owners association. HUD no longer maintains a list of approved systems. The appraiser must note in the appraisal report if public water is available to the subject site. If a property is on community water, the appraiser should note the name of the water company on the appraisal report. Ocwen will require documentation that the community system(s) is/are licensed and adequate to service the property Ocwen Loan Servicing Client Select

182 Appraisal Requirements, Continued Individual Well Water Systems Test or inspection required: if mandated by the state or local jurisdiction or if there is knowledge that well water may be contaminated or when the water supply relies upon a water purification system due to presence of contaminants or when there is evidence of the following: Corrosion of pipes (plumbing) Areas of intensive agriculture within a ¼ mile Coal mining or gas drilling operations within ¼ mile Dump, junkyard, landfill, factory, gas station, or dry cleaning operation within a ¼ mile Unusually objectionable taste, smell or appearance of well water (superseding the guidance in Mortgagee Letter that requires well water testing in the absence of local or state regulations) Shared Wells Shared wells may serve existing properties that cannot feasibly be connected to an acceptable public or community water supply system. A shared well shall have a valve on each dwelling service line as it leaves the well. A shared well shall service no more than four living units or properties. A shared well must have a shared well agreement and shall be binding upon signatory parties and their successors in title. More information on this agreement can be referenced in HUD handbook Rev-1, Section Ocwen Loan Servicing LLC Client Select

183 Appraisal Requirements, Continued Well Location Individual water supply systems (wells) should be checked to establish the distance from the septic systems. The appraiser is to note in the appraisal if the distances appear to be met plus note any adverse site conditions that might warrant further inspections or due diligence. The DE Underwriter must make a decision as to whether a qualified third party should map out these distances. The DE Underwriter may want to have these distances marked on a survey in cases where the lot is particularly small, depending on the location of the well. The minimum acceptable distances between wells and the sources of pollution located on either the same or the adjoining lot are shown in the table below. Source of Pollution Minimum Horizontal Distance Source of Pollution Minimum Horizontal Distance Property Line 10 feet Other sewer lines 50 feet Septic Tank 50 feet Chemically Poisoned 25 feet Soil Absorption field/bed, 100 feet Dry Well 50 feet Seepage Pit Sewer lines with permanent tight joints 10 fee Other Recommendations or requirements of the local health authority Individual water systems/wells should be located ON the subject property site. If not, they must be on an adjacent property, and evidence of water rights and recorded maintenance agreement must be provided for acceptance of the well as the primary source of water for an FHA insured property. Cisterns-HUD indicates that properties served by cisterns are not acceptable for mortgage insurance. However, the HOCs have the authority to consider waivers in areas where cisterns are typical. New wells must be drilled, no less than 20 feet deep, and cased. Casing should be steel or other casing material that is durable, leak-proof, and acceptable to (either) the local health authority and (or) the trade or profession licensed to drill and repair wells in the local jurisdiction. Individual Residential Water Purification Equipment-if a property is otherwise eligible for insurance but does not have access to a continuing supply of safe and potable water without the use of a water purification system, the requirements in Mortgagee Letter and must be satisfied Ocwen Loan Servicing Client Select

184 Appraisal Requirements, Continued Septic / Sewage Inspections Community Sewer Systems HUD no longer maintains list of approved systems. The appraiser should note the name of the community system(s) on the appraisal report. Ocwen will require documentation that the community system(s) is/are licensed and capacity is adequate to service the property. The appraiser must note if public sewer is available to the subject site. Individual sewage Systems Individual sewage systems may be acceptable when the cost to connect to a public or community sewage system is not reasonable. 3% or less of the estimated value of the property is the suggested benchmark. If the property cannot be connected to a public system, FHA will accept individual sewage systems that are acceptable to the local health authorities. This includes numerous types of sewage systems including cesspools, individual pit privies, and mound systems. Inspection and/or testing are not automatically required, but is required when the appraiser suspects a problem with the system or problems are common in the area. In these instances, the appraiser is to condition for a certification by a professional such as the local health authority, a licensed sanitarian or an individual determined to be qualified by the DE Underwriter. For distances between water sources and sewage, required for new construction, refer to HUD Handbook Section 3-6 and CFR d. For existing properties, the appraiser is required to confirm that the distances meet HUD requirements; sketch drawings not required for existing properties. If the appraiser is unable to provide, then measurements and drawings will be required from a licensed professional. Ocwen Loan Servicing LLC Client Select

185 Appraisal Requirements, Continued Roof Inspections The covering must prevent moisture from entering and provide reasonable future utility, durability and economy of maintenance. The appraiser must visually examine the roof to determine whether deficiencies present a health and safety hazard or do not allow for reasonable future utility. NOTE: The appraiser must exercise sound judgment when evaluating roof conditions. The roof should have a remaining physical life of at least two years. If the roof has less than two years remaining life, then the appraiser must report this condition in the appraisal report. Re-Roofing: FHA will accept a maximum of 3 layers of existing roofing. If more than 2 layers exist and repair is necessary, then all old roofing must be removed as part of the re-roofing. Flat Roof: FHA no longer mandates automatic inspection of flat and/or unobservable roofs. The appraiser must note in the appraisal that he/she could not adequately observe the entire roof area and state which area(s) were unobservable. As with any other type of roof the appraiser is to look for signs that would indicate a possible roof problem. Based on the information reported, either the appraiser or underwriter may condition for a roofing inspection Ocwen Loan Servicing Client Select

186 Appraisal Requirements, Continued Heating Source General: ALL habitable rooms must have a heat source. This does not mean that each room must contain a heating device but that each room must receive sufficient heat. (Exception: Homes located in Florida counties of Lee, Charlotte, Glades, Hendry, Palm Beach, Collier, Broward, Monroe and Miami-Dade do not require heat if, the lack of, is "typical" for the market area and does not adversely affect the marketability of the property. Wood Stoves and Solar Systems: Dwellings with wood burning stoves or solar systems as a primary heat source must have permanently installed conventional heating systems that can maintain at least 50 degrees Fahrenheit in all living areas and those containing plumbing systems. These systems must be installed in accordance with the manufacturer s recommendations. Floor Heaters: Due to the inherit dangers of a floor heater it is highly recommended that floor heaters in need of repair be replaced with another permanent heat source. Non-Conventional Heating Systems: All non-conventional heating systems, such as space heaters and others, must comply with local jurisdictional guidelines. Often these are not acceptable as the primary source of heat. Propane tanks must be a safe distance from the dwelling. Leased tanks are acceptable when not offered for sale. Propane fired furnaces located in a crawl space area are not acceptable. Ocwen Loan Servicing LLC Client Select

187 Appraisal Requirements, Continued Public and Private Streets When an appraisal indicates that the property has a privately owned and maintained street, evidence of a road maintenance agreement is not required; however, the following requirements must be met: Property must have vehicular or pedestrian access. If the property does not include an all weather surface, the absence of such must be noted on the appraisal. FHA defines all weather surface as a road surface over which emergency and the area s typical passenger vehicles can pass at all times. Private streets and shared driveways must be protected by permanent recorded easements (non-exclusive and non-revocable easement without trespass from the property to a public street) or be owned and maintained by the HOA. o The recorded easement must be reviewed and approved by the DE underwriter and documented in the file. Shared driveways must meet all the requirements above Ocwen Loan Servicing Client Select

188 Appraisal Requirements, Continued Carbon Monoxide Detectors For California properties, evidence that a carbon monoxide detector has been installed is required: On purchase transactions when installation is required per sales contract or appraisal report or when the appraisal indicates detectors have not been installed. On refinance transactions when installation is required per the appraisal or when the appraisal indicates detectors have not been installed. For Connecticut properties effective January 1, 2014, evidence certain properties adhere to Act PA sHB 6160: ( Requires seller before transferring title to a 1 or 2 unit to provide: Affidavit certifying the occupancy building permit was issued on or after October 1, 1985; OR Affidavit certifying the dwelling is equipped with smoke detection and warning equipment (smoke detectors). Affidavit must also certify that the building is equipped with carbon monoxide (CO) detection and warning equipment (CO detector) complying with the act; OR Property does not pose a risk of CO poisoning because it does not have a fuel-burning appliance, fireplace or attached garage. The act exempts from the affidavit requirement transfers: From one co-owner to another; The transferor s spouse, parent, sibling, child, grandparent, or grandchild where no consideration is paid; Under a court order; By the federal government or any of its political subdivisions; By deed in lieu of foreclosure; Involving refinancing of an existing mortgage debt; By mortgage deed or other instrument to secure a debt where the transferor s title to the property is subject to a preexisting mortgage debt; or By executors, administrators, trustees, or conservators. Ocwen Loan Servicing LLC Client Select

189 Appraisal Requirements, Continued Repair Escrow Holdback Not permitted. All HUD required repairs must be completed prior to final loan approval. General Required Repairs Required repairs are limited to those repairs necessary to preserve the physical security of the property and to protect the health and safety of the occupants. The three (3) S s: Soundness-correct physical deficiencies or conditions affecting structural integrity. Safety-protect the health and safety of the occupants. Security-protect the security of the property (security for the FHA insured mortgage.) Avoid unnecessary requirements because they increase housing costs without adding any basic amenities to the property. While appraisers are not to add repairs beyond FHA s guidelines, the DE Underwriter may add requirements as a condition of making the loan. Individual DE Underwriters have the right to make additional requirements they feel necessary to protect the security or soundness of the property and the health and safety of the occupants. The applicant has the option of selecting another lender if they feel these requirements/conditions are excessive Ocwen Loan Servicing Client Select

190 Appraisal Requirements, Continued Private Transfer Fees Mortgages on properties encumbered by private transfer fee covenants prohibited by C.F.R. Part 1228 in the Federal Register, are ineligible if those covenants were created on or after February 8, Fees that do not directly benefit the property are subject to C.F.R. Part 1228 and are therefore ineligible. Private transfer fees are eligible for loans in which the covenants were created prior to 2/8/2011. However, if the creation date is not known, the loan is not eligible. 3-4 Unit Properties Regardless of occupancy status or loan purposes, the property must be self-sufficient (i.e., the maximum mortgage is limited so that the ratio of the monthly mortgage payment, divided by the monthly net rental income, does not exceed 100%). The monthly payment is the principal, interest, taxes, and insurance (PITI), including mortgage insurance, plus any homeowners association dues, computed at the note rate (no consideration for buy downs may be given). Net rental income is the appraiser s estimate of fair market rent from all units, including the unit chosen by the borrower for occupancy, less the appraiser s estimate for vacancies or the vacancy factor used by the jurisdictional HOC, whichever is greater. This calculation is used only to determine the maximum loan amount. Borrowers must still qualify for the mortgage based on income, credit, cash to close, and the projected rents received from the remaining units. The projected rent may only be considered as gross income for qualifying purposes; it may not be used to offset the monthly mortgage payment. Borrower must have a reserve of three (3) months' mortgage payments (PITI) after closing. Reserves CANNOT be from a gift. Construction Proposed Construction and Under Construction are not permitted. Ocwen Loan Servicing LLC Client Select

191 Appraisal Requirements, Continued Existing Construction less than One Year Existing property less than one (1) year may be treated as a purchase transaction only. May not have the borrower in title or in ownership of the lot Borrower may not have the construction loan in their name or Borrower may not be their own contractor. Properties not meeting the criteria shown below are considered existing construction-less than one year old and are limited to 90.00% LTV of the lesser of the appraiser s estimate of value or sales price, plus or minus the adjustments required by FHA. For a property to be eligible for greater than 90.00% LTV, it must meet one of the criteria described below. Otherwise, the property is classified as less than one year old and is limited to 90.00% LTV. Construction was completed more than one year preceding the borrower s signature on the Addendum to Uniform Residential Loan Application (form HUD A, page 2); or The local jurisdiction has issued both a building permit and a Certificate of Occupancy or equivalent. Does not apply to condominiums because of the special circumstances regarding their approval. If the building permit and COO are issued, a ten-year warranty is not needed. The dwelling is covered by a builder s ten-year insured warranty plan that is acceptable to HUD. HUD Form HUD will accept certification via Form HUD by (1) the builder, (2) the builder s architect or (3) other qualified agent familiar with the compliance of local or State building codes that were accepted by the HUD Field Office according to 24 CFR a or National Building Code criteria Ocwen Loan Servicing Client Select

192 Appraisal Requirements, Continued Existing Construction, Less than One Year Required exhibits to be included in case binder must be completed signed and dated by the appropriate parties. Existing properties less than 1 year old are properties that are 100% complete at the time appraisal performed. The determination date for less than 1 year old is the earliest date of the Certificate of Occupancy, date of final approval reflected on the Building Inspection Card, or date of a letter from a local or state authority showing the completion of construction. NOTE: Title of the land must be or remain in the name of the builder. High Ratio (Over 90% LTV) URAR, with all standard exhibits, including the cost approach. Appraiser to insert month and year completed in the Age section. HUD (4/01) Builders Certification of Plans & Specifications and site. HUD (8/92)) Warranty of Completion of Construction Inspections-If the property is 100% complete at the time of appraisal then the **URAR may serve as the final inspection; see below. If pre-approved, BOTH Building Permit & Certificate of Occupancy (or equivalent). 10 Year WARRANTY Evidence of acceptance from HUD approved 10- year warranty plan is required if property was not pre-approved. (Building Permit & Certificate of Occupancy) PEST CONTROL In those geographic areas favorable to termite damage. NPMA-99a & NPMA 99b INDIVIDUAL SEWER/WELL SYSTEMS If applicable, evidence of approval from Local Health Authority. Compliance Certification completed by a FHA Fee Inspector (carpet identification, manufactured warranties, insulation) Ocwen Loan Servicing LLC Client Select

