Interest Rate Reduction Refinance Loans (IRRRLS) Eligibility Cash Out Refinance 1. ELIGIBLE PRODUCTS VA Fixed Rate Product VA Hybrid ARMs VA High Balance Products VA Fixed Rate Product VA Hybrid ARMs VA High Balance Products 2. TERMS Fixed Rate Products 10 30 Years in 5 Years increments ARM Products 30 Terms 3. CURRENT FIRST MORTGAGE ELIGIBILITY 4. LOAN AMOUNT AND LTV LIMITS Existing VA Mortgages For Maximum insurable loan amounts, refer to the Product Summaries MAGNOLIAIRRRL transactions no LTV limit (no appraisal required) MAGNOLIA IRRRL transactions max LTV 100% with appraisal calculated from Total Loan Amount (Base Loan Amount plus VA funding fee) Unlimited CLTV for existing subordinate financing The 25% minimum VA guaranty/entitlement is considered satisfied for Interest Rate Reduction Refinance Loans regardless of the dollar amount of guaranty being transferred from the previous loan No restrictions on the current investor There must be an existing lien on the property from any source such as Tax or judgment liens and/or FHA, VA or Conventional mortgage Basic Entitlement is $36,000 Bonus Entitlement is available for loans closed on or after 1/1/09. Refer to the attached Required Cash Down payment and Percentage of Guaranty Calculation Worksheet. The minimum 25% guaranty may be satisfied by a combination of VA entitlement and equity or cash Maximum Base Loan LTV is 90% (Subject to sufficient entitlement). Maximum Total Loan Amount is calculated as 90% of the value of the property plus funding fee The 90% LTV limit may be exceeded only by the amount of the funding fee Unlimited CLTV for existing subordinate financing New subordinate financing is not permitted Refinance of Construction Loans and Installment Sales Contracts Completion as to cash-out refinance with the exception of: Maximum LTV may be 100% of determined value (not including funding fee)
5 VA FUNDING FEE 6 TYPES OF FINANCING.50% Interest Rate Reduction Refinances MAGNOLIA IRRRL (includes all subserviced loans) MAGNOLIA IRRRL require Appraisal See Appraisal requirements No seasoning on first mortgage New loan amount may include o Unpaid principal balance (including accrued interest and late fees, if applicable) o Allowable closing costs (see Special Restrictions Section for unallowable costs o Prepaid expenses o Maximum 2 discount points o Funding fee 25% guaranty is considered satisfied No cash back to borrower permitted (incidental minor adjustment at closing not exceeding $500.00 cash back is acceptable) No satisfaction of junior liens Premium pricing permitted Complete VA Form 26-8923 Interest Rate Reduction Refinance Worksheet IRRRL Refinance Transactions on Properties in Texas The following guidelines pertain to IRRL refinance transactions for properties in Texas No cash back to borrowers 2.15% Active Duty or Veteran 2.40% National Guard/Reserves 3.30% 2nd or Subsequent use for loans CLOSED between 10/1/07 to 9/30/11 Refer to attached funding fee chart for additional requirements Cash-Out (Equity Refinances) Subject property must have an existing lien No seasoning on first mortgage or junior liens New loan amount may include Payoff of existing liens Reasonable discount points Allowable fees and charges (other than funding fee) Cash back to the borrower Premium pricing permitted Cash out not permitted in Texas Refinance of Construction Loans and Installment Land Sales Contracts Loan amounts may not exceed the lesser of The VA reasonable value excluding the VA funding fee OR The sum of the outstanding balance of the loan to be refinanced plus allowable closing costs (excluding the funding fee) and discount points Loan must be established as a purchase transaction to permit the maximum LTV to exceed 90% of the reasonable value.
