Conventional Non-Conforming Jumbo Underwriting Guidelines

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Non-Conforming Jumbo Underwriting Guidelines 1 | R e v i s e d 7 . 1 6 . 2 0 1 2

Conventional Non-Conforming Jumbo Underwriting Guidelines

Conventional Jumbo Guidelines

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Transaction Types

Construction to Permanent Financing – Two Time Close

Non-Conforming Jumbo Jumbo Elite

 Conforming Guidelines apply

 Non Arms Length Transactions not eligible

 Arms Length Transactions

o LTV/CLTV is based in appraised value of both lot and improvements regardless of length of time borrower has held title to the lot.

 Lot Acquired =/> than 12 months or if lot was inherited or gifted regardless of date of acquisition LTV/CLTV is based on lesser of:

 Current appraised value – lot and improvements

 Total acquisition costs (sum of construction costs and lower of sales price or current appraised value of lot.

 Lot acquired within 12 months preceding application date for construction financing, LTV/CLTV is based on lesser of:

 Current appraised value (lot and improvements) OR

 Total acquisition costs ( sum of construction costs and lower of sales price or current appraised value of lot)

 Document sales price of lot with copy of purchase contract or related executed HUD-1.

 CASH OUT Arms Length Transaction LTV/CLTV is calculated as noted above. (Jumbo Elite not

allowed)

 CASH OUT Non Arms Length Transaction is not eligible

 Construction Costs:

 Includes material and labor for the completion of dwelling (hard costs)

 Soft costs may be included if they cover tangible products/services.

 Professional fees such as architectural fees, building permits, engineering fees and environmental impact fees are allowed to be included in loan amount calculation.

 Costs attributed to financing construction loan costs

 Rea estate taxes on subject

 Insurance

 In absence of construction contract construction costs must be verified by

 Invoices

 Lien waivers,

 Contract for services or materials provided by sub-contractors.

 Invoices must note subject address or lot number, builder or borrower name.

 All costs must be documented by cancelled checks, paid receipts or certified draw scheduled from construction lender itemizing specific work covered by each draw.

Tearing down older dwelling to construct new home

 Purchase price of site

 Demolition cost of existing dwelling

 HOWEVER only true land value will be considered in value determination.

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Non-Conforming Jumbo Underwriting Guidelines 6 | R e v i s e d 7 . 1 6 . 2 0 1 2 Installment Land Contract

 When the loan proceeds are used to pay off a recorded installment land contract (or contract or bond for deed) that was recorded or sent to the county for recording within the 12 months preceding the date of the loan application, the loan must be treated as a purchase. The LTV is determined by using the lesser of the total acquisition cost (original land contract purchase price plus documented costs for rehabilitation, renovation, or energy conservation improvements) or the current appraised value. Cash out not allowed.

 When the recorded installment land contract (or contract or bond for deed) was recorded or sent to the county for recording more than 12 months before the date of the loan application, the loan is treated as a limited cash-out refinance. The LTV is based on the current appraised value.

 When installment land contract (or contract or bond for deed) is not recorded value is determined by lesser of appraised value or purchase price. Cash out not allowed. LTV maximum 5% below program maximum.

 Pay History Documentation: cancelled checks, bank statements or money order receipts to verify payment history.

 The HUD-1 must reflect the applicable transaction (i.e., if purchase, seller issues should be

addressed; if refinance, there should not be a reference to a seller – seller is treated as an existing lien).

 The above guidelines apply regardless if title to the subject property has transferred to our borrowers.

Temporary Interest Rate Buy Downs

 Not permitted

Interest Only Transactions.

 Not permitted

Non-Arm’s Length Transaction

 Not permitted

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 See Conforming Guidelines

 Purchase Agreements that have been assigned are not eligible.

First Time Home Buyer Transaction

 See Conforming Guidelines for all transaction types

 Reserves – 12 months PTIIA liquid reserves required

 Any Borrower living rent/mortgage free must have 12 months PITIA liquid reserves

Conversion of Primary to Second Home or Investment Property

Conversion of Primary to Second Home

 Qualify with PITIA of both retained property and new primary residence

 Six months reserves for the rained property

 Greater of six months PITIA liquid reserves or program requirements for subject property. Conversion of Primary to Investment Property – regardless of # of units in the property.

 Rental Income – Single Family

 Documented Equity is a least 30% , 75% of gross rental income may be used to quality

 If 30% Equity not documented no rental income can be used.