193 Appraisal Requirements, Continued Low Ratio (90% or less) URAR, with all standard exhibits, including the cost approach. Appraiser to insert month and year completed in the Age section. HUD (4/01) Builders Certification of Plans & Specifications and site. Inspections-If the property is 100% complete at the time of appraisal then the **URAR may serve as the final inspection; see below. PEST CONTROL In those geographic areas favorable to termite damage. NPMA-99a & NPMA 99b INDIVIDUAL SEWER/WELL SYSTEMS If applicable, evidence of approval from Local Health Authority. NOTE: **URAR Appraisal may serve as final inspection if the property is 100% complete at the time of appraisal with no conditions. The appraiser is to provide photos of each diagonally opposite front and rear corner of the house reflecting adequate grading and drainage. Appraiser is to verify general conformance with Plans & Specs. (Refer to HUD Handbook REV-2, Section 6-3.A.3) Ocwen Loan Servicing Client Select

194 Natural Disasters Overview Ocwen continually monitors FEMA for updates in regards to federally declared disaster notifications. Once a location has been identified by FEMA, a Natural Disaster Notification (NDN) will be disseminated identifying the specific location, policies and procedures. Procedure Ocwen will require a re-inspection (DIR: Disaster Inspection Report) of the subject property prior to issuing closing documents. You will need to log into your account from Ocwen s website and select the Tab ORDER APPRAISAL to order a re-inspection/dir of the property. A fee is associated with the re-inspection/dir of these properties. If you choose to charge the borrower for this fee, you will be required to complete a Change of Circumstance Form (located on our website under Forms) indicating the reason for the re-disclosure (Natural Disaster) and the increased fee. This completed form must be uploaded into Imageflow. Closely examine your rate lock expiration date. If a rate lock extension is needed (noting, any fee changes to the borrower will require a change of circumstance form as well), select the tab from our web site labeled SELECT A RATE LOCK EXTENSION and complete. All extension fees are listed on the website for your convenience. Example Below is an example of the declared location and effective dates that will be announced on the specific NDN. STATE Declared Areas Effective Date Expiration/End Date Counties of 01/01/ /02/2010 IMPORTANT: Appraisals performed BEFORE the Expiration/End Date will require documentation as indicated on page two (2) of this notification (referring to the NDN notification). Ocwen Loan Servicing LLC Client Select

195 Natural Disasters, Continued Requirements for Affected Areas Underwriting/Closing Requirements: For loans secured by properties appraised and not closed/funded prior to the disaster declaration date, Ocwen will require the following additional documentation on all loans. REQUIREMENTS: Property appraised prior to the disaster THROUGH to FEMA s Expiration/Safe Date: FHA Streamlines without An Appraisal Borrower s Certification and Affidavit for Weather Related Damage form If the re-inspection/dir, reports any damage or change in value to the property, then: IMPORTANT if the property location is within a FEMA declared area AND a FLOOD ZONE: Property appraised AFTER FEMA s Expiration/Safe Date for the disaster: A thorough inspection/dir (1004D accepted as well) of the property is required; it is important to note that the degree and nature of the inspection will vary depending on the nature of the disaster and property location: The original appraiser (if available) should perform the inspection to the extent he/she deems necessary so that a certification stating the below can be signed and warranted: Property is free from damage and is in the same condition as previously/originally appraised; Marketability and value remain the same. Re-inspections will always be required regardless of time frame if the appraisal was performed BEFORE the disaster date. NOTE: In order to comply with AIR regulations, the re-inspection must be ordered through Ocwen s appraisal management company. Refer to the previous page for specific instructions. For FHA Streamline Refinances without an Appraisal, only an interior/exterior re-inspection will be required. For all FHA loans requiring a re-inspection, it must include interior and exterior with photographs. In addition to the re-inspection/dir, the borrower must sign a certification of acceptable property condition if their home is in one of the disaster areas. A copy of this form is located on Ocwen s website. Prior to closing, Ocwen will require the property to be repaired adequately and evidenced by the FNMA Form 1004D (appraisal update and/ or completion report). Loans in the NDN site AND in a FEMA Flood Zone will NOT be allowed to close until after the Expiration/Safe Date has been published AND the reinspection has been performed. For up to 90 calendar days after the Expiration/Safe Date is issued by FEMA, the appraisal must include written certification by the appraiser that The property is free from damage and the disaster has had no affect on the subject property s value or marketability Ocwen Loan Servicing Client Select

196 Property Flipping General Property flipping is a practice whereby a recently acquired property is resold for a considerable profit with an artificially inflated value. In an effort to preclude homebuyers using FHA financing from becoming victims of predatory property flipping activity, HUD has implemented a revised property flipping policy. Overview of FHA Flipping Policy FHA requires that: Only owners of record may sell properties that will be financed using FHA insured mortgages, Any re-sale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing, and Re-sales that occur between 91 and 180 days, where the new sales price exceeds the previous sales price by one hundred percent (100%) or more, FHA will require additional documentation validating the property s value. NOTE: HUD considers the re-sale date as, the date of execution of a sales contract by a buyer that will result in a mortgage to be insured by FHA. Owner of Record To be eligible for a mortgage insured by FHA, the property must be purchased from the owner of record and the transaction may not involve any sale or assignment of the sales contract. This requirement applies to all FHA purchase money mortgages regardless of the time between re-sales. Ocwen must be able to obtain documentation verifying that the seller is the owner of record and submit this to HUD as part of the insurance endorsement binder; it is to be placed behind the appraisal on the left side of the case binder. This documentation may include, but is not limited to: A property sales history report, A copy of the recorded deed from the seller, or Other documentation such as a copy of a property tax bill, title commitment or binder, demonstrating the seller s ownership of the property and the date it was acquired. Ocwen Loan Servicing LLC Client Select

197 Property Flipping, Continued 90-day Flip Waiver Ocwen does not accept loans under the 90 day Flip Waiver detailed within 24 CFR a(b)(2) (also referenced within ML ) extended to Sales by Private Individuals Ocwen Loan Servicing Client Select

198 Property Flipping, Continued Exceptions to 90 Day Restriction If the owner of record sells a property within 90 days after the date of acquisition, that property is not eligible security for a mortgage insured by FHA unless the loan file is documented that the transaction falls within one of the exceptions to the time restrictions on re-sales listed below: Sales by HUD of its own Real Estate Owned (REO) properties. Sales by other United States Government agencies of single family properties pursuant to programs operated by these agencies. Sales of properties by non-profits approved to purchase HUD-owned single family properties at a discount with resale restrictions. Sales of properties that are acquired by the sellers by inheritance. Sales of properties purchased by employers or relocation agencies in connection with relocations of employees. Sales of properties by state and federally charted financial institutions and Government Sponsored Enterprises. NOTE: Most state and federally chartered financial institutions are going to be banks, savings and loans, or credit unions. Sales of foreclosed properties by state licensed mortgage lenders. Any entity that sells foreclosed properties on behalf of an exempt lender or financial institution. Sales of properties by local and state government agencies. Sales of a previously foreclosed or abandoned property acquired, rehabilitated and resold by an entity using funds from and performing under agreements with state and local government agencies under a Neighborhood Stabilization Program (NSP). Properties that were HUD REOs and then rehabilitated and resold are not eligible under this exemption. NSP fund providers must have established a written agreement or similar document authorizing certain entities (for-profit and/or non-profit companies) as a representative purchaser and rehabilitator of foreclosed and abandoned properties. Documentation proving a seller is exempt from any of the property flipping guidelines is required in the endorsement file prior to approving the loan transaction. Upon FHA s announcement of eligibility in a notice, i.e. Mortgagee Letter (ML), sales of properties located in areas designated by the President as federal disaster areas, will be exempt from the restrictions of the property-flipping rule. The exemption does not provide an exception to additional appraisal requirements when the re-sale price is 100% or more over the price paid by the seller when the property was acquired in the last 180 days. Re-sales that occur under this exemption within 90 days of last acquisition with a sales price increase of 100% or more require a second appraisal. Ocwen Loan Servicing LLC Client Select

