VA Underwriting Guidelines. v

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VA Underwriting Guidelines

v.03.04.14

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VA Underwriting Guidelines v. 03.04.2014

2009.000 RENT CREDIT ... 16 2010.000 SWEAT EQUITY ... 16 3000.000 AUS ... 17 3001.000 DATA INTEGRITY ... 17 4000.000 BORROWERS ... 18 4001.000 APPLICATION ... 18 4002.000 ELIGIBLE BORROWERS ... 18 4003.000 INELIGIBLE BORROWERS/LOANS ... 18 5000.000 CASH RESERVES ... 19 6000.000 CERTIFICATE OF ELIGIBILITY ... 20 6001.000 ELIGIBILITY DETERMINATION ... 21

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Page 3 of 129

6002.000 OBTAINING A CERTIFICATE OF ELIGIBILITY ... 21

6003.000 INTEREST RATE REDUCTION REFINANCING LOANS ... 23

6004.000 CERTIFICATE OF ELIGIBILITY RESOURECES ... 23

7000.000 CLOSING COSTS ... 24

7001.000 ALLOWABLE CLOSING COSTS ... 24

7002.000 NON-ALLOWABLE BORROWER-PAID CLOSING COSTS ... 24

8000.000 CLOSING REQUIREMENTS ... 26 8001.000 PROPERTY ADDRESSES ... 26 8002.000 CLOSING REQUIREMENTS ... 26 8003.000 ESCROW STATES ... 27 8004.000 NOTARY POLICY ... 28 9000.000 CO-BORROWERS ... 29 10000.000 COMPENSATING FACTORS ... 30 11000.000 CONDOMINIUMS ... 31 11001.000 CONDOMINIUM RESOURCES ... 31 12000.000 CONFLICT OF INTEREST ... 32 13000.000 CREDIT HISTORY ... 33 13001.000 CREDIT INQUIRIES ... 33 13002.000 “REFER” RESPONSES ... 33

13003.000 “REFER” RESPONSES – CREDIT EXPLANATIONS ... 33

13004.000 NO CREDIT SCORE ... 33

13005.000 DEBTS EXCLUDED FROM THE CREDIT REPORT ... 33

13006.000 FORECLOSURES ... 33 13007.000 SHORT SALES ... 34 13008.000 CHAPTER 7 BANKRUPTCIES ... 34 13009.000 CHAPTER 13 BANKRUPTCIES ... 35 13010.000 CREDIT COUNSELING ... 35 13011.000 JUDGMENTS ... 35

13012.000 DEFAULTED CAIVR NUMBERS ... 35

14000.000 CREDIT REPORTS ... 37

14001.000 AGE OF CREDIT REPORTS ... 37

14002.000 OFAC ... 37

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15001.000 MEDIAN CREDIT SCORE (REPRESENTATIVE CREDIT SCORE) ... 38

15002.000 MINIMUM CREDIT SCORES ... 38

16000.000 DECLINING MARKETS ... 39

17000.000 DISCLOSURES/FORMS ... 40

17001.000 REQUIRED DISCLOSURES AND FORMS ... 40

18000.000 DOWN PAYMENT ... 41

19000.000 DOWN PAYMENT ASSISTANCE ... 42

19001.000 DOWN PAYMENT ASSISTANCE RESOURCES ... 42

20000.000 ELECTRONIC SIGNATURES ... 43

21000.000 EMPLOYMENT/INCOME ... 44

21001.000 INCOME DOCUMENTATION ... 44

21002.000 NON-MILITARY INCOME ... 44

21003.000 CURRENT EMPLOYMENT < 12 MONTHS ... 44

21004.000 JOB CHANGES ... 44

21005.000 DISABILITY INCOME ... 44

21006.000 MATERNITY LEAVE ... 45

21007.000 ACTIVE-DUTY MILITARY INCOME ... 45

21008.000 COMMISSION ... 46

21009.000 EDUCATIONAL ASSISTANCE ... 46

21010.000 NON-TAXABLE INCOME ... 46

21011.000 OVERTIME/BONUS/PART-TIME EMPLOYMENT/SECOND JOB ... 46

21012.000 RECENTLY DISCHARGED VETERANS ... 46

21013.000 RESERVE/NATIONAL GUARD INCOME ... 47

21014.000 SELF-EMPLOYMENT ... 47

22000.000 ENERGY EFFICIENT MORTGAGES/IMPROVEMENTS ... 48

23000.000 ENTITLEMENT/GUARANTY ... 49

23001.000 BASIC ENTITLEMENT ... 49

23002.000 ADDITIONAL OR BONUS ENTITLEMENT ... 49

23003.000 RESTORATION OF ENTITLEMENT ... 49

23004.000 ENTITLEMENT RESOURCES ... 50

24000.000 ESCROWS ... 51

25000.000 ESCROW HOLDBACKS ... 52

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26000.000 FUNDING FEE ... 53

26001.000 FUNDING FEE TABLES ... 54

27000.000 GEOGRAPHIC RESTRICTIONS ... 55

27001.000 ELIGIBLE LOCATIONS ... 55

27002.000 COMMUNITY PROPERTY STATES ... 55

27003.000 ALABAMA ... 55 27004.000 ALASKA ... 55 27005.000 ARIZONA ... 55 27006.000 ARKANSAS ... 56 27007.000 California ... 56 27008.000 COLORADO ... 56 27009.000 CONNECTICUT ... 56 27010.000 DELAWARE ... 56 27011.000 DISTRICT OF COLUMBIA ... 56 27012.000 FLORIDA ... 56 27013.000 GEORGIA ... 57 27014.000 HAWAII ... 57 27015.000 IDAHO ... 57 27016.000 ILLINOIS ... 57 27017.000 INDIANA ... 57 27018.000 IOWA ... 57 27019.000 KANSAS ... 57 27020.000 KENTUCKY ... 57 27021.000 LOUISIANA ... 57 27022.000 MAINE ... 57 27023.000 MARYLAND ... 57 27024.000 MASSACHUSETTS ... 58 27025.000 MICHIGAN ... 58 27026.000 MINNESOTA ... 58 27027.000 MISSISSIPPI ... 58 27028.000 MISSOURI ... 58 27029.000 MONTANA ... 58 27030.000 NEBRASKA ... 58

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VA Underwriting Guidelines v. 03.04.2014 27031.000 NEVADA ... 58 27032.000 NEW HAMPSHIRE ... 59 27033.000 NEW JERSEY ... 59 27034.000 NEW MEXICO ... 59 27035.000 NEW YORK ... 59 27036.000 NORTH CAROLINA ... 59 27037.000 NORTH DAKOTA ... 59 27038.000 OHIO ... 59 27039.000 OKLAHOMA ... 59 27040.000 OREGON ... 59 27041.000 PENNSYLVANIA ... 59 27042.000 RHODE ISLAND ... 60 27043.000 SOUTH CAROLINA ... 60 27044.000 SOUTH DAKOTA ... 60 27045.000 TENNESSEE ... 60 27046.000 TEXAS ... 60 27047.000 UTAH ... 60 27048.000 VERMONT ... 60 27049.000 VIRGINIA ... 60 27050.000 WASHINGTON ... 61 27051.000 WEST VIRGINIA ... 61 27052.000 WISCONSIN ... 61 27053.000 WYOMING ... 61 28000.000 GIFT FUNDS ... 62

28001.000 ELIGIBLE GIFT DONORS ... 62

28002.000 INELIGIBLE GIFT DONORS ... 62

28003.000 GIFT DOCUMENTATION ... 62

28004.000 GIFT OF EQUITY ... 62

29000.000 INCOME ... 63

30000.000 INDUSTRY LINKS AND CONTACTS ... 64

31000.000 INSURANCE ... 65

31001.000 HAZARD INSURANCE ... 65

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VA Underwriting Guidelines v. 03.04.2014 Page 7 of 129 EVIDENCE ... 65 AMOUNT OF COVERAGE ... 65 DEDUCTIBLES ... 66

ACCEPTABLE PAID RECEIPT ... 66

REFINANCES ... 66

SPECIAL COVERAGES ... 66

WINDSTORM, HAIL, HURRICANE, COVERAGE ... 67

EARTHQUAKE COVERAGE ... 67

PLANNED UNIT DEVELOPMENTS ... 67

COVERAGE MINIMUM ... 67 DEDUCTIBLES ... 68 BLANKET POLICY ... 68 CONDOMINIUMS ... 68 DEDUCTIBLES ... 68 31003.000 FLOOD INSURANCE ... 68

31004.000 CONDOMINIUM FIDELITY/LIABILITY INSURANCE ... 68

31005.000 HO-6 POLICY ... 69

32000.000 JOINT LOANS ... 70

32001.000 JOINT LOAN ELIGIBILITY/INELIGIBILITY ... 71

32002.000 JOINT LOAN RESOURCES ... 71

33000.000 LAND CONTRACTS ... 72 34000.000 LIABILITIES ... 73 34001.000 EXCLUDED LIABILITIES ... 74 35000.000 LOAN PURPOSE ... 75 35001.000 PURCHASE ... 75 35002.000 CASH-OUT REFINANCE ... 75

35003.000 INTEREST RATE REDUCTION REFINANCING LOANS (IRRRLS) ... 75

36000.000 LOAN TERM ... 76

36001.000 FIXED RATE MORTGAGES ... 76

36002.000 ADJUSTABLE RATE MORTGAGES ... 76

37000.000 LTV/CLTV ... 77

37001.000 PURCHASES ... 77

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37003.000 INTEREST RATE REDUCTION REFINANCING LOAN (IRRRL) ... 78

38000.000 MANUFACTURED HOMES ... 79

39000.000 MAXIMUM/MINIMUM LOAN AMOUNTS ... 80

39001.000 PURCHASES ... 80

39002.000 CASH-OUT REFINANCES ... 80

39004.000 LOAN AMOUNT RESOURCES ... 81

40000.000 MINIMUM PROPERTY REQUIREMENTS ... 82

40001.000 PROPERTY RESOURCES ... 82

41000.000 MORTGAGE INSURANCE ... 83

42000.000 MULTIPLE PROPERTIES/VA LOANS ... 84

42001.000 MAXIMUM NUMBER OF RESMAC LOANS ... 84

43000.000 NEAREST LIVING RELATIVE ... 85

44000.000 NET TANGIBLE BENEFIT ... 86

45000.000 NEW CONSTRUCTION ... 87

45001.000 FINAL INSPECTION REQUIREMENTS ... 88

45002.000 NEW CONSTRUCTION RESOURCES ... 88

46000.000 NON-OCCUPANT CO-BORROWERS ... 89

47000.000 NOTICE OF VALUE ... 90

48000.000 OCCUPANCY ... 91

49000.000 POWER OF ATTORNEY ... 92

49001.000 POWER OF ATTORNEY RESOURCES ... 92

50000.000 PROPERTY ELIGIBILITY ... 93 50001.000 ELIGIBLE ... 93 50002.000 INELIGIBLE ... 93 50003.000 PROPERTY FLIPPING ... 94 51000.000 PROPERTY INSPECTIONS ... 96 51001.000 TERMITE INSPECTIONS ... 96 51002.000 WELL INSPECTIONS ... 96 51003.000 SEPTIC INSPECTIONS ... 96

51004.000 INSPECTION REQUIREMENTS FOR REQUIRED REPAIRS ... 96

51005.000 PRESIDENTIALLY DECLARED DISASTERS ... 97

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51007.000 CHINESE DRYWALL ... 98

51008.000 PROPERTY INSPECTION RESOURCES ... 98

52000.000 PURCHASES/PURCHASE AGREEMENTS ... 99

52001.000 DEPARTURE OF CURRENT RESIDENCE ... 99

52002.000 PURCHASES OF SHORT SALES ... 100

53000.000 QUALIFYING RATES ... 101

53001.000 FIXED RATE MORTGAGES ... 101

53002.000 ADJUSTABLE RATE MORTGAGES ... 101

54000.000 RATIO ... 102

54001.000 MANUAL UNDERWRITING... 103

54002.000 AUTOMATED UNDERWRITING ... 103

54003.000 DEBT-TO-INCOME RATIO > 55% ... 103

54004.000 DEBT-TO-INCOME RATIO > 60% ... 103

55000.000 RECENTLY LISTED PROPERTIES ... 104

55001.000 PURCHASES ... 104

55003.000 CASH-OUT REFINANCE – BORROWER DOES NOT RECEIVE CASH BACK OR CONSOLIDATE DEBT 104 55004.000 INTEREST RATE REDUCTION REFINANCING LOANS (IRRRRLS) ... 104

56000.000 REFINANCE TRANSACTIONS ... 105

56001.000 CASH-OUT REFINANCE TRANSACTIONS ... 105

57000.000 RENTAL INCOME ... 109

57001.000 CONVERTING EXISTING HOMES TO RENTALS ... 109

57002.000 2-UNIT SUBJECT PROPERTY - PURCHASE ... 110

57003.000 3-4 UNIT SUBJECT PROPERTY – PURCHASE ... 110

57004.000 1-2 UNIT SUBJECT PROPERTY – CASH-OUT TRANSACTION ... 111

57005.000 3-4 UNIT SUBJECT PROPERTY – CASH-OUT TRANSACTION AND VETERAN DOES NOT RECEIVE CASH BACK AND/OR CONSOLIDATE NON-MORTGAGE DEBT ... 111

57006.000 3-4 UNIT SUBJECT PROPERTY – CASH-OUT TRANSACTION AND BORROWER RECEIVES CASH BACK AND/OR CONSOLIDATES NON-MORTGAGE DEBT ... 112

57007.000 ADDITIONAL INVESTMENT PROPERTIES OWNED BY THE VETERAN – NOT THE SUBJECT PROPERTY 112 58000.000 RESIDUAL INCOME ... 113

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59000.000 SEASONING ... 115

59001.000 PURCHASES ... 115

59003.000 INTEREST RATE REDUCTION REFINANCING LOANS (IRRRRLS) ... 115

60000.000 SELLER CONTRIBUTIONS ... 116

61000.000 SOCIAL SECURITY VERIFICATION ... 117

62000.000 SUBORNDINATE FINANCING ... 118

62001.000 SUBORDINATE FINANCING RESOURCES ... 118

63000.000 TITLE ... 119

63001.000 CASH-OUT REFINANCE TRANSACTIONS ... 119

63002.000 ENERGY LOAN TAX ASSESSMENT PROGRAM (ELTAP) LIENS ... 120

63003.000 PROPERTY ASSESSED CLEAN ENERGY (PACE) LIENS ... 120

63004.000 UNEXPIRED RIGHTS OF REDEMPTION – ALL STATES EXCEPT ALABAMA ... 120

64000.000 UNDERWRITING ... 121

64001.000 TURN TIMES ... 121

64002.000 PROPERTY ADDRESS CHANGES ... 121

64003.000 MANUAL UNDERWRITING ... 121

64004.000 AUTOMATED UNDERWRITING SYSTEMS ... 122

64005.000 MANUAL DOWNGRADES ... 122

64006.000 UNDERWRITING RESOURCES ... 122

64007.000 FRAUD PREVENTION TOOLS ... 122

64008.000 LEGAL NAME POLICY ... 123

65000.000 VA REGIONAL LOAN CENTERS ... 125

65001.000 CLEVELAND REGIONAL LOAN CENTER ... 125

65002.000 HOUSTON REGIONAL LOAN CENTER ... 125

65003.000 ST. PAUL REGIONAL LOAN CENTER ... 125

65004.000 ATLANTA REGIONAL LOAN CENTER ... 125

65005.000 DENVER REGIONAL LOAN CENTER ... 125

65006.000 PHOENIX REGIONAL LOAN CENTER ... 125

65007.000 ROANOKE REGIONAL LOAN CENTER ... 126

65008.000 ST. PETERSBURG REGIONAL LOAN CENTER ... 126

65009.000 HONOLULU REGIONAL OFFICE ... 126

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4506-T

 A fully executed IRS Form 4506-T must be included in all loan files.

 If the 4506T transcripts do not match the borrower’s income and the borrower is a victim of taxpayer identification theft, the following conditions must be met in order to validate the borrower’s income:

o Proof of identification theft as evidenced by one of the following:

 Proof ID theft was reported to and received by the IRS (IRS form 14039) OR  Copy of notification from the IRS alerting the taxpayer to possible identification

theft

o In addition to one of the documents above, all applicable documents below must be provided:

 W2 or 1099 transcripts which match the W2 or 1099 income shown on the 1040s  1099 mortgage interest must match the reported interest on Schedule A or

schedule E

 1099G unemployment must match the reported amount of unemployment  1099 dividend and interest income must match the reported dividend and interest  Validation of prior tax year’s income (income for current year must be in line with

prior years)

1001.000

APPRAISAL

APPRAISAL VALIDITY

Appraisals are valid for six months

PROPERTY ADDRESSES

The property addresses on the appraisal, mortgage, note, flood certification and in Point/Marti must be identical. However, abbreviation of “Street,” “Road,” etc. is acceptable, even if “Street” or “Road” is fully spelled in another document. This is the only acceptable variance

 VA appraiser is required to use the physical address upon inspection. This may differ from the USPS address, but in most cases should be the same. If the address differs, appraiser comment is required.

PURCHASES AND CASH-OUT REFINANCES

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 Fully completed VA Case Number/Appraiser Assignment  Fully executed sales agreement and all addendums

INTEREST RATE REDUCTION REFINANCING LOANS

 Appraisal must be ordered by the branch

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 The property must meet VA’s minimum property requirements. Repairs that affect the health and safety of the occupants must be completed prior to closing

 Borrower may pay for appraisal

 The case number must show that the loan is an IRRRL transaction.

 IRRRL transactions may NOT require an appraisal (dependent upon Program Code and existing mortgage servicer).

VA APPRAISER ASSIGNMENT – PURCHASE AND CASH-OUT TRANSACTIONS ONLY

 All appraisals for purchase or cash-out refinance transactions must be ordered electronically through VA’s WebLGY System

 VA-approved appraisers are randomly assigned by WebLGY

 Case Number is assigned simultaneously with completion of appraisal order  VA appraisers must provide appraisals in a timely manner

 VA appraiser may only be contacted for status – questions related to repair or value are permitted only by the Staff Appraisal Reviewer (SAR)

 Rush appraisal requests are not permitted

 Borrower may not pay more than the maximum appraisal or inspection fee established by VA

o Maximum appraisal and inspection fees are established by the Regional Loan Center having jurisdiction over the property.

APPRAISAL INVOICE

 Borrowers may not pay VA appraisers directly.

o The branch has the option to collect the appraisal fee from the borrower in the form of a check and forward to the accounting department.

 Borrower may not pay more than the maximum appraisal or inspection fee established by VA.

o Maximum appraisal and inspection fees are established by the Regional Loan Center having jurisdiction over the property.

FORM REQUIREMENTS

 1-unit residences require Form 1004  2-4 unit residences require Form 1025  Condos require Form 1073

 Fannie Mae Form 1004MC or Freddie Mac Form 71 – Market Conditions Addendum is required for all appraisals

 All appraisals must be Uniform Appraisal Dataset (UAD) compliant. However, due to limitations in WebLGY, appraisals must be uploaded in a PDF format and cannot be uploaded in XML format

o Only closed sales may be used as comparables

o The “Lender/Client” field on the appraisal must reflect ResMac’s name and “VA” (unless a transferred appraisal which will contain the name of the lender who ordered it).

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o The “Borrower” field must reflect the name of the veteran only and not the veteran’s spouse. The only exception is for VA Liquidation appraisals, which must reflect “N/A” in the borrower field.

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PHOTOGRAPHS

Photographs of the following rooms/characteristics are required:  Kitchen

 All bathrooms  Main living area

 All physical deterioration, if applicable

 Examples of recent updates, such as restoration, remodeling and renovation, if applicable  MLS photos of comparables are not acceptable - the appraiser must provide “live photos.”

APPRAISAL REVIEW

 Appraisals are uploaded to VA’s WebLGY System by the appraiser

 Staff Appraisal Reviewer (SAR) uploads Notice of Value (NOV) and appraisal to paperless file  The appraisal is only valid upon issuance of the NOV. Appraisal copies in file prior to the NOV

are not considered valid.

APPRAISAL DISPUTE PROCEDURES

 The SAR (Staff Appraisal Reviewer) may never revise the appraised value reported by the VA appraiser

 E-mail at least three additional comps to ResMac

 On a limited basis, we will submit the appraisal to VA for consideration of a higher or lower value

o In the event ResMac believes the appraised value is too high, the loan may be denied  Any adjustments to the original appraised value must be made by VA

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2000.000

ASSETS

All funds to close, when required, must be documented from an acceptable source. Acceptable sources of funds to close and documentation requirements are described below. For AUS “approve” or “accept” responses, document to findings.

2001.000

EARNEST MONEY DEPOSITS

All EMDs must be verified prior to closing, regardless of the amount of the deposit

2002.000

LARGE DEPOSITS

All large deposits must be verified. A large deposit is defined as:

 Any single non-payroll deposit equal to or greater than 10% of the borrower’s monthly gross income;

 Any single non-payroll deposit equal to or greater than $1000;

 Any single month’s aggregate non-payroll deposit >10% of the borrower’s gross monthly income will be reviewed by the underwriter on a case-by-case basis for any additional documentation required.

2003.000

SAVINGS AND CHECKING ACCOUNTS

 Funds must be verified via one or more of the following:

Original or certified true copies of most recent two months’ bank statements or

Most recent two months’ internet bank statements – must include all pertinent information and URL signature at top and/or bottom of document

 All large deposits must be verified, regardless of whether the funds are required for closing. “Large deposits” are determined by the definition above.

 If it is impossible to verify a large deposit, and the funds are not needed for the loan closing or reserves, the funds may be deducted from the borrower’s bank balance, the AUS findings, the 1003 and the Loan Analysis.

 In all cases, if the source of the large deposit was a new debt, the payment must be included in the ratios and residual income calculations.

When one or more of the bank account owners is not a borrower on the loan, the non-borrowing joint account owner(s) must provide a letter stating the borrower has access to the funds.

However, if the account is joint with a non-borrowing spouse and there are no additional joint account owners, an access letter is not required

 Non-Sufficient Funds (NSFs) showing on a borrower’s bank statement(s) are generally an indication of the borrower’s financial mismanagement and are considered a negative layer of risk. Written

explanations are required.

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negatively. Overdraft protection funds are frequently unsecured loans or lines of credit and may not be used for the borrower’s EMD or funds to close unless they are transferred from another asset account held by the borrower and do not constitute an unsecured loan or line of credit.

2004.000

PROCEEDS FROM THE SALE OF REAL ESTATE

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2005.000

SALE OF A PERSONAL ASSET

 The borrower may sell a car, motorcycle, recreational vehicle, jewelry, stamp or coin or baseball card collections, etc. All of the following documentation is required:

Evidence of borrower’s ownership Estimate of value

Bill of sale

Copy of purchaser’s check

Evidence of deposit of check into borrower’s bank account

2006.000

SAVINGS BONDS

 Provide copies of bonds indicating ownership  Provide evidence of redemption value

 Provide evidence of deposit of proceeds to borrower’s bank account

2007.000

RETIREMENT SAVINGS

 Document balances with the most recent statement

 Document the terms and conditions for withdrawal and/or borrowing – Proof of liquidation is required, if applicable

 Unless funds may be withdrawn within 30 days of request, retirement savings accounts may not be used as reserves but may be used as a compensating factor. If funds may not be withdrawn within 30 days of request, do not include in AUS findings.

 60% of the current vested balance can be used for qualifying.

 Confirm the statement does not contain a current loan balance that will need to be subtracted from the vested balance.

2008.000

STOCKS AND/OR BONDS

 Provide most recent two months’ brokerage statements

 When funds are required for closing, proof of liquidation is required

2009.000

RENT CREDIT

 Provide a copy of the rent-with-option-to-buy agreement that clearly defines the terms and conditions, including rent credit

 The portion of rent credit that exceeds fair market rents for the area may be credited toward borrower’s funds to close

o Fair market rents for the area are estimated by the appraiser

o If borrower is purchasing a home other than the home he or she is currently renting, rent credits may not exceed 4% of the purchase price (see Seller Contributions section)

2010.000

SWEAT EQUITY

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3000.000

AUS

Loan Prospector or Desktop Underwriter response required for all loan types except Interest Rate Reduction Refinancing Loans

 Do not run IRRRL loans through automated underwriting

3001.000

DATA INTEGRITY

All information input to DU or LP must mirror the documentation in the file

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4000.000

BORROWERS

4001.000

APPLICATION

The veteran must always be the primary borrower on the loan, regardless of whether income from the veteran is being used to qualify

4002.000

ELIGIBLE BORROWERS

 For additional information, refer to VA Pamphlet 26-7, Chapter 7, Section 1 – Loans Requiring Special Underwriting - Joint Loans

 Eligible veteran(s)

o If more than one veteran’s entitlement is used and the veterans are not married to one another, prior approval must be obtained by the VA regional loan center having jