FHA HIGH BALANCE FIXED PROGRAM HIGHLIGHTS

FHA HIGH BALANCE FIXED

PROGRAM HIGHLIGHTS

and ARM mortgages with increased loan size limits with a minimum floor of greater than $417,000.

These guidelines are to be utilized in conjunction with the following FHA Handbooks: 4155.1 for Mortgage Credit Analysis, 4150.1 for Valuation Analysis for Home Mortgage Insurance and 4150.2 for Valuation Analysis for SFR 1-4 Unit Dwellings These Handbooks are a reference point for any guideline clarifications that are not specifically addressed in this document.

This Program Highlight is effective for case numbers assigned on or after April 9, 2012.

Loan Term & Program Category

Fixed Program Categories

15 year fixed FHA High Balance Fixed 15 yr 30 year fixed FHA High Balance Fixed 30 yr

30 year fixed FHA High Balance Streamline Fixed 30 yr

Transaction Type • Purchase

• Rate/Term Refinance • Cash-Out Refinance

Occupancy • Owner-occupied primary residences

Documentation Type • Full/Alternative

Loan Limits The FHA High Balance program offered has a minimum floor of greater than $417,000

FHA’s standard maximum mortgage calculations apply, subject to HUD statutory loan limits for the area. Please refer to the link provided below for individual county limits:

FHA Maximum Geographic Loan Limit Listing

All States where the company is

authorized to originate loans in:

With the following number of units

The BASE mortgage amount must be greater than: 1-unit $417,000 2-units $533,850 3-units $645,300 4-units $801,950

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Rate and Term Refinance, 4 97.75% 97.75% 640

Cash Out 4, 6, 7 85% 85% 660

Streamline Refinances2,3 115% 115% 680

1. Please refer to the “Identity of Interest” Section and “Non Occupant Co-Borrowers” for additional credit score requirements and restrictions to maximum financing.

2. The loan amount plus the UFMIP may never exceed 100% of the appraised value. 3. The base loan amount may never exceed the geographical statutory limit. 4. The UFMIP may be financed above the geographical statutory limit for the area. 5. Cash-out not allowed on loans with non-occupant co-borrower

6. 2-4 units Max LTV 75%

Eligible Properties • Attached/Detached SFR • Two – Four units2 • Detached PUDs

• Attached PUD’s1

• Condos1 1

Condominiums and attached PUD’s must be HUD approved. A list of approved condominiums/PUD is available via the “FHA Connection.” Refer to the “Project Approval” section of this document for additional information.

Geographic Restrictions

• Maximum loan amounts stated in the LTV/CLTV grids may not be available to all areas; limits may apply to state, county, or Metropolitan Statistical Area (MSA). Refer to :

o FHA Maximum Geographic Loan Limit Listing • Illinois Land Trusts are not eligible

• Georgia Power Leaseholds are not eligible

• Properties located in the state of Massachusetts are not eligible Ineligible Properties • Manufactured Homes

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Applicants

Non-Permanent Residents and Non-occupant Co-borrowers are eligible applicants, with the restrictions identified below.

Non-Permanent Resident Aliens are allowed, subject to the following:

• Eligible for owner-occupied, primary residences only.

• Satisfactory evidence of lawful permanent and non-permanent residency must be provided.

• The borrower must occupy the subject property as a principal residence, and must satisfy standard eligibility criteria and

underwriting guidelines with respect to income/employment, credit history, funds to close, and cash reserves.

• The borrower must be eligible to work in the United States, as evidenced by an Employment Authorization Document (EAD) issued by the USCIS.

NOTE: A valid SSN is required for all borrowers. The Social Security card

cannot be used as evidence of work status.

Refer to HUD Handbook 4155.1 for additional information.

Non-occupant Co-borrowers:

• Must be related to the borrower by blood (parent/child, siblings, aunts/uncles, nieces/nephews, etc.)

• Unrelated individuals must document evidence of a family-type, long lasting and substantial relationship not arising out of the loan

transaction.

• The occupying borrower must be able to reasonably make the mortgage payment. (Transactions involving a parent and child are exempt from this requirement. Refer to the section on “Non- occupant co-borrowers” involving a parent and child).

