WesLend Reverse Mortgage HECM Annual and Monthly LIBOR

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1 SECTION 1 Program Codes: Code: Program: 9200 HECM Annual LIBOR ARM 9300 HECM Monthly LIBOR ARM. PROGRAM HIGHLIGHTS Borrower no longer has a mortgage payment Borrower can be saved out of a current foreclosure of their current owner occupied property. Borrower can purchase a new owner occupied property with a HECM Reverse mortgage and not have any monthly mortgage payments. Loan proceeds can be used to pay off a Chapter 13 Bankruptcy OCCUPANCY SECTION 2 Program Parameters: Principal residence only: MINIMUM CLAIM AMOUNT $40, MAXIMUM CLAIM AMOUNT $625, Note: For HECM Purchase the maximum claim amount is the lesser of $625,500.00, the appraised value or the purchase price. AVAILABLE MARGINS Refer to current rate sheet to obtain the all available margins and rates. SUBORDINATE FINANCING Not Allowed LOAN PURPOSE Purchase: Principal residence only. No seller concessions or interested party contributions allowed. Refinance: Principal residence PURCHASE Owner Occupancy requirement: The borrower must occupy the property within 60 days of closing. An Occupancy Affidavit must be signed at closing for borrower(s) to acknowledge they will occupy the property within the required time frame. Principal Residence: In accordance with HUD s regulatory requirements (24CFR206.3) guidelines HECM borrower(s) can have only ONE PRINCIPAL residence at any one time. If the borrower under the HECM purchase program intends to retain their existing home (which will not be sold prior to closing or retained as a rental) Sufficient income and assets must be demonstrated to ensure and provide the following: Maintain the costs associated with the new home financed with the HECM for purchase (taxes, insurance, maintenance, etc.) 1 P age 04/14/2016

2 PURCHASE REFINANCE HECM to HECM REFINANCE SECTION 3: BORROWER AGE ELIGIBILITY COUNSELING REQUIREMENT Continuance of the mortgage payment, taxes, and insurance on the existing mortgage of the departing residence. To be able to satisfy the monetary investment for the HECM purchase. Maximum allowable DTI ratio of 43% (Purchase only) Copy of the most recent 2 years federal tax returns including all schedules and addendums. Copies of any rental agreements If rental does not currently appear on tax returns a 25% vacancy factor from the gross rent, based on the rental agreement, must be subtracted from rental income. Borrower letter of intent to retain the departing property. Principal residence of the HECM purchase property must be demonstrated If rental property is owned, a copy of the rental agreement is required. 24 months minimum rental income history must be demonstrated Must have a minimum of 2 months PITI in reserves for all rental properties Seasoning: At least one borrower must have been on title to the subject property for a minimum of 6 months unless one of the following scenarios exists for a refinance transaction to be allowed: Property was recently purchased (additional requirements required) The borrower inherited the property evidenced by supporting documentation (Probate documents, transfer Deed, etc.) Borrower obtained title to the property from an immediate family member (additional documentation must be provided evidencing the borrower(s) have been occupying the property as a primary residence) All HECM to HECM refinance transactions must meet the guidelines outlined in the Anti-Churning Disclosure The Benefit Comparison must include all available products at the time it is provided to the borrower, with at least one fixed rate option and one adjustable rate option. An 18 month seasoning requirement must be met. This is applicable for any fixed or adjustable HECM. There must be a bona-fide advantage to the borrower. (In accordance with the NRMLA Ethics Advisory ) A HECM-to-HECM refinance that only changes the product (e.g. fixed to ARM, or going from a monthly to annual interest rate adjustments) does not, itself, provide a bona fide advantage to the borrower and is no longer permitted unless the loan meets the seasoning requirements and either adds an eligible borrower. BORROWER ELIGIBILITY: 62 Years and above Parties to be counseled All borrowers Attorneys-in-fact, if applicable Guardians or Conservators, if applicable. Note: (see HUD Mortgagee Letter for details) Optional: Family members Personal advisors Counseling Guidelines The counseling must be specific to the loan program the borrower has applied for. The originator is required to provide at least five area counselors and four national agencies for the borrower to choose from or the borrower may also choose any other FHA / HUD approved HECM Counselors. FHA/ HUD HECM Counselors 2 P age 04/14/2016