If the first mortgage is subject to Texas Section 50(a) (6), VA financing is not permitted. Once a cash-out, always a cash-out. If an existing second lien is subject to Texas Section 50(a) (6), VA financing is not permitted. Once a cash-out, always a cash-out The title policy will reference Texas Section 50(a) (6) or Article XVI of the Texas Constitution effective January 1, 1998. When VA financing is permitted, Underwriting conditions and closing instructions must indicate No Cash back to borrower is permitted (not even one dollar is permitted) 7 OCCUPANCY 8 PROPERTY TYPES Primary residence Eligible Properties 1-4 units Condo/PUD Modular housing Ineligible Properties Co-ops Manufactured Homes Eligible Properties 1 4 units VA approved condos PUDs Modular housing Ineligible Properties Co-ops Manufactured Homes 9 UNDERWRITING Must be underwritten by a VA Automatic Underwriter with MAGNOLIA Bank or the MAGNOLIA Bank VA Delegated Lender Not eligible for submission to DU/LP Must be underwritten by VA Automatic Underwriter with MAGNOLIA Bank Bank VA Delegated Lender Eligible for submission to DU/LP 10 RATIO REQUIREMENTS If credit qualifying borrower due to P&I increasing over 20%, the following applies: Max DTI 41% The DTI ratio of 41% may be exceeded provided this ratio does not exceed 50% AUS Approve loans Ratios evaluated by AUS AUS Refer loans - 41% The DTI ratio of 41% may be exceeded provided this ratio does not exceed 50%
DTI Ratios >41% <=50% require residual income exceeding 120% in addition to significant documented compensating factors such as: Excellent credit history Conservative use of consumer credit Minimal consumer debt Long-term employment Significant liquid assets The existence of equity in refinancing loans Little or no increase in shelter expense Military benefits Satisfactory homeownership experience DTI Ratios >41% <=50% require residual income exceeding 120% in addition to significant documented compensating factors such as: Excellent credit history Conservative use of consumer credit Minimal consumer debt Long-term employment Significant liquid assets The existence of equity in refinancing loans Little or no increase in shelter expense Military benefits Satisfactory homeownership experience High residual income 11 INVESTOR ELIGIBILITY VA 12 SPECIAL RESTRICTIONS / REQUIREMENTS Eligible Borrowers for an IRRRL The parties obligated on the original VA loan must be the same parties on the new loan and the veteran must still own the property. However, some ownership changes may be acceptable. The following outlines when a change in mortgagors is permitted with proper documentation: Cash out (Equity refinance) not permitted in Texas If the loan being paid off through the refinance is an existing VA loan, this must be the same loan indicated on the COE. In some cases a copy of the note may be required to verify the case number Entitlement is the guaranty or insurance benefit available to an eligible veteran. The percentage and amount of guaranty is based on the loan amount including the funding fee portion when the fee is paid from loan proceeds GNMA Guaranty of at least 25% is required The 25% guaranty may be satisfied through a combination of available entitlement plus equity in the property Refer to the sample worksheet for guidelines pertaining to Partial and Bonus entitlement
Existing VA Loan New Loan Yes/No Unmarried Vet Veteran & New YES Spouse Unmarried Vet Spouse Only No (Deceased Veteran) Vet Different veteran who Yes has substituted his/her entitlement Vet & Spouse Divorced veteran only Yes Vet & Spouse Veteran & different Yes spouse Vet & Spouse Spouse only Yes deceased veteran Vet & Spouse Divorced spouse Np only Vet & Spouse Different spouse No only deceased veteran Vet & Non-Vet Veteran only Yes (joint obligor) Vet & Non-Vet (joint obligor) Non-Veteran only No
Term Increase Term of the new loan may not exceed the original term by more than 10 years, subject to the maximum term of 30 years and 32 days Interest Rate Decrease The interest rate of the new loan must be less than the interest rate of the existing VA loan unless refinancing an ARM to a fixed rate Payment Increase The P&I payment must be less than the P&I payment of the existing VA loan unless Refinancing an ARM to a Fixed Rate; OR The term of the new loan is less than the term of the existing VA loan If the P & I increases by 20% or more the veteran s ability to repay must be demonstrated (Refer to the Credit, Income and Documentation Requirements Sections for more details) General Guidelines The loan being paid off through the refinance must be the loan indicated on the IRRRL Case number. In some cases, a copy of the note may be required to verify the LHG number The minimum on an IRRRL is 25% regardless of the dollar amount of guaranty being transferred from the prior loan If the veteran is deceased and the surviving spouse was a coobligor, the spouse is considered a veteran for the IRRRL Surviving spouse must own the property