 Reserves:

 Six months liquid PITIA reserves for retained property

 Greater than six months PITIA liquid reserves or program requirements for subject property

 Documentation:

 Fully executed lease agreement and security deposit receipt deposited into borrower’s bank account.

 Non-arms length lease (family member or individual with established relationship with those involved in the transaction or interested party) may not sign lease agreement as the renter.

 Documentation supporting equity position evidenced by at least 2055 exterior only inspection, dated no more than 60 days prior to Note. Report provided by borrower is not acceptable to establish value.

Refinance Transaction – Limited Cash-Out (FNMA terminology)/No Cash-Out (FHLMC terminology)

Conforming Guidelines apply.

 Cash back not to exceed lesser of 1% or $2000 unless property is in Texas. See conforming guidelines.

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 Prepaids may be financed in a refinance transaction except on Texas Rate/Term

Refinance Transaction – Cash-Out

 Conforming Guidelines apply

 Maximum Cash Out > 65% LTV/CLTV/HCLTV is $250,000

 Maximum Cash Out </ 65% LTV/CLTV/HCLTV is $350,000.

 If property is owned less than 12 months and value has increased month than 15%, photos of improvements are required.

 See Texas A6 Guidelines

Not Allowed

“Restructured” Loans or “Short” Payoff Refinances

 Not Eligible for financing

Secondary Financing

General

 Refer to program matrix for maximum CLTV/HCLTV.

 When the total loan amount, including any subordinate financing, is greater than 10 times the subject property’s county level median home price, the LTV/CTLV is limited to 70%. In this instance, if the product guideline’s maximum LTV/CLTV is less than 70%, then the lower LTV ratio must be applied.

 HELOC Secondary Financing:

o Existing Subordinate lien: If current balance is zero and no draws are to be used for the new transaction NO minimum payment is included in qualifying.

o If balance on the line of credit or if advance will be part of new transaction, calculate the housing payment by multiplying the total usable line of credit by the interest rate in effect at the time the loan application is underwritten. Use the higher of the calculated payment or the payment reported on the credit report.

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subordination agreement to insure first lien will remain in first lien position. Community Seconds – FNMA

 Not eligible.

Home Equity Line of Credit – HELOC

 See Conforming Guidelines.

 HELOC Secondary Financing:

o Existing Subordinate lien: If current balance is zero and no draws are to be used for the new transaction NO minimum payment is included in qualifying.

o If balance on the line of credit or if advance will be part of new transaction, calculate the housing payment by multiplying the total usable line of credit by the interest rate in effect at the time the loan application is underwritten. Use the higher of the calculated payment or the payment reported on the credit report.

 The HELOC must comply with all of the terms outlined in the above General section.

 Refer to the Program Matrix for maximum allowable LTV/CLTV/HCLTV ratios.

 When the total loan amount, including any subordinate financing, is greater than 10 times the subject property’s county level median home price, the LTV/CTLV is limited to 70%. In this instance, if the product guideline’s maximum LTV/CLTV is less than 70%, then the lower LTV ratio must be applied.

Occupancy

Primary Residence

 3-4 unit properties are not eligible Second Home

 One Unit properties only

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Non-Conforming Jumbo Underwriting Guidelines 10 | R e v i s e d 7 . 1 6 . 2 0 1 2 Investment Property

 Investment Properties not eligible

Property Eligibility

2 to 4 Unit Properties

 Only 1 to 2 unit properties allowed.  Only 1 unit properties are allowed. Property listed for sale:

 Currently listed for sale, or

 Listed for sale within the six months prior to the loan application Soft Market/Declining Values

 Declining Market Maximum LTV/CLTV: B Market: Reduce Max LTV/CLTLVHCLTV by 5%

C Market: Reduce Max LTV/CLTV/HCLTV by 10%

D Market: Reduce Max LTV/LCLTV/HCLTV BY 15%

Market Upgrade of 5% LTV/CLTV/HCLTV permitted passed on the credit guidelines below:

 Minimum Fico 740

 Maximum DTI 35%

 SFR, PUD, Modular Home or Site Condo (Multi-Family not permitted)

 Purchase Rate/term Refi Only (no cash-out)

 Two Full Appraisals

 Max combined loan amount $1,000.000

 See Jumbo Elite Summary and Matrix for LTV/CLTV restrictions

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Borrower Eligibility

Maximum Number of Financed Properties per Loan

 Conforming guidelines apply except as noted below.