• The blended ratios on the loan may not be excessive.

• The non-occupant co-borrower’s financial profile and relationship with the occupying borrower must support the ability and willingness to assist in making the mortgage payment when needed.

• A letter from the non-occupant co-borrower acknowledging they are responsible to make the payment if the occupying borrower is not able to make the payment must be included in the loan package.

Note: A maximum 75% LTV restriction applies for loans that do not meet the Non-occupant Co-borrower (s) requirements outlined above.

Non-occupant Co-borrowers involving a parent and child relationship. We recognizes there are transactions that warrant special consideration. Parents helping out a child or a child helping out an elderly parent are given special consideration and are allowed under the following circumstances:

• Provided the non-occupant borrower qualifies for the mortgage payment on the transaction the occupying borrowers’ ability to reasonably make the mortgage payment is waived.

• The blended ratios on the loan may not be excessive.

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Applicants Cont.

Non-purchasing spouses: Community Property states

Except for the obligations specifically excluded by state law, the debts of the non-purchasing spouse must be included in the borrower's qualifying ratios if the borrower resides in a community property state or the property to be insured is located in a community property state. Although the non-

purchasing spouse's credit history is not to be considered a reason for credit denial, a credit report must be obtained for the non-purchasing spouse in order to determine the debt-to-income ratio.

Identity-of-Interest Transactions

Identity-of-Interest Transactions. Identity-of-interest transactions on principal residences are restricted to a maximum LTV ratio of 85 percent. Identity-of-interest is defined as a sales transaction between parties with family

relationships or business relationships. However, maximum financing above 85 percent LTV is permissible under the following circumstances:

• A family member purchases another family member's home as a principal residence.

• If a property is sold from one family member to another and is the seller's investment property, the maximum mortgage is the lesser of either:

• 85% of the appraised value or

• The appropriate LTV ratio percentage applied to the sales price, plus or minus required adjustments.

• The 85 percent 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. • An employee of a builder purchases one of the builder’s new homes or

models as a principal residence

• A current tenant purchases the property that he or she has rented for the at least six months immediately predating the sales contract, A lease or other documentation must be submitted to verify occupancy.

Maximum Financed Properties

A maximum of four financed properties is allowed including the subject transaction. If the borrower has more than one financed property that has FHA financing additional restrictions may apply. Please refer to the “Multiple Mortgage” section in the program highlights.

Automated

Underwriting System (AUS):

All loansmust be underwritten through DU to gain a TOTAL Scorecard. A TOTAL Scorecard and credit report must be obtained for all borrowers. A copy of the Feedback Certificate must be included in the case binder behind the 92900-LT.

“Approved/Eligible” recommendations can have reduced documentation

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score.

Determining Credit Scores:

• If three FICO scores are obtained, the applicant’s representative FICO score is the middle score.

• If two FICO scores are obtained, the applicant’s representative FICO score is the lower score.

• If one FICO score is obtained, that score is used as the applicant’s representative FICO score

• If there is more than one applicant, the score from the applicant with the lowest representative FICO scores is used.

Derogatory Credit – Letters of Explanation

Credit reports that reflect derogatory information require a satisfactory written explanation from the applicant explaining the reason(s) for the adverse credit. Letters of explanation must be in the applicant’s own words, handwritten or typed, with applicant’s signature(s).

Credit Report Three-bureau merged credit report required.

Credit Score The minimum credit score requirements are as follows:

Transaction Type LTV

Minimum Credit Score2

Purchase and Rate/Term Refi All 640

Cash-out Refi 85% 660

Streamline Refinance 115% 680

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4506-T A processed 4506-T is required.

Credit Requirements Bankruptcy - • Rate/Term refinance and purchase

transactions require a minimum of 2 years seasoning from the date of discharge to the closing date.

• Cash-Out transactions require a minimum of 7 years seasoning from the date of discharge to the closing date.. • Must have re-established credit

Consumer Credit Counseling (CCC)

• The borrower must have completed CCC prior to the application date.

• A satisfactory payment history to the Counseling Agency must be included in the file if the completion of the CCC is

seasoned less than 12 months.

• Must have re-established credit or chosen not to incur new credit obligations.

Foreclosure • Must be seasoned a minimum of 3 years.

• Short sale (pre-foreclosure):

o None allowed last 3 years if delinquent on mortgage at time of short sale.

o If current at time of short sale and mortgage and installment payments for the prior 12 months were made in the month due then foreclosure restrictions do not apply.

• Satisfactory re-established credit required • For cash-out refinances a minimum of 7

years seasoning is required.

Collections • Aggregate amount >/= $1000.00 must be

paid in full unless payment plan in place for a minimum of 3 months. Other outstanding collections may be required to be paid if the underwriter determines they have the potential to become a lien and impact the borrower’s ability to repay the mortgage.

Judgments/Tax Liens

• Court ordered judgments/Federal tax liens must be paid off either prior to or at closing

Verification of Rent Rental history must be verified for 12 months in one of the following ways:

• Satisfied by a credit report.

• Obtained from a non-related landlord or leasing Management Company.

• Obtained from a Mortgage Servicer.

• Provide cancelled checks covering the most recent 12 months.

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Payment Shock:

The borrower’s payment shock must be considered. The Underwriter must notate on the 92900-LT the compensating factor(s) that mitigate the risk on transactions with excessive payment shock.

Borrowers Retaining Current Residences

For borrowers that are retaining their current residences as either an investment or second home, please refer to HUD Mortgagee Letter 2008-25.

Rental income from the property that is being vacated can no longer be used in the underwriting analysis except under certain circumstances. The borrowers must qualify with both the current and proposed mortgage payments.

Exceptions are:

• Relocations: If the borrower is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the borrower and the lessee) of at least one year’s duration after the loan is closed is required. In addition, evidence of the security deposit and/or evidence the first month’s rent was paid to the borrower must be obtained and included in the loan file. • Sufficient Equity in Vacated Property: If the homebuyer has a LTV of 75% or less, as determined by a current (no more than six months old) residential appraisal. The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie

Mae1075/Freddie Mac 466.

Note: It is not acceptable to circumvent the intent of the “Borrowers Retaining Their Current Residence” guideline. If the borrower vacates their current residence and is currently renting, and it is not due to relocation the borrower must qualify for both payments

Assets Standard documentation required: 2 months bank statements or a VOD and 1 month bank statement.

Down Payment A minimum 3.5% down payment is required, exclusive of closing costs, prepaids and discount points paid.

Gifts 100% gift allowed unless otherwise noted.

Reserves 1-2 unit properties Approve/Eligible - Per DU findings 1-2 unit properties w/non-occupant

co-borrower

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3-4 unit Properties

Minimum of 3 months PITI. Reserves cannot be from gift funds.

Subordinate Financing: Governmental

Agencies::

Federal, state and local governmental agencies may provide secondary financing for the borrower’s entire cash investment requirement, subject to:

• No cash back to the borrower. The sum of all financing may not exceed 100% of the cost to acquire the property and any normal prepaid expenses.

• The required monthly payment under the first and second

mortgage, plus other housing expenses and all recurring charges cannot exceed the borrower’s reasonable ability to pay.

• Documentation outlining the terms of the secondary financing must be disclosed in the application. The borrower(s) must acknowledge that they understand (and agree) to the terms. • The FHA insured first mortgage cannot exceed the FHA statutory

limit for the area; however the combined indebtedness may exceed the FHA statutory limit.

FHA approved non-profit organizations that are considered to be instrumentalities of government may also provide financing under the above terms. FHA approved non-profit organizations that are not instrumentalities of government may provide secondary financing; however the borrower must make a 3% cash investment of the cost to acquire the property.

Private Institutions or Individuals:

Private institutions and individuals may provide secondary financing under the following:

• The combined amounts of the first and second mortgages do not exceed the applicable loan to value ratio and the maximum mortgage limit for the area.

• The repayment terms of the second mortgage must not provide for a balloon payment before ten years (or other such term

acceptable to FHA), unless the property is sold or refinanced, and must permit prepayment by the borrower, without penalty, after giving the lender 30 days advance notice. Any periodic payments due on the second mortgage must be due monthly in substantially equal amounts.

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parent, or grandparent of the mortgagor or mortgagor’s spouse. The term “child” means a son, daughter, stepson, stepdaughter, and a legally adopted son or daughter. The family member may provide up to 100% of the borrower’s cash investment, it may be secured or unsecured, and is subject to the following:

• The combined amount of financing may not exceed 100% of the lesser of the property’s value or sales price, plus normal closing costs, prepaid expenses, and discount points. Cash back to the borrower is not allowed at closing, other than a refund of the application deposit and/or earnest money deposit;

• Secondary financing payments must be included in the total debt-to-income ratio and must not provide for a balloon payment within five years from the date of execution.

• If the family member who is providing the secondary financing borrows the funds, he or she may not borrow the funds from a party to the transaction.

Documentation outlining the terms of the secured financing must be in the file submitted to underwriting; the underwriter must condition the approval for the secondary financing to be subordinated to the first lien.

Appraisal

Appraisal Cont.

One (1) full appraisal is required for loan amounts </= $1 million.

Loan amounts > $1 million - $2 million require one (1) full appraisal AND a Desk Review with data verification; or, Enhanced Desk Review with data verification.

Three and four unit properties.

The property must be self-sufficient. 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 mortgage calculations described below are in addition to the standard calculations for a refinance or purchase

• The monthly payment is the principal, interest, taxes, and insurance (PITI), including mortgage insurance, plus any homeowners' association dues, is computed at the note rate.

• Net rental income is the appraiser's estimate of fair market rent from all units, including the unit occupied by the borrower, 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.

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seasoning

• Rate/term transactions: provide evidence the property has been removed from the MLS prior to the application date.

Mortgage Insurance “FHA Mortgage Insurance” is required.

Project Approval Condominiums/Attached PUD’s must be approved by HUD. A list of approved condominiums/PUD’s is available via the “FHA Connection”

• Evidence that the project has a minimum of 51% owner occupancy is required.

• No pending litigation • Must have H06 insurance

Property Flipping Property flipping is defined as a recently acquired property which is resold for a considerable profit with an artificially inflated value. We adheres to prohibition on property flipping. Refer to HUD Handbook 4155.2. Multiple Mortgages FHA will not insure more than one high LTV mortgage for a borrower

except in the following cases:

• Relocations – If the borrower is relocating and re-establishing residency in another area not within reasonable commuting distance of the current principal residence, he or she may keep the property covered by the previous FHA insured mortgage as a rental. File must contain satisfactory documentation regarding the reasonability of the commute distance/time.

• Increase in family size – If the number of dependents has increased to the point where the present house no longer meets the family’s needs, the borrower may be permitted to obtain another home with a FHA insured mortgage. The borrower must provide evidence of the increase in family size, evidence of how the property no longer meets the family’s needs, and must pay down the outstanding mortgage balance to 75% LTV, exclusive of financed MIP.

• Vacating a jointly owned property – If the borrower is vacating a residence that will remain occupied by a co-mortgagor, the individual vacating the property is permitted to obtain another FHA insured mortgage. Acceptable situations include those following a divorce where the vacating ex-spouse will be purchasing a new home, or where one of the co-mortgagers will vacate the existing property and is getting married.

• Non-occupying co-borrower – Non-occupying Co-borrowers are eligible for purchase transactions and may have a joint interest in the subject property as well as his or her current principal residence, even if the current principal residence is already secured by an FHA-insured mortgage. The maximum LTV is 75%, unless the Borrowers are related by blood or can evidence a family-type, long standing and substantial relationship not arising out of the loan transaction.

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Contributions

Any closing costs, prepaids, or discount points normally paid by the purchaser are considered contributions if they are paid by any party other than the purchaser. The maximum allowable contributions from interested parties are limited to 6%. Over 6% will require a reduction in loan amount. Seller or other third party contributions for mortgage interest payments are not allowed.

Closing Costs, Prepaids, and Discount Points

FHA allows borrowers to pay all normal and customary closing costs (both recurring and non-recurring).

Temporary Buydowns Temporary buydowns are not permitted.