199 Property Flipping, Continued Resale Days If the re-sale date is between 91 and 180 days following acquisition by the seller, a second appraisal is required made by another appraiser IF the re-sale price is one hundred percent (100%) or more over the price paid by the seller when the property was acquired. EXAMPLE: If a property is re-sold for $80,000 within six (6) months of the seller s acquisition of that property for $40,000, the Branch must obtain a second independent appraisal supporting the $80,000 sales price. Documentation showing the costs and extent of rehabilitation that went into the property resulting in the increased value may be provided, but must still obtain the second appraisal. The cost of the second appraisal may not be charged to the homebuyer and will not be paid by Ocwen; however may be paid by the broker or seller. FHA also reserves the right to revise the re-sale percentage level at which this second appraisal is required, by publishing a notice in the Federal Register. Requirements for the appraisals are listed below. A conventional appraisal is not acceptable. Both appraisals must be FHA appraisals prepared by independent appraisers. Both appraisers must be on HUD s roster list of Approved Appraisers and be state certified with an unexpired license. Repairs on BOTH appraisals must be resolved. If there is a difference in value of more than 5% between the two (2) appraisals, the appraisal with the lowest value must be used. The Conditional Commitment is issued based on the appraisal used by underwriting. Both appraisals must be entered into the FHA Connection in the fields allocated as First Appraisal and Second Appraisal. Once the first appraisal information is entered, the field for the second appraisal information will appear. USPAP requirements must be met on both appraisals. This rule requires appraisers to analyze any prior sales of the subject property and comparables that occurred within specific time periods Ocwen Loan Servicing Client Select

200 Property Flipping, Continued Resale 91-One Year If the re-sale date is more than 90 days after the date of acquisition by the seller but before the end of the twelfth (12th) month following the date of the acquisition, Ocwen reserves the right to require additional documentation to support the re-sale value if the re-sale price is five percent (5.00%) or greater than the lowest sales price of the property during the preceding twelve (12) months. At Ocwen s discretion, such documentation may include, but is not limited to, an appraisal from another appraiser. NOTE: Refer to the appraisal requirements previously mentioned in this section for guidance. Ocwen Loan Servicing LLC Client Select

201 Property Flipping, Continued Date of Property Acquisition The DE Underwriter may depend on the appraiser to provide information that is compliant with the updated Standard Rule 1-5 of the Uniform Standards of Professional Appraisal Practice (USPAP). This rule requires appraisers to analyze any prior sales of the subject property that occurred within specific time periods, now set for the previous three (3) years for one-to-four family residential properties. As a result, the information contained on the Uniform Residential Appraisal Report or other applicable appraisal report form describing the Date, Price and Data for Prior Sales is to include all transactions for the subject property within three (3) years of the date of the appraisal and the comparable sales within twelve (12) months of the date of the comparable sale. Appraisers are responsible for considering and analyzing any prior sales of the property being appraised within three (3) years of the date of the appraisal and the comparables that are utilized within twelve (12) months of the date of the comparable sale. If the most recent sale of the property occurred at least one year previously, no additional documentation is required. The Ocwen DE Underwriter remains accountable for verifying that the seller is the owner of record and may rely on information developed by the appraiser for this purpose if provided. Any conflicts in information must be resolved and the file must be appropriately document. Anti-Flipping and the Sales Contract It is not acceptable practice for the sales contract to be re-signed for the sole purpose of circumventing HUD s 90 day flip rule. NOTE: This includes any evidence within the file, such as original sales contract date on the appraisal, indicating that the loan was re-structured for the sole purpose of circumventing HUD s 90 day flip rule Ocwen Loan Servicing Client Select

202 Automated Underwriting Systems TOTAL Scorecard All loans with the exception of Streamline Refinance transactions must be run through TOTAL Scorecard. NOTE: Streamline refinances must not be submitted through TOTAL Scorecard. Submitting a loan using TOTAL Scorecard allows the DE Underwriter to receive the benefits of documentation reduction and credit policy revisions. Evidence of the TOTAL Scorecard evaluation MUST be in every loan file. TOTAL only provides an Approve or Refer and the reasons for the Refer, including which rules were triggered. The AUS vendor provides the feedback messages. Resubmission The DE Underwriter is responsible for the integrity of the data used to obtain the risk assessment and for resubmitting the loan when material changes are discovered or otherwise occur during loan processing. Ocwen requires 100% AUS data integrity prior to loan approval. Ocwen Loan Servicing LLC Client Select

203 Automated Underwriting Systems, Continued DU The following table provides descriptions to TOTAL Scorecard DU recommendations. NOTE: HUD requires only the final AUS findings report in the file, whether it is an Approval or a Refer. Recommendation Description Approve/Eligible If there is erroneous data in the credit report or contradictory or derogatory information in the loan file that would justify additional investigation or provide grounds for a decision different from the TOTAL Scorecard/DU recommendation, the underwriter is required to take appropriate action. The loan is eligible for FHA mortgage insurance with reduced documentation and credit requirements. Approve/Ineligible The DE Underwriter must determine that the reason for the ineligibility is one that can be resolved in compliance with FHA Underwriting, and must document the circumstances in the underwriter comments section of the FHA Loan Underwriting Transmittal Summary (HUD LT). An FHA Direct Endorsement Underwriter signature is not required on the FHA Loan Underwriting Transmittal Summary (HUD LT), unless the loan is downgraded to Refer in accordance with FHA Guidelines. The ZFHA should be entered as the CHUMS ID on FHA Loan Underwriting Transmittal Summary (HUD LT), except on streamline refinances. If the ineligibility can be cured within TOTAL Scorecard/DU, the loan data must be corrected as appropriate and the loan must be resubmitted to TOTAL Scorecard/DU. If the ineligibility cannot be overcome (within TOTAL Scorecard/DU or outside of TOTAL Scorecard/DU), the loan is not eligible for FHA mortgage insurance. Refer/Eligible These loans are underwritten to manual underwriting guidelines. Although a DE underwriter must underwrite the loan, reduced documentation may be used if allowed by the findings report and the DE underwriter. Refer/Ineligible The reason for the ineligibility must be determined. If the ineligibility can be cured, the loan data must be corrected as appropriate and the loan must be resubmitted to TOTAL Scorecard/DU. If the ineligibility cannot be overcome, the loan is not eligible for FHA mortgage insurance. If the ineligibility is cured, see Refer/Eligible above Ocwen Loan Servicing Client Select