 Regardless of occupancy type for the new loan, borrower may not own more than four properties (including his or her principal residence) that are currently being financed.

 Maximum of four financed properties financed by GMAC Bank with a maximum aggregate dollar amount of financed properties not to exceed $2 million.

 First and second liens financed by GMAC are counted as one loan.

 Borrower who holds Limited Partnership in organized Limited Partnership formed for the purpose of real estate investment or development must include all properties owned and financed by that partnership.

 General Partner who has personal liability and whose primary income is thru the partnerships long-term investments must include all properties owned and financed by that partnership.

First Time Homebuyer

 Acceptable verification of rent for most recent full 12 months is required. Cancelled checks or bank statements to evidence eligibility for mortgage/housing history is required. Written verification on the credit report is not allowed. Direct written verification from landlord that is a large

professional management company is allowed.

 12 months PITIA reserves are required.

 If all borrowers are living rent free12 months PITA reserves are required (excluding retirement accounts.)

Illinois Land Trust

 Beneficiary must be an individual

 Beneficiary must execute Note and guarantee payment on the Mortgage

 Trustee executes Note solely in capacity as trustee of the land trust

 Trustee is not personally liable on the Note

 Borrower must be one of the beneficiaries of the trust

 Trustee must be a financial institution customarily engages in business of acting as Trustee under Illinois state law.

Number of Borrowers per Loan File

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Qualifying Ratios

Adjustable Rate Mortgages

 Fixed Rate – Qualify at Note rate using fully amortized payment of principal, interest, taxes and insurance (PITI)

 5/1 Adjustable Rate – Qualify using the greater of the fully indexed/fully amortized rate or the Note rate + 2.0%

 7/1 Adjustable Rate – Qualify using the greater of the fully indexed/fully amortized rate or Note rate.

Waiver of Escrow for taxes and insurance

 Permitted on 1 unit properties only.

Income

Boarder Income

 Not permitted

Bonus and Overtime Income

 Bonus or OT Income received for less than 2 years and/or is not likely to continue is not acceptable income.

Self Employed

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Non-Conforming Jumbo Underwriting Guidelines 13 | R e v i s e d 7 . 1 6 . 2 0 1 2 Commission Income

 Two year history of receipt must be show on tax returns.

 Must be determined likely to continue. Foreign Income

 Not permitted

Mortgage Credit Certificates

 Not permitted

Non-U.S. Citizen Borrowers

 Not permitted  Refer to conventional guidelines

 Restrictions

All non-permanent resident aliens must have a minimum two-year history of credit and employment in the U.S. or another country. In addition, non-permanent resident aliens who meet at least one of the following requirements are generally eligible for the same financing terms as U.S. citizen:

• Minimum two-year history of residence, employment and credit in the U.S., or • Borrowing with a U.S. citizen or permanent

resident alien. Projected Income

 May be permitted on a case-by-case basis.

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Non-Conforming Jumbo Underwriting Guidelines 14 | R e v i s e d 7 . 1 6 . 2 0 1 2 Trailing Secondary Wage Earner

 Not permitted.

Liabilities and Qualifying Ratios

Student Loans/Deferred Loans

 Deferred installment debt—such as student loans and loans in forbearance—must be included as part of the borrower’s recurring monthly debt obligations.

Credit Requirements

Bankruptcy

o See Conforming Guidelines

o A minimum of seven years must have elapsed since date of discharge or dismissal of bankruptcy.

Consumer Credit Counseling

 Treat like Bankruptcy – 7 years must have elapsed before borrower is eligible. Credit Score Requirements

 See Conventional Non-Conforming Product Summary & Matrix Foreclosure/Deed-in-Lieu of Foreclosure

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Non-Conforming Jumbo Underwriting Guidelines 15 | R e v i s e d 7 . 1 6 . 2 0 1 2 Major Adverse Credit

 Major Adverse Credit is collection accounts, charge-offs, judgments, liens, delinquent property taxes, repossessions, garnishments and non mortgage accounts currently 90 days or more delinquent

 Major Adverse accounts reported in past 24 months

 Not Allowed unless isolated accounts with less than $500 cumulative balance . These accounts may be left open if they don’t affect title.

 Major Adverse accounts older than 24 months

 All State, IRS and property tax liens (subject property and other properties), regardless of

seasoning, are required to be paid whether or not they currently affect title. No repayment plans or subordination is allowed.