Prepayment Penalty None

Refinance Guidelines Refinance Types:

• FHA to FHA Streamline Refinance • Rate/Term Refinances

• Cash-out Refinances FHA to FHA

Streamline Refinances

Streamline refinancing is permitted and designed to assist those borrowers who wish to take advantage of lower interest rates. HUD expects these transactions to be in the borrower’s best interest and result in an improvement to the

affordability of the monthly mortgage payment, and not be a vehicle for churning new mortgages. There must be a Net Tangible benefit to the borrower.

Streamline Refinances are not subject to the geographic loan limits provided the new loan amount (including all fees, closing costs, MIP, interest, etc.) does not exceed the original principal amount of the existing FHA insured mortgage. Streamline Refinances with an appraisal are not eligible for loan amounts that exceed the geographic loan limits

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Streamline Refinance Quick Reference Chart: Maximum

LTV/CLTV

• Owner Occupied 115%/115% • Second Home 100%/100%

AVM required and if LTV based on the AVM exceeds 100% the AVM results have to satisfy the confidence score and forecast standard deviation requirements.

Credit Score:

The following are the minimum Credit Score requirements for Streamline Refinances:

Streamline Refinance 680 Minimum Score

Please refer to the “Credit Score” section of this document for additional information on minimum credit scores.

Payment History:

A minimum 12 month pay history is required reflecting 0 x 30 lates. If the loan is seasoned less than 12 months, the mortgage payment history must show no 30-day or greater mortgage lates since the inception of the loan and no 30-day or greater mortgage lates for any other first mortgage loans associated with the property in the most recent 12 months.

Eligible Property Type

Single Family Attached and Detached (1 unit) PUDs

Condominiums

AUS: Streamline refinances are not to be run through an AUS system, and are to be manually underwritten.

There are two ways to determine loan amounts on streamline refinances as follows: (Refer to Mortgagee Letter 09-32)

Streamline Refinance with appraisals: (owner occupied transactions only) The maximum insurable mortgage is the lower of:

1) Outstanding principal balanceminus the applicable refund of UFMIP,

plus closing costs, prepaid items to establish the escrow account and the new UFMIP that will be charge on the refinance;

OR

2) 97.75 percent of the appraised value of the property plus the new UFMIP that will be charged on the refinance.

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Streamline Refinance without appraisals: The maximum insurable mortgage cannot exceed:

• The outstanding principal balance1

minus the applicable refund of the UFMIP,

PLUS

• The new UFMIP that will be charged on the refinance. Credit Qualifying Streamline Refinance:

The following must be considered when processing a credit-qualifying transaction:

• Mortgage Amount: The maximum loan amount is the same as described above as appropriate: “with appraisals” or “without appraisals.”

• Credit Documentation/Qualifying: Verification of income and a credit report are required. Underwriter is to calculate debt-to-income ratios, and to determine that the borrower will continue to make mortgage payments.

Purpose: Refer to the Mortgagee Letter 09-32 for further clarification.

Rate/Term Refinances –

Full Credit Qualifying

The following restrictions apply:

• The mortgage being refinanced must be current for the month due. • In determining the existing debt as part of the mortgage amount

calculation, the new loan may include: accrued late charges escrow shortages, prepaid expenses, including per diem interest to the end of the month on the new loan, closing costs, discount points, hazard insurance premium deposits, monthly mortgage insurance premiums, real estate tax deposits needed to establish the escrow account, and any repairs required by the appraisal.

• In addition, the loan may include any purchase money second mortgage; or any junior liens seasoned over 12 months, and any borrower paid repairs required by the appraisal.

• If any portion of the funds of an equity line of credit in excess of $1000 was advanced within the past twelve months and was for purposes other than repairs and rehabilitation of the property, the line of credit is

not eligible for inclusion as a rate and term refinance in the new

mortgage.

• At closing, the borrower may not receive cash back in excess of $500.

•

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FHA does not have a maximum cash-out requirement. The underwriter should apply discretion on loans requesting excessive cash-out.

Refer to the “Credit Score” section of this program highlight for additional restrictions.

Eligibility

Requirements • Subordinate financing may remain in place, but _{subordinate to the FHA insured first mortgage,}

the CLTV including the UFMIP may not exceed 85%.

• The mortgage being refinanced must be current for the month due.

• Any co-borrower being added to the note must be an occupant of the property. Non-occupant co-borrowers not allowed.

Energy Efficient Mortgages