204 Automated Underwriting Systems, Continued AUS Resubmission Loans may be resubmitted to TOTAL Scorecard as needed before the loan is endorsed. Generally, if the information about the loan changes after the loan has been submitted to TOTAL Scorecard, the loan should be resubmitted. This practice ensures that the data submitted to TOTAL Scorecard, and then to CHUMS, is of the best quality possible. NOTE: Once the loan is endorsed, the loan may not be resubmitted to AUS for any reason. AUS Tolerances FHA provides a degree of tolerance for minor material data changes to TOTAL Scorecard. When assessing TOTAL scorecard, there is no need to resubmit the loan to FHA TOTAL Scorecard in the following scenarios: Cash reserves verified are not more than 10% less than what the borrower reported on the loan application. Verified income is not more than 5% less than what the borrower reported on the loan application. Tax and insurance escrows used at scoring do not result in more than a 2% point increase in the payment and debt-to-income ratios. The terms and conditions of the closed loan and underwriting information in the loan file must match the data on which the TOTAL Scorecard risk classification is based, and other conditions specified in the government section of the AUS verification messages were based. The loan is eligible for FHA s insurance endorsement if: The AUS rated the mortgage loan application as an Approve. The data entered into the AUS are true, complete, and accurate. The entire loan package meets all other FHA requirements. The AUS Feedback/Findings Report is included in the Case Binder. Ocwen Loan Servicing LLC Client Select

205 Automated Underwriting Systems, Continued Post Close Resubmissions The DE Underwriter is responsible for ensuring the integrity and accuracy of the data used to render a decision. The DE Underwriter must include an explanation for the resubmission after closing. Provided the resubmission is done prior to endorsement, resubmitting a loan to AUS after closing is acceptable. If a loan is resubmitted after the loan has closed, the AUS recommendation should be the same as the AUS recommendation prior to closing. The loan must be resubmitted to the DE Underwriter for final signoff. If the AUS recommendation changes upon resubmission, the loan must be traditionally underwritten and must meet traditional underwriting guidelines to be eligible for insuring. AUS Reports Fannie Mae DU Loans The TOTAL Scorecard/DU decision is not valid without the DU Findings Report AND the DU Underwriting Analysis form. The most current DU Findings Report and DU Underwriting Analysis form must be in the origination binder and must reflect loan terms as approved and closed. This includes loan files where the recommendation was Approve/Ineligible or Refer and loan files where the loan had to be traditionally underwritten Ocwen Loan Servicing Client Select

206 Automated Underwriting Systems, Continued Underwriting Issues Regardless of the risk assessment provided, Ocwen remains accountable for compliance with all FHA guidelines and will underwrite the loan file accordingly. Some examples of the accountability items provided by FHA are listed below. If the loan is a cash-out refinance, ensure the borrower meets the eligibility requirements. Data integrity must be verified. Information in TOTAL must match the information in FHA Connection. NOTE: HUD will run a comparison. If results are a mismatch, HUD will down grade the assessment and return the file. If a loan was previously Rejected in FHA Connection, Ocwen will require additional information and documentation that addresses (and resolves) the cause of Rejection from the previous lender. The Ocwen DE Underwriter must explain and document the file accordingly to justify the loan approval. NOTE: All previously rejected loans that are subsequently approved will undergo a pre-endorsement review by HUD. Ensure FHA Loan Underwriting Transmittal Summary (HUD LT) indicates ZFHA as CHUMS ID if loan was approved through the TOTAL scorecard, except on streamline refinances. Sign HUD Form A page 3 and use ZFHA as CHUMS ID if the loan was approved through the TOTAL Scorecard, except on streamline refinances. Check for potential manual downgrades. NOTE: A manual downgrade is similar to a system override in that they both require review and decision by an underwriter; however, the manual downgrade is used when either Federal eligibility issues or credit issues are discovered. Ocwen Loan Servicing LLC Client Select

207 Manual Downgrade A manual downgrade becomes necessary if additional information, not considered in the AUS/TOTAL decision, affects the overall insurability or eligibility of a mortgage otherwise rated acceptable through TOTAL. Manual downgrades may be triggered by inaccuracies in credit reporting, eligibility issues, and for other reasons including the unlikely failure of the TOTAL and/or AUS to recognize a derogatory credit reference. Unless specifically permitted to continue to use the Approved documentation class, such as following a favorable resolution of a credit issue due to an error in reporting, the DE Underwriter must document the mortgage loan application as a Refer risk classification. If the AUS does not provide for a system override for any of the conditions shown below, then the loan must be downgraded to a Refer and forward the mortgage application to a DE underwriter for risk evaluation Ocwen Loan Servicing Client Select

208 Automated Underwriting Systems, Continued Downgrade Triggers The following are acceptable Downgrade triggers to Ocwen Delinquent Federal Debt (my opinion, must be paid and if overall profile of loan/borrower is strong, approval may be warranted) Previous mortgage foreclosure within the previous 3 years BK discharged < 2 years from loan application Late Mortgage Payments within past 12 months that are erroneously reported on the credit report Mortgage payment history with < 6 months Derogatory Disputed Accounts: If the cumulative outstanding balance of disputed derogatory credit accounts of all borrowers is equal to or greater than $1,000, the mortgage application must be downgraded to a Refer and the loan must be manually underwritten. Disputed medical accounts are excluded from the $1,000 limit and do not require documentation. Disputed derogatory credit accounts resulting from identity theft, credit card theft, or unauthorized use are also excluded from the $1,000 limit; however, the credit report, letter from the creditor or other appropriate documentation to support the dispute, such as a police report disputing the fraudulent charges, must be provided and included in the case binder. Defined to include disputed charge-offs, disputed collection accounts or disputed accounts with late payments reported within the most recent 24 months. Disputed derogatory credit accounts of a non-purchasing spouse in a community property state are not included in the cumulative balance for determining if the mortgage application is downgraded to a Refer. Non-derogatory disputed accounts are excluded from the $1,000 cumulative total. If the total outstanding balance of all disputed, derogatory credit accounts, excluding medical, are less than $1,000, a downgrade to a manual underwrite is not required. Non-derogatory Disputed Accounts and Disputed Accounts Not Indicated on the Credit Report: Defined to include disputed accounts with zero balance, disputed accounts with late payments aged 24 months or greater and disputed accounts that are current and paid as agreed. If a borrower is disputing non-derogatory accounts, or is disputing accounts which are not indicated on the credit report as being disputed, the loan is not required to be downgraded to a Refer ; however, the underwriter must analyze the effect of the disputed accounts on the borrower s ability to repay the loan. If the dispute results in the borrower s monthly debt payments utilized in computing the debt-to-income ratio being less than the amount indicated on the credit report, the borrower must provide documentation of the lower payments. Ocwen Loan Servicing LLC Client Select