 All other adverse accounts over 24 months old that do not affect title are not required to be paid. Minimum Trade Line Requirements

 3 non-derogatory trade lines

 3 trade line, each rated for at least 12 months

 1 trade line with credit limit of at least $5,000

 At least one active trade line (less than 30 days delinquent and non-collection) in the past 6 months. (Active trade line is defined by the date of last activity on the account and not current open

balance.)

 Authorized User Accounts may not be used to satisfy trade line requirements unless joint account with co-borrower.

Mortgage/Rental Payment History

 Verification of 12 months rental/housing payments is required.

o 12 months canceled checks or banks statements evidencing no late payments

o Direct verification of rent is acceptable in lieu of cancelled checks when landlord is a large professional management company.

o Verification of Rent on credit report is not permitted.

 0X30 in past 12 months

 0X60 in past 24 months

Nontraditional Credit Report Requirements

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Non-Conforming Jumbo Underwriting Guidelines 16 | R e v i s e d 7 . 1 6 . 2 0 1 2 Pre-Foreclosure Sale (Short Sale)

 A minimum of 4 years is required to elapse after the completion of a pre-foreclosure (short sale) before the borrower is considered to have a re-established credit history. The following waiting period requirements apply.

o 4 years – lesser of 90% LTV or the maximum per the guideline eligibility matrix. o 7 years – LTV ratios per the guideline eligibility matrix.

 A minimum of 2 years is required to elapse after the completion of a pre-foreclosure (short sale) due to extenuating circumstances. The maximum LTV is the lesser of 90% or the maximum per the guideline eligibility matrix.

Assets

General Documentation Requirements

 Unacceptable sources:

o Donated Funds in any form, such as cash or bonds donated by seller, builder or selling agent outside of approved financing contributions in the Seller Concession

o Funds from Community Second Mortgage/down Payment Assistance Program o Funds from unapproved non-profit organization

o Proceeds from personal or unsecured loan

o Cash advance on revolving charge account or unsecured line of credit o Gift that must be repaid in full or in part

o Labor performed by the borrower (sweat equity)

o Materials furnished by the Borrower that are not part of a pre-closing agreement with builder

o Salary advances

o Cash for which source can’t be verified (e.g., garage sales, cash on hand) o Funds in a Custodial or “in Trust For” Account

Down Payment Requirements

 Borrower must pay a minimum of 5% of the value from their own funds. The balance may be paid from any acceptable source (borrower funds, gift funds or secondary financing.

 For LTV less than or equal to 80 percent, full

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Non-Conforming Jumbo Underwriting Guidelines 17 | R e v i s e d 7 . 1 6 . 2 0 1 2 Cash Reserve Requirements

 DTI >/= 35%: 12 months liquid reserves o Minimum 12 months

reserves(inclusive of HOA fee, if applicable, reserves remaining after closing, exclusive of closing costs, cash out funds, business assets (other than Schedule C)

o Maximum of 6 months reserves permitted from 401K/SIP account at 50% of full vested amount.

 DTI<35% : 6 months reserves:

o Minimum 6 months liquid reserves o Exclusive of 401K/SEP accounts, cash

out funds, business assets (other than schedule C)

 Retirement Account Funds must be reduced by 50%.

 Ineligible Sources for Reserves: o Gift funds

o Business Assets (other than Schedule C)

o Cash out proceeds o Bridge Loans

o Loans secured by other assets

 First time Homebuyers - see First Time Homebuyer section.

 See Primary residence not sold before Note date

 See Converting primary to second home or investment.

 Refer to Product Summary for detailed post-closing liquidity requirements.

Liquid assets verified to meet the reserve (post-closing liquidity) requirements may be in the form of:

• Cash equivalents (checking, savings, or money market accounts)

• 100% of the vested value of Publicly Traded Stocks, Mutual Funds and Government Securities may be used.

• Cash surrender value of life insurance (less outstanding loans, if repayment not included in debt ratio calculation)

• For borrowers who have reached the required age for non-penalty withdrawal:

• 70 percent of vested pension, profit sharing, 401K, or Traditional IRA (less outstanding loans)

• 100% of Roth IRA (less outstanding loans)

• For borrowers who have not reached the required age for non-penalty withdrawal, 70 percent of vested pension, profit sharing, 401K and Traditional and Roth IRA (less outstanding loans) may be used to meet half of the required post-closing liquidity when: • Required post-closing liquidity is 20% or

more, or

• LTV/CLTV < 60%, or debt ratio < 24% and:

• Minimum Loan Score 720 • Maximum loan amount

$2,000,000

• Equity proceeds from the sale of a residence. The following assets are ineligible for

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Non-Conforming Jumbo Underwriting Guidelines 18 | R e v i s e d 7 . 1 6 . 2 0 1 2 requirement:

• For borrowers who have not reached the required age for non-penalty withdrawal: Retirement funds, including but not limited to vested pension, profit sharing, 401K, or IRA, except as noted in the eligible asset section above.

Retirement funds may not be liquidated in order to be used to meet reserve (post-closing liquidity) requirements.

• Borrowed funds

• Stock in a closely held corporation • Proceeds from the sale of assets other

than the sale of a residence Bridge Loans

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Non-Conforming Jumbo Underwriting Guidelines 19 | R e v i s e d 7 . 1 6 . 2 0 1 2 Business Accounts

 Cannot be used for reserves When a Borrower has insufficient personal liquid assets to qualify or close, but has sufficient verified funds in a 100 percent owned business, the business funds may represent an adequate source of down payment and reserves both of the

following conditions are met:

• Business average annual cash flow is greater

than the amount to be withdrawn/reserves.

• Cash on company year-end balance sheet for

each of the previous three years is greater than the amount to be withdrawn/reserves. This information is found on line 1 of the schedule L for the Partnership, S-Corporation and the Corporation. A three-year history of a balance greater than or equal to the amount being considered for reserves or down payment is required. Two years of the schedule L will show three years of cash on hand for the company. Full analysis of the business must consider the effect of the withdrawal of the assets and how it will impact the strength and viability of the business in the future.

The following questions need to be considered:

• What is the pattern of company cash flows?

Do we have declining gross or net income?

• Do we have concerns about the type of

business? Is the business experiencing a downturn?

Extreme care needs to be taken when

considering business use of funds and in some cases even though a business is profitable, it may not be prudent to use the business assets in our transaction.

Cash On Hand

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Non-Conforming Jumbo Underwriting Guidelines 20 | R e v i s e d 7 . 1 6 . 2 0 1 2 Donations from Entities

 Donations from interested parties are not allowed

 Community 2nds are not allowed Gifts

 Minimum borrower investment is waived on primary residences when gift funds reduce LTB</80% and borrower pays own closing costs and no secondary financing exists.

Retirement Funds

 Retirement Accounts are reduced to 50% of the balance of the account. Sale of Personal Assets

 Must be able to document value of asset, actual sale of asset by written sales agreement, funds coming from buyer and deposited into borrower’s account.

Sweat Equity

Sweat equity is not an acceptable source of funds for the down payment, closing costs, or financial reserves.

Trust Accounts

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Interested Party Contributions (IPC’s)

 3% Maximum regardless of LTV/CLTV/HCLTV or occupancy

 Pre-paid HOA fees (dues) must be paid by the buyer. The seller may pay their pro-rated share of the dues.

Mortgage Insurance

 Not permitted. Max LTV is 80%

Appraisal Requirements

General Documentation Requirements

 One full appraisal for loan amounts <= $1,500,000

 Two full appraisals for loan amounts > $1,500,000

 Loan Amounts <= $1,000,000 – one full appraisal

 Loan Amounts > $1,000,000 and < $1,500,000 – one full appraisal and one of the following: o Field Review

o Second full appraisal Must be ordered by the Jumbo Desk Only

Exterior-Only Inspection Residential Appraisal Report – FNMA/FHLMC Form 2055

 Not permitted

Exterior-Only Desktop Underwriter Property Inspection Report – FNMA Form 2075

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Non-Conforming Jumbo Underwriting Guidelines 22 | R e v i s e d 7 . 1 6 . 2 0 1 2 Exterior-Only Inspection Individual Condominium Unit Appraisal Report – FNMA Form 1075/FHLMC Form 466

 Not permitted

Operating Income Statement – FNMA Form 216/FHLMC Form 998

 See Conforming Guidelines.

 Use for Owner Occupied 2 unit properties

Single Family Comparable Rent Schedule – FNMA Form 1007

 Not required since only owner occupied properties are allowed for this program. DU Property Inspection Waiver (PIW)

 Not permitted

AUS Recommendations and Underwriting Resubmissions

 Not permitted

Conventional Non-Conforming Jumbo Underwriting Guidelines