Fees That Cannot be Financed in Loan Amount Flat fees charged by second lien holders to subordinate existing secondary financing. Veteran must pay with own funds Processing type fees such as Subordination prep charged by closing agents or other third parties to process subordination. May not be charged to Veteran. 13 EMPLOYMENT / INCOME No income documentation required, except where P & I will increase 20%. Documentation for loans if P & I increases by 20% or more Determine that the borrower has stable and reliable income to support the proposed housing payment along with other recurring monthly obligation Pay stubs covering at least the most recent 30 day-period 2 years W2s 2 years tax returns for self-employed borrowers Telephone VOE of the borrower s current employment 4506T must be executed VA Interest Rate Reduction Refinance Loans in Colorado Income must be stated on the application No verification of income is required No analysis of Income is performed Employment documentation Verification of employment Paystubs covering at least the most recent 30 day period Most recent W-2 2 years tax returns for self-employed borrowers OR Paystubs covering at least the most recent 30 day period 2 years W2s 2 years tax returns for self-employed borrowers Completed Telephone VOE If telephone VOE does not verify income, full documentation is required Form 4506-T must be processed prior to closing. A new IRS Form 4506 T is required to be signed with the closing package as well as at application even when the form has been processed. 14 ASSETS No asset verification required Refer to the MAGNOLIA Bank Broker Manual/ Correspondent Funding Client Guide for eligibility guidelines. Two months bank statements to cover any funds necessary to close
15 CREDIT Housing (Mortgage/Rental) Payment History Requirements It may be necessary to verify the current and previous mortgage to establish a 12-month payment history. Housing (Mortgage/Rental) Payment History (PITI) is inclusive of all liens regardless of position, as well as all occupancy types. All loans must be current 2 month payment history or life of loan if property is owned less than 12 months via a credit report, cancelled checks, or VOM to reflect no more than 0X30 during the previous 12 months. Loans where the P & I increases more than 20% require credit report or tri-merged in-file Minimum Fico Score Requirements: 640 FICO score is required. Select the middle score of 3 repositories or lower score of 2 repositories to determine eligibility. If a tri-merged credit report is provided, the report must be analyzed to ensure there are no serious delinquent obligations in the last 12 months. Loans may be subject to further review and 12-month income documentation. Non-traditional credit is ineligible Approve may follow reduced documentation Housing (Mortgage/Rental) Payment History Requirements It may be necessary to verify the current and previous mortgage to establish a 12-month payment history. Housing (Mortgage/Rental) Payment History (PITIA) is inclusive of all liens regardless of position, as well as all occupancy types. All loans must be current Purchase: AUS Approve Mortgage history evaluated by AUS AUS Refer/Manual Underwrite - 12 month payment history or life of loan if property is owned less than 12 months via a credit report, cancelled checks, or VOM to reflect no more than 0X30 during the previous 12 months. Cash-Out Regardless of AUS Decision - 12 month payment history or life of loan if property is owned less than 12 months via a credit report, cancelled checks, or VOM to reflect no more than 0X30 during the previous 12 months. Minimum Fico Score Requirements Regardless of AUS Decision: 640 Non-traditional credit is ineligible 16 APPRAISAL AND APPRAISER REQUIREMENTS For IRRRL transactions that require an appraisal: Conventional appraisal report in compliance with appraisal independence policies required The appraisal must be dated within 90 days of the date of the note A new appraisal completed by a VA approved or VA fee panel Appraiser is always required. VA LAPP approved Underwriting Consultant will issue the Notice of Value
No minimum requirements regarding length of ownership will apply to value Market Conditions Addendum will be required Subject property must be rated as average or higher condition Any repair requirements noted by appraiser that impact the safety, structural soundness & habitability of subject property must be completed. Notice of Reasonable Value is not required to be issued in weblgy Refer to Geographic Locations/Restrictions for additional state specific restrictions or requirements Natural Disasters Copy of the signed Notice of Value must remain in the loan file Natural Disasters Loans that are secured by properties located in areas federally declared as major disaster areas must follow MAGNOLIA Bank s procedures outlined in the Conventional Underwriting Manual; Chapter 9-10 entitled Natural Disasters. 