209 Application, Disclosures & Compliance General All consumer disclosures or notices required by all federal, state and local laws and regulations must be complied with. This includes, but is not limited to, the Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Flood Disaster Protection Act, the Truth-in-Lending Act, and the Fair Credit Reporting Act, all as amended and all applicable usury limitations. Further, all consumer disclosures relating to the mortgage loan must have been properly given on a timely basis in compliance with applicable laws, rules and regulations. Electronic Signatures Loans may be submitted with electronic signatures on upfront disclosures, Third Party documents and the initial application if completed in accordance with the below items: o o o o o Must be documented with electronic signature(s) containing watermarks, serial numbers, and/or a transaction log. Electronic signature can be done by typed text, an image, a holographic signature or a digital signature. Must be carried out in manner that meets state and federal regulations. Each vendor must confirm adherence to Uniform Electronic Transaction Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (ESIGN) in order to be eligible for acceptance. An Approved Electronic Signature Vendor List is no longer maintained; however, all companies providing electronic signatures must confirm in writing or from their public website an adherence to all state and federal regulations (UETA and ESIGN). Original (live or wet) signatures continue to be required for the following documents: o IRS 4506-T o Any Social Security Administration (SSA) form o Borrower Power of Attorney or any documents being signed through a Power of Attorney. These signatures must be in accordance with Electronic Signatures in Global and National Commerce Act (ESIGN) and the Uniform Electronic Transactions Act (UETA), as applicable. NOTE: At this time, Ocwen is not accepting Electronic Signatures on any other documents as outlined in FHA Mortgagee Letter Ocwen Loan Servicing Client Select

210 Application, Disclosures & Compliance, Continued Laws Ocwen strictly complies will all applicable federal, state and local laws, ordinances, and regulations. This includes but is not limited to: Consumer Credit Protection Act Credit Practices Rule Customer Identification Program (CIP) under USA Patriot Act DFA (Dodd-Frank Wall Street Reform & Consumer Protection Act; and all implementing regulations thereto as regulations become effective) Electronic Signatures in Global and National Commerce Act (E- Sign) Equal Credit Opportunity Act (Regulation B) Fair Credit Reporting Act (FCRA) Fair Housing Act Federal Trade Commission Unfair or Deceptive Acts and Practices (UDAAP) Home Mortgage Disclosure Act (HMDA Regulation C) Home Ownership and Equity Protection (HOEPA); note Homeward will not proceed with any loan scenario that exceeds HOEPA s guidelines Home Owners Protection Act (HPA) Home Valuation Code of Conduct (HVCC) and subsequent regulations National Flood Insurance Act of 1968, Flood Disaster Protection Act of 1973, National Flood Insurance Reform Act of 1994, Homeowner Flood Insurance Affordability Act of 2014 (HFIAA) Office of Foreign Asset Control (OFAC) Real Estate Settlement Disclosure Act (RESPA Regulation X) Secure and Fair Enforcement for Mortgage Licensing Act (SAFE) Truth-in-Lending Act (Regulation Z); Homeward will permit only Qualified Mortgages as defined within the Truth-in-Lending Act. Also note that the Integrated Disclosure Rule is defined within the Truth In Lending Act Ocwen Loan Servicing LLC Client Select

211 Application, Disclosures & Compliance, Continued Laws, (Cont d) Loan Originator Compensation; amendment to (h). Disclosure and Delivery Requirements for Copies of Appraisals and Other Written Valuations under the Equal Credit Opportunity Act (Regulation B) o Form C-9, Disclosure of Right to Receive a Copy of Appraisal with language: "We may order an appraisal to determine the property's value and charge you for this appraisal. We will promptly give you a copy of any appraisal, even if your loan does not close. You can pay for an additional appraisal for your own use at your own cost." must be executed and in the file. o Must provide evidence that the applicants are provided a copy of all written appraisals and valuations promptly upon their completion or three business days before consummation, whichever is earlier. o The borrowers cannot be charged a fee for a copy of their appraisal. Adherence to the Ability to Repay and Qualified Mortgage Standards under the Truth-in-Lending Act (Regulation Z). Homeownership Counseling Amendments to the Real Estate Settlement Procedures Act of Regulation X. Each file must include confirmation the borrowers were provided with the List of Homeowners Counseling Organizations within the three (3) business days of loan application Ocwen Loan Servicing Client Select

212 Laws, (Cont d) Truth In Lending/Real Estate Settlement Procedures Act - Integrated Disclosure Rule (TRID) - Applies to applications received by the creditor or mortgage broker on or after October 3, Applies to most closed-end consumer loans secured by real property, and to all transactions currently originated or purchased by Homeward, except non-owner occupied investment properties. Loan Estimate Form (LE) - Replaces the Good Faith Estimate and Initial Truth In Lending Disclosure - Brokers delivering loans to Homeward are required to prepare the LE accurately and provide the LE to the consumer within the required timeframes - Must be disclosed in good faith, estimates must be based on the best information available - Must be provided (delivered or ed or placed in the mail) to the consumer no later than the third business day after receiving the consumer s application - If the interest rate is not locked when the LE is disclosed, a revised LE must be provided within three business days of the rate lock date Your Home Loan Toolkit Replaces the Settlement Information Booklet Brokers delivering covered loans to Homeward are required to provide the Toolkit to the consumer - Required only for loans which will be (a) secured by a first lien mortgage on real property and (b) used to purchase a home - Must be provided to the consumer no later than the third business day after receiving the consumer s application Closing Disclosure Form (CD) Replaces the Final Truth In Lending Disclosure and the HUD-1 Settlement Statement Creditor is liable for meeting the Rule s disclosure requirements and accuracy of the CD regardless of whether the creditor or settlement agent prepares and/or provides the CD - If CD is provided to consumer via , E-Sign Act delivery requirements must be met -The consumer must receive the CD at least three business days prior to loan consummation Ocwen Loan Servicing LLC Client Select

213 Application, Disclosures & Compliance, Continued Predatory Lending Ocwen will not fund any loan that is considered to be high rate or high fee, or any loan that is considered to be predatory in the jurisdiction where the property is located. Compliance with Points & Fees The maximum points and fees applicable to a Qualified Mortgage vary based upon the loan amount. In addition, all dollar amounts, including loan amounts, will be adjusted for inflation annually on January 1 by the CFPB. The applicable points and fees thresholds for 2015 and 2016 are listed below: Points and Fees Thresholds Note Amount Points and Fees Threshold $61,172 - $101,952 $3,059 $20,391 - $61,171 5% of Total Loan Amount $12,744 - $20,390 $1,020 <=$12,743 8% of Total Loan Amount $61,172 - $101,952 $3,059 *Limits are effective with loan closings by 12/31/2015. The applicable points and fees thresholds for 2016 are listed below: Note Amount Greater than or equal to $101,749 Points and Fees Threshold 3% of Total Loan Amount $61,050 but less than $101,749 $3,052 $20,350 but less than $61,050 5% of Total Loan Amount $12,719 but less than $20,350 $1,017 Less than $12,719 *Limits are effective with loan closings on 01/01/2016 and later. 8% of Total Loan Amount Ocwen Loan Servicing Client Select

214 Points and Fees Calculation The points-and-fees calculation is the same as that used in the HOEPA points-and-fees calculation. To calculate the points-and-fees, a creditor will add together the amounts paid in connection with the transaction in six categories of charges: 1. Finance Charge In general, all items included in the finance charge under (a) and (b) will be included, except the following: a. Interest or the time-price differential b. Mortgage Insurance Premiums i. For federal or state government sponsored MIPs, exclude up-front and annual FHA premiums, VA funding fees, and USDA guarantee fees ii. For PMI, exclude monthly or annual PMI premiums. Also can exclude upfront PMI premium if it is refundable on a prorated basis and a refund is automatically issued upon loan satisfaction. However, if the premium can be excluded, you must still include any portion exceeding the up-front MIP for FHA loans. c. Bona Fide Third Party Charges - Cannot be retained by the creditor, loan originator, or an affiliate of either d. Bona Fide Discount Points i. Exclude up to 2 bona fide discount points if the interest rate before the discount doesn t exceed the APOR by more than 1 percentage point; or ii. Exclude up to 1 bona fide discount point if the interest rate before the discount doesn t exceed the APOR by more than 2 percentage points. 2. Loan Originator Compensation Compensation paid directly or indirectly by a consumer or creditor to a loan originator that is not an employee of the creditor or mortgage broker must be included. a. Compensation paid by the creditor to its own employee loan originator on a transaction can be excluded; b. Compensation paid by a mortgage broker to its own employee loan originator on a transaction can be excluded; c. Compensation paid by a consumer directly to a mortgage broker can be excluded (so long as the amount has already been included in the points-andfees under the finance charge); d. Compensation paid by a creditor to a mortgage broker that is not its own employee is to be included 3. Real Estate-Related Fees The following categories of charges are excluded if (i) the charge is reasonable; (ii) the creditor receives no direct or indirect compensation; and (iii) the charge is not paid to an affiliate of the creditor: a. Title related fees b. Loan-related documentation preparation fees c. Notary and credit-report fees d. Property appraisal or inspection fees e. Amounts paid into escrow or trustee accounts that are not otherwise included in the finance charge 4. Premiums for credit insurance; credit property insurance; other life, accident, health or loss-of-income insurance where the creditor is beneficiary; or debt cancellation or suspension coverage payments a. Do not include these charges if they are paid after consummation of the loan b. For purposes of this provision, credit property insurance is defined as insurance that protects the creditor s interest in the property and does not include homeowner s insurance that protects the consumer. 5. Maximum Prepayment Penalty note Ocwen does not offer prepayment penalty options. 6. Prepayment Penalty Paid in a Refinance If a creditor is refinancing a loan that it or its affiliate currently holds or services, then any penalties charged for prepaying the previous loan must be included note Ocwen does not offer prepayment penalty options. Ocwen Loan Servicing LLC Client Select

215 Application, Disclosures & Compliance, Continued High Cost Loans Mortgage loans that are designated as high-cost or high-risk are not eligible for funding with Ocwen. By definition, a high-cost mortgage is any consumer credit transaction, whether closed-end or open-end, that is secured by the consumer s principal dwelling in which: The annual percentage rate applicable to the transaction will exceed the average prime offer rate ( APOR ), as defined in (a)(2), for a comparable transaction by more than: 6.5 percentage points for a first-lien transaction 8.5 percentage points for a first-lien transaction if the dwelling is personal property and the loan amount is less than $50,000; or 8.5 percentage points for a subordinate-lien transaction; or The transaction s total points and fees will exceed: 5 percent of the total loan amount for a transaction with a loan amount of $20,391 or more for 2015 or $20,350 or more for 2016; the $$20,350 figure shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1; or The lesser of 8 percent of the total loan amount or $1,020 for a transaction with a loan amount of less than $20,391 for 2015 or $1,017 for a transaction with a loan amount of less than $20,350 for 2016;; the $1,017 and $20,350 figures shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index that was reported on the preceding June 1. Face-to-Face Interview A face-to-face interview is not required for FHA transactions. HUD requires the broker to ask the borrower if he/she wants a faceto-face interview. If the borrower does not desire such a meeting, it must be so noted in the loan file Ocwen Loan Servicing Client Select

216 Application, Disclosures & Compliance, Continued Sales Contract The sales contracts, any amendments or other agreements and certifications are to be included in the case binder file. Sales contracts do not need to refer to FHA financing in order to be considered valid by HUD. However, the contract must provide the HUD real estate certification and the amendatory clause. These may be included in the language of the sales contract or as a separate addendum(s) and must be signed and dated by the borrower, seller, selling real estate agent or broker. The criteria of the amendatory clause are as follows: The sales price as stated in the contract is inserted in the amendatory clause, a new amendatory clause is not required if the sales price is adjusted based on a value that is less than the sales price, providing the original sales contract with a price matching the amendatory clause and the revised or amended contract are included in the case binder, and The amendatory clause is not required on HUD REO sales, or if Fannie Mae, Freddie Mac, Department of Veterans Affairs, Rural Housing Services, or other Federal, State and local government agencies, mortgagees disposing of REO assets, or sellers at foreclosure sales. If there are any seller concessions, these must be stated in the contract (either as a percentage or a dollar amount). Failure to perform a condition of the contract will not be grounds for denying loan endorsement provided the loan closes in compliance with all regulations and policies. The FHA For Your Protection: Get a Home Inspection (HUD CN) must be given to prospective homebuyers at first contact. HUD has eliminated the requirements that the form be signed by purchasers and included in the case binder. Ocwen Loan Servicing LLC Client Select

217 Application, Disclosures & Compliance, Continued Disclosures In addition to the standard origination/processing/closing disclosures required (i.e., 1003, Loan Estimate (or TIL, or GFE), etc.), the following HUD-specific disclosures are required during the loan application process: Origination Disclosures For Your Protection: Get a Home Inspection (HUD CN), FHA Amendatory Clause (if not included in sales contract), FHA Real Estate Certification (if not part of the sales contract) HUD/VA Addendum to Uniform Residential Loan Application (HUD A) pages 1 and 2, NOTE: Page two (2) of the loan application addendum must be signed by the borrower and in the file prior to submission to underwriting. FHA Importance Notice to Homebuyer, FHA Informed Consumer Choice Disclosure Notice, FHA Notice to Homeowner- Assumption of HUD/FHA Insured Mortgages Release of Personal Liability, Financial Privacy Act Notice, FHA Pamphlet Protecting Your Family from Lead in Your Home, and State specific disclosures, if applicable. MIP Statement Ocwen Loan Servicing Client Select

218 Application, Disclosures & Compliance, Continued Social Security Numbers Each borrower, co-borrower, or co-signer must provide evidence of his/her social security number. While the actual social security card is not required, the social security number can be obtained from pay stubs, the driver s license, passport, etc. Tax returns alone without a W2 are not sufficient evidence of social security numbers. Social Security numbers must be consistent throughout the file on all documentation. Any multiple social security numbers or discrepancies must be addressed, even if it is an obvious transposition of numbers. All individuals eligible for legal employment in the US must have a social security number. Tax ID numbers issued by the Social Security Office are unacceptable. This applies to purchase transactions and all refinances. NOTE: Ocwen requires that all credit reports indicate that a Social Security validation vendor has validated the borrower s Social Security Number. Ocwen Loan Servicing LLC Client Select

219 Application, Disclosures & Compliance, Continued Power of Attorney The Power of Attorney must: Be specific to the transaction Be signed and dated by the party granting the power of attorney Be signed by an appropriate "witness" (if required by state law) Specifically identify the subject property address Be in effect on the date of the closing transaction Be notarized Not be an interested party in the transaction, i.e.: real estate agent, seller, closing agent A Durable Power of Attorney is acceptable. A durable power of attorney allows a mentally competent person, called the "Principal", to authorize a second party, called the "Agent or Attorney in Fact", to act on his or her behalf, even if the Principal later becomes incapacitated. This particular form becomes effective upon disability or incapacity of the Principal. A durable power of attorney should always be notarized, especially if the Agent will be dealing with real property. Notarization allows the Durable Power of Attorney to be recorded as a public record, if necessary. Example of Acceptable Signature Line for all documents: (Signature Line) (Typed Name) John Doe by his Attorney in Fact Jane Doe Jane Doe should sign as "John Doe by his Attorney in Fact Jane Doe. Example of an Unacceptable Signature Line: (Signature Line) (Typed Name) John Doe Signature as Jane Doe POA Ocwen Loan Servicing Client Select

220 Application, Disclosures & Compliance, Continued Review of Closing Disclosure (or Final HUD-1) Without exception, the Closing Disclosure (or Final HUD-1) must be reviewed prior to closing. If the transaction is a purchase, the allowable closing costs to both the borrower and the seller must be verified (any unallowable costs must be taken off the Closing Disclosure (or HUD-1 Settlement Statement.) If the transaction is a refinance, both of the following steps are required: The allowable costs must be verified (any unallowable costs must be taken off the Closing Disclosure (or HUD-1), AND The mortgage amount must be recalculated if the estimated closing costs used to calculate the mortgage result in an amount exceeding $500 based on actual charges as reflected on the Closing Disclosure (or Final HUD-1) for a rate/term or streamline refinance transaction. Ocwen Loan Servicing LLC Client Select

221 Closing Policies & Procedures Scheduling a Loan Loan must be Cleared to Close in order to schedule for Closing. Request to Close (Broker Fee Sheet) and Preliminary HUD must be uploaded into Image Flow. To schedule the loan, the Broker will [email protected] with the date and time of the closing: Allow a minimum of 48 hours from when loan is being scheduled to closing/signing date. A confirmation will be sent to the Broker. Closing Practices The next sections reiterate and highlight best practices for Ocwen Loan Servicing s closing and funding process. Verification of Employment A verbal verification of employment must be completed within 5 days of closing and must be completed prior to the Note Date and must include: Independent Verification of Employer s phone number. Borrower s start date. Verification borrower is still employed. Closing Protection Letter Ocwen Loan Servicing will validate all Closing Protection Letters as well as Closing Agents wiring information prior to the loan funding. Taxes Any taxes that are due within 60 days of closing must be collected at closing and be reflected on the Closing Disclosure (or HUD-1 settlement statement). Insurance Insurance must be paid through the first mortgage payment Ocwen Loan Servicing Client Select

222 Closing Policies & Procedures, Continued Seller Contributions Seller Contributions are limited to program maximums as identified on the Loan Approval. Allowable Seller Paid Fees on Lender Paid Transaction: Any or all 3 rd Party Fees (Title, Appraisal, Credit, etc.) Allowable Seller Paid Fees on a Borrower Paid Transaction: Any or all 3 rd Party Fees (Title, Appraisal, Credit, etc.) Broker Compensation MUST be paid in its entirety 1,2 IMPORTANT: 1 If the Borrower is paying the Broker Compensation, the funds can be paid by the Borrower OR funds from a seller concession; however, the Borrower must pay 100% of the Broker Compensation or the Seller Concession must pay 100% of the Broker Compensation. 2 The Broker can only receive compensation from ONE source, and the fee cannot be split. Premium Pricing Credits Allowable Fees Paid By Premium Credit: Any and all Third Party Fees (Title, Appraisal, Credit, etc.) Interest, Escrow Accounts, Taxes Due, HOA Dues, Oil Adjustments, etc. POC Items, such as appraisal and insurance on Purchase Transactions. Interest on loan being paid off as well as any fees associated with payoff. NOTE: Broker compensation of any kind may not be paid by the Premium Credit. Ocwen Loan Servicing LLC Client Select

223 Closing Policies & Procedures, Continued Principal Reductions Lender Paid Transactions On transactions where the loan originator is paid by the lender, Ocwen will permit a Principal Curtailment on purchase and refinance loans unless noted below as a result of excess premium rate credit. The excess premium must be identified on the Closing Disclosure (or HUD-1 Settlement Statement) and is limited to the amount of the excess premium rate credit below. The premium rate credit is the amount associated with the lowest pricing rate option that allows for some or all of the borrower's closing costs to be paid so the borrower does not have to pay those closing costs out of pocket. Premium rate credits are permitted up to or equal to $2,000 for all loan amounts. Note the principal reduction may not be used to the lower the loan amount or LTV. If the program permits, the borrower may also receive cash back within program guidelines in addition to the amount of the curtailment. Check your product summary for cash back eligibility criteria. Borrower Paid Transactions On transactions where the loan originator is paid by the consumer, principal curtailments are not permitted of any amount. The premium rate credit may not exceed the amount of third party costs. HUD Approval Process Ocwen Loan Servicing will approve all Closing Disclosure (or HUD-1 statement) prior to the loan funding and wire being released. The HUD Approval Process ensures: Borrower has brought the minimum funds to closing as required per program. Borrower s funds to close do not exceed assets verified per the loan approval. Borrower is not receiving more than the allowable cash at closing per program maximum. Premium Pricing Credit does not exceed allowable costs. Principal Reduction is within guideline Ocwen Loan Servicing Client Select

224 Closing Policies & Procedures, Continued Funding Wire cutoff time is 3:30pm EST. Prior to ordering the wire, Ocwen Loan Servicing will verify the following: VOE has been completed within 5 days of the closing HUD has been approved All Prior To Fund (PTF) conditions have been satisfied Fed Reference numbers are available upon request. Note, there may be a delay in retrieving once the wire has been ordered. Ocwen Loan Servicing LLC Client Select