3 COUNSELING REQUIREMENT Counseling Certificate The certificate is good for 180 days from the date of the counseling. The counseling certificate is good for the duration of the transaction regardless of expiration IF the 1009 application and FHA case assignment are dated prior to the expiration of the counseling certificate. The application must be taken while the certificate is valid: if the certificate has expired prior to the initial application completion, the borrower must be re-counseled. No Exceptions. Evidence / print out of counselor approval found in FHA Connection s case assignment page must be provided. The FHA case number MUST be ordered while the counseling certificate is still valid. NOTE: The counseling certificate must be fully executed (signed and dated) by the borrower prior to the FHA case assignment, otherwise none of the associated fees can be charged. BORROWER ELIGIBILITY All borrowers: At least one eligible borrower must be on title prior to application (exception: HECM purchase) Must have lawful residency status in the United States (lawful permanent resident alien) or U.S. citizen. Must pass CAIVRS Evidence of Date of Birth Evidence of Social Security number. NON-BORROWING SPOUSE REQUIREMENTS All non-borrowing spouses: Evidence of date of birth (NBS must be 18 or older) Evidence of Social Security number Must pass CAIVRS Must receive counseling from a HUD approved counselor Must execute a Non-borrowing spouse (NBS) certification from at application Must execute the Authorization to Pull Credit on Non-Borrowing Spouse form. Occupancy verification is required for both the borrower and the NBS (occupying or non-occupying) If the borrower is legally separated, the non-borrowing spouse requirements still apply. The non-borrowing spouse requirements are applicable to all states that legally recognize common law spouses and civil unions. NBS transactions not eligible in the state of Texas NON-BORROWING RESIDENTS SECTION 4: MINIMUM CREDIT SCORE The children of a prospective HECM borrower, who do not qualify for a HECM, but who currently reside on the real estate, or who are on the title for the real estate that will serve as the security for the FHA-insured HECM, but will be removed from title prior to closing, are not required to receive HECM counseling as per WesLend policy. Must also sign Notice to Non-Borrowing Spouse and Ownership Interest Disclosure CREDIT: Not Applicable TRADELINES Not Applicable 3 P age 04/14/2016

4 DEROGATORY CREDIT AND EVENTS Federal / State / Local Debt Unpaid federal debt or federal debt showing unknown status on the credit report must be satisfied or paid out at closing. If the borrower believes the debt has already been satisfied, he/she will need to furnish paperwork supporting the satisfaction of the debt. All federal tax liens will need to be satisfied and released or paid off at closing. State and local liens are not required to be paid if only listed on the credit report. Any defaulted taxes on existing government insured loans must be paid current and out of default status prior to closing the HECM Reverse loan. All federal student loans on the credit report must be current. Any delinquent federal student loans showing on the credit report must be cured prior and the account must be brought current, paid, or otherwise satisfied. If the federal student loan reflects delinquency, then evidence supporting the student loan is in current status must be provided. Judgements: If the judgement is not attached to the property, payoff will not be required through escrow. If the judgement is attached to the subject property, payoff will be required through escrow. Foreclosures: Allowed, for subject properties currently in foreclosure, the mortgage must be paid off within a short time frame (determined by the current lender) Determine the deadline for lien payoff in order to stop the foreclosure process Foreclosure payoffs will include additional fees and charges for processing, attorney fees, and other fees. These fees must be accounted for when estimating the payoff amount. If the property was recently acquired via a deed by a family member or any third party and the existing mortgage was in foreclosure status, this would render the transaction ineligible as this would be considered a bail out transaction. Short Sales and Deed In Lieu Short sales or deed in lieu on properties with federally insured financing make the borrower ineligible for a HECM, for three years from the date of sale or transfer. Chapter 7 Bankruptcy Chapter 7 bankruptcies must be discharged or dismissed in order to proceed with the reverse mortgage. If the discharge/dismissal was less than one year ago or if the credit report does not show the bankruptcy, the court order dismissing the bankruptcy will be required upon submission. Chapter 13 Bankruptcy If the Chapter 13 Bankruptcy has been discharged there is no further requirement. If the borrower is currently in a Chapter 13, the following two options are available: Option1: Court Approval: The borrower may continue with the bankruptcy without using the reverse mortgage to pay it off. Must obtain written permission from the court, signed by a judge before submission. Court approval must meet the following guidelines: The approval must state that the lender may continue with the reverse mortgage process without using reverse mortgage proceeds to pay off any debts encompassed by the bankruptcy. The approval must state that the loan is a negative amortization loan. The approval must not stat a specific interest rate or loan amount. NOTE: Any property liens and any federal debt will still need to be paid off through escrow with reverse mortgage proceeds. Option 2: Bankruptcy Payoff: The borrower may pay the bankruptcy off with the reverse mortgage. Provide a payoff letter from the trustee. All bankruptcy documentation must be included upon submission. 4 P age 04/14/2016

5 FINANCIAL ASSESSMENT Evaluate the willingness and capacity of the borrower to timely meet his or her financial obligations and to comply with the HECM mortgage requirements. WesLend performs a financial assessment in accordance with FHA / HUD guidelines. HECM Financial Assessment INCOME HISTORY Income used to qualify the borrower must be reasonably likely to continue for at least 3 years. Income may only be considered if it is legally derived and when required, property reported as income on the borrower s tax returns. ALLOWABLE SOURCES OF INCOME FUNDS TO CLOSE Retirement and Social Security Income Verification from former employer or social security administration, or most recent year federal tax returns. If benefits expire within the first full 3 years, then the income source may be considered only as a compensating factor. If full amount is to be considered, the evidence must be provided that it will continue for at least 3 years s for the most recent tax year Two most recent month s bank statements reflecting the deposit of the income Copy of the award letter is required. Employment Income: 2 consecutive years of employment history Copies of W-2s for the most recent tax years Copy of 2 most recent pay stub reflecting a minimum of 30 days to date earnings (Paystubs cannot be more than 30 days from the date of applications.) W-2 forms must clearly identify the borrower as the employee OR Written verification of employment (WVOE) is required. VA Benefits: Direct compensation, such as for a service-related disability is acceptable provided that it will continue for at least 3 years. A copy of a benefits letter or distribution form from the Department of Veterans Affairs must be provided and contain the date or event that will cause the income to end. Education benefits may not be used since education expenses offset the income. Self-Employment: 2 consecutive years of self-employment history required. Copies of signed and dated individual tax returns, plus all applicable schedules for the most recent 2 years required. Copies of signed and dated federal business income tax returns for the most recent 2 years, with all applicable schedules required. (1120 s, 1065 s, K-1 s). A year-to-date profit-and-loss (P&L) statement and balance sheet. Occasionally the funds from a reverse mortgage are not sufficient to cover all existing liens against the property. In these cases, the borrower has the option of bringing in money to close the loan. However, to ensure that the loan is not creating additional debt in connection to the transaction, a verification of deposit or VOD is required. The VOD provides proof that the money being brought in to close the loan has been in the borrower s possession for a certain length of time, thereby proving it was not recently borrowed as a result of the reverse mortgage loan. Gift Funds: Gift funds can be donated by a relative or close personal friend and must be verified along with a signed gift letter form signed by both the donor and the recipient. Evidence of the receipt of gift funds in the borrower s account or in escrow is required. If the gift funds are in the borrower s account: A copy of the withdrawal document showing that the withdrawal was from the donor s account AND The borrower s deposit slip and bank statement showing the deposit. 5 P age 04/14/2016

6 FUNDS TO CLOSE If the gift funds are in the donor s account: A copy of the donor bank statement showing availability of fund AND Evidence funds have been deposited into the borrower s account. Gift Letter requirements: The dollar amount of the gift The name of the donor The donor s signature The donor s address The donor s telephone number The donor s relationship to the borrower The name of the borrower The borrower s signature(s) The letter must state that no repayment is required The letter must include language asserting that the funds were not made available to the donor from a person or entity with an interest in the sale of the property. Statement from the donor that funds was gifted to the borrower to go towards the Reverse Mortgage transaction. The gift fund cannot be from a person or entity with an interest in the sale of the property, I.E. Seller, real estate agent or broker, builder, or anyone associated entity. Gift funds cannot come from cash on hand or cash saved at home Gift funds cannot come from a down payment assistance programs or charitable organizations. Gift of Equity is not permitted. Allowable Source of Funds: The monetary investment requirement can be met by the use of the below approved funding sources (as defined by FHA / HUD), with certain exceptions noted in the Unallowable Funding Sources section. Savings and Checking Accounts: Recently opened accounts require credible explanation and proof of the source of said funds in account. A verification of deposit (VOD), along with most recent bank statement, may be used to verify current existing savings and checking accounts. OR Two most recent, consecutive original bank statement(s), belonging to the borrower, which covers the previous month s balance. Sales Proceeds: The net proceeds from an arm s-length sale of a currently owned property may be used for the cash investment on a new house. A fully executed HUD-1 / Closing Disclosure, or Settlement Statement must be provided as satisfactory evidence of the cash sales proceeds accruing to the borrower. If the property has not sold by the time if underwriting, loan approval will be conditioned upon verifying the actual proceeds received by the borrower. Documentation of both the actual sale and the sufficiency of the net proceeds require for settlement. Earnest money deposit: If the amount of the earnest money deposit exceeds 1 percent of the sales price, documentation of the deposit amount and the source of funds will be required (as per HB /FHA case assignments on or after 09/14/2015). The following documentation is required: Copy of cancelled check A certification from the deposit-holder acknowledging receipt of funds Verification of deposit signed/dated by the bank representative or bank statement showing the time the deposit was made the average balance was sufficient to cover the amount of the earnest money deposit. Government issued Bonds: Actual receipt of funds must be provided and evidence of redemption will be required. 6 P age 04/14/2016

7 FUNDS TO CLOSE Stocks and Bonds: Monthly or quarterly statements provided by the stockbroker or financial institutions managing the portfolio. Actual receipt of funds must be provided and evidence of redemption included. All pages of the statements must be provided and must clearly identify the borrower as the account holder. Savings Bonds: Actual receipt of funds must be provided and evidence of redemption will be required. IRA s, Thrift Savings Plans, 401k s: Verification of deposit (VOD) signed/dated by the bank representative in conjunction with 2 consecutive months statements. Actual receipt of funds must be provided and evidence of redemption will be required. All pages of the statements must be provided and must clearly identify the borrower as the account holder. Account statements must identify the borrower s vested amount and the terms and conditions for fund withdrawals. Certificate of Deposit: Verification of deposit (VOD) signed/dated by the bank representative in conjunction with 2 consecutive months statements. Actual receipt of funds must be provided and evidence of redemption will be required. All pages of the statements must be provided and must clearly identify the borrower as the account holder. Unallowable Funding sources and Gap Financing: The borrower(s) is not permitted to obtain a secured or non-secured loan from another asset (i.e., car HELOC, investment property, or second home or any type of bridge loan or interim financing) to satisfy the monetary investment or closing costs unless those liens will be paid at or before closing. A borrower may also not use the following sources toward the monetary investment or closing costs: Credit Card advances Sweat Equity Trade Equity Rent Credit Cash or its equivalent, in whole or in part, from the following parties, during or after loan closing: 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 any of the parties described in the previous bullet. This includes the customary practice of the seller paying for the owner s portion of the title insurance policy premium. SECTION 5: PROPERTY: STATE RESTRICTIONS Texas Closing in a Trust Not Allowed Texas Non-Borrowing Spouse Not Allowed APPRAISAL Appraisers must be on FHA s approved list on the FHA connection. The FHA Connection must indicate the Appraiser has passed the mandatory appraiser exam. The assigned appraiser must perform the physical inspection of the property. He/she may not sign the appraisal performed by another appraiser. 7 P age 04/14/2016

8 APPRAISAL Based on the property type, the following appraisal report form must be used: Property Type Form Name/No. Single-Family Residence (SFR), Planned Uniform Residential Appraisal Form (#1004/#70) Unit Development (PUD) And 1004MC Condominiums FNMA Form 1073 and 1004MC Site Condominiums 2-4 unit Properties Manufactured (HUD Code) Housing Update of Appraisal (All Property Types) Final inspection of New Construction Final Inspection for Existing Property FNMA Form 1073 and 1004MC Small Residential Income Property Appraisal Report (#1025/#72) and 1004MC FNMA Form 1004C and 1004MC FNMA Form 1004D Form HUD FNMA Form 1004D Information Required Before Commencement of the Appraisal The appraiser must obtain all of the following from the lender before beginning an appraisal. For purchase transactions, a complete copy of the executed sales contract for the subject property The land lease, if applicable Surveys or legal descriptions Any other legal documents contained in the loan file; and A POINT OF CONTACT AND CONTACT INFORMATION FOR THE LENDER S D.E. UNDERWRITER(S) SO THAT THE APPRAISER CAN COMMUNICATE ANY NONCOMPLIANCE ISSUES. APPRAISAL EXTENSION 30 Day extension can be warranted by the DE underwriter (if applicable) and must be done prior to the current appraisal s expiration date. Appraisal extension cannot be warranted once the report has been expired and a new appraisal will be required. PROPERTY ELIGIBILITY Eligible Property types: Single family dwellings Two-to four- unit properties (owned and occupied) Condominiums (FHA / HUD approved only) reviewed by underwriting. Townhouses Planned Unit Developments Manufactured homes (Double wide or greater) Log/Berm Homes (appraisal must provide at least 1 like comparable) Manufactured Home restrictions: Singlewide manufactured homes. Not allowed. Manufactured homes located in condominium or planned unit development complexes. Not allowed. Manufactured homes with mixed use. Not allowed Manufactured homes with additions, modification, alterations to the original structure (excluding decks and stair cases). Not allowed. Manufactured homes located in a flood zone. Not allowed Manufactured homes in a mobile home park. Not allowed 8 P age 04/14/2016

9 PROPERTY ELIGIBLITY SECTION 6: FHA / HUD MORTGAGE INSURANCE Non-Eligible Property types: Commercial or industrial properties Co-Ops HUD REO condominiums Newly constructed principal residence where a Certificate of Occupancy has not been issued by the appropriate local authority. Properties that do not meet HUD s minimum property standards or minimum property requirements. Properties not suitable for year-round occupancy. Properties listed for sale. Second homes Investment properties. Vacation homes Properties where the property line is within 300 feet of an above ground or subsurface stationary storage tank (including gas stations) containing more than 1000 gallons of flammable or explosive material. Properties subject to environmental hazards, contaminants, noxious odors, offensive sights, or excessive noises which endangers/impacts the physical improvements or affects the livability of the property, the marketability of the property, or the health and safety of its occupants, and/or the structural integrity of the property. These hazards may include, but are not limited to the following: Excessive airport noise Subsidence, operating and abandoned oil and gas wells, abandoned well, slush pits, runway clear zones, or proximity to high pressure gas. Proximity to storage tanks containing flammable or explosive material Property located within an easement of high voltage transmission line, radio/tv transmission tower, cell phone tower, microwave relay dish or tower, or satellite dish (radio, TV cable, etc.) INSURANCE: Upfront Mortgage Insurance Premium is 2.5% of the maximum claim amount. Monthly Mortgage Insurance Premium is 1/12 th of 1.25% (of the outstanding balance) and is added to the principal monthly. FLOOD INSURANCE A flood hazard determination is required for all loans. Flood insurance is required if the property is located in a special flood hazard area or flood zone. Flood insurance is required on properties located within the following special flood hazard area zones: A, AE, AH, AO, A1-30, A-99, V, VE, V1-30 The maximum amount of flood insurance required is the lowest of: 100% of the replacement cost of the dwelling, calculated as appraised value minus land value OR the unpaid principal balance of the mortgage OR the maximum insurance available under the National Flood insurance program. (Currently $250,000 per dwelling.) The deductible for 1-4 unit properties may not exceed a maximum of $5,000 unless a higher maximum is required by state law. Flood policies must be NFIP policies and cannot be privately insured. HAZARD INSURANCE Hazard insurance is required for each property The amount of hazard insurance coverage must be the lesser of 100% of the insurable value of the improvements as established by property insurer OR the unpaid principal balance as long as it equals at least 80% of the insurable value of the improvements. For properties located in California, hazard insurance in an amount exceeding the replacement value of the improvements on the property is not allowed. The maximum deductible may be up to 5% of the amount of the policy. 9 P age 04/14/2016

10 HO6 COVERAGE WALLS IN HO6 Walls In insurance is required for all attached condos and PUDs, if the master insurance policy does not provide coverage of the interior of the unit, the borrower will be required to obtain a Walls in coverage policy (commonly known as a HO-6 policy) SECTION 7 TITLE DOCUMENTATION TITLE / CLOSING: Title History Review Policy: The preliminary title report must reflect a minimum 24-month title history. Title Insurance: A full ALTA title policy is required. TITLE / ESCROW / CLOSING AGENT SERVICES It is highly recommended that title, escrow, and / or signing agent be experienced in handling HECM documentation. SECTION 8 SAMS VERIFICATION FEES / MISCELLANEOUS: If any party to the transaction including, but not limited to, the buyer, the seller, real estate agent, or builder appears on a SAMS verification list, the reverse mortgage will not be eligible for mortgage insurance and thus be denied. SELLER / INTERESTED PARTY CONTRIBUTIONS FHA prohibits seller contributions (also known as seller concessions ), the use of loan discount points, interest rate buy downs, closing cost down payment assistance, builder incentives and gifts. This includes customary charges that are normally paid on behalf of the borrower by the seller. (This includes the customary practice of the seller paying for the owner s portion of the title insurance policy premium) 10 P age 04/14/2016