17 SPECIAL DOCUMENTATION REQUIREMENTS OR ENHANCEMENTS Loans that are secured by properties located in areas federally declared as major disaster areas must follow MAGNOLIA Bank s procedures outlined in the Client Guide. The following documents are required at the time of submission to Underwriting VA IRRRL Case Assignment screen print out to confirm new case number (verify that veteran s name and address match the new application) All veteran applicants whose income is being used to qualify for the loan transaction must complete and sign the VA Reserves or National Guard Certification. The VA Underwriter must then use this information to determine the veteranborrower s true monthly qualifying income and service pay Verification of VA Benefit- (VA Form 26-8937) required if borrower or co-borrower: (1) Is receiving VA disability benefits (2) Would receive benefits but for the receipts of retired pay (3) Has received VA disability benefits in the past (4) Is a surviving spouse of a veteran who died on active duty or as a result of a service connected disability Submit form to the VA Regional Loan Center having jurisdiction over property state The following documents are required at the time of submission to Underwriting: VA Case Number Assignment Screen to confirm new case number Original Certificate of Eligibility (VA Form 26-8320) or automated certificate of eligibility printed from the VA ACE System If Original Certificate of Eligibility is unavailable, provide VA Form 26-1880, Request for Certificate of Eligibility for VA Home Loan Benefits, with supporting evidence of service All veteran applicants whose income is being used to qualify for the loan transaction must complete and sign a VA Reserves or National Guard Certification. The VA Underwriter must then use this information to determine the veteranborrower s true monthly qualifying income and service pay Verification of VA Benefit (VA Form #26-8937) required if borrower or co-borrower: (1) Is receiving VA disability benefits (2) Would receive benefits but for the receipt of retired pay (3)
Cannot issue final loan approval until VA completes and returns the form to Magnolia Bank Cannot submit loan to the VA for prior approval unless completed form is received from the VA Original of signed and completed Uniform Residential Loan Application (URLA) Original HUD/VA Addendum to the URLA (VA Form 26-1802a) Mortgage history for past 12 months Current payoff statement for existing mortgage Copy of original note VA Interest Rate Reduction Refinancing Worksheet VA Form 26-8923 signed by the MAGNOLIA Bank VA Underwriter VA Loan Summary Sheet (VA Form 26-0286) needs to be in the file but VA Underwriter does not need to sign CAIVRS information must be checked and noted on the IRRRL Worksheet in the remarks section Nearest Living Relative Information Initial Good Faith Estimate and Truth in Lending disclosures Affiliated Business Disclosure Counseling checklist for Military Homebuyers VA Form 26-0592 only required for credit qualifying streamline and active duty borrowers Federal Collection Policy Notice VA Form 26-0503 VA Payment Comparison Letter and Lender Certification Statement signed by the veteran acknowledging the effect of the refinance loan on the veteran's loan payments and interest rate. (The statement must show the interest rate and monthly payments for the new loan versus the old loan) The statement must also disclose to the borrower how long it will take for him/her to recoup ALL closing costs (both those included in the loan and those paid outside of closing.) Has received VA disability benefits in the past (4) Is a surviving spouse of a veteran who died on active duty or as a result of a service connected disability Submit form to the VA Regional Loan Center having jurisdiction over property state. Cannot issue final loan approval until VA completes and returns the form to Magnolia Bank Cannot submit loan to the VA for prior approval unless completed form is received from the VA Original, signed and fully completed Uniform Residential Loan Application (FNMA 1003) Original HUD/VA Addendum to the URLA (VA Form 26-1802a) VA Loan Analysis Worksheet (VA Form 26-6393) VA Loan Summary Sheet (VA Form 26-0286) needs to be in the file but VA Underwriter does not need to sign Notice of Value completed and signed by MAGNOLIA Bank or Lender s LAPP Approved Underwriter or issued by the VA CAIVRS information must be checked Residual income requirements must be met Nearest Living Relative Information Initial Good Faith Estimate and Truth in Lending Disclosures Affiliated Business Disclosure Child Care Letter Provide All other applicable VA related forms The following documents will be required at closing Federal Collection Policy Notice (VA Form 26-0503) or the HUD/VA addendum to the URLA VA Transmittal List VA Form 26-0285 Counseling Checklist for Military Homeowners VA Form 26-0592 Report and Certification of Loan Disbursement VA
If the monthly mortgage payment (P&I) increases by 20% or more, a Lender s Certification must also be completed by the VA Underwriter: Form 26-1820 The VA Underwriter signs and certifies the Lender Certification that the borrower qualifies for the new monthly mortgage payment which exceeds the previous payment by 20% or more VA Loan Analysis 26-6393 Provide all other applicable VA related forms The following documents will be required at closing HUD/VA Addendum to the URLA VA Transmittal List VA Form 26-0285 Lender Certification VA IRRRL 0352 Report and Certification of Loan Disbursement VA Form 26-1820 Payment Comparison Letter must be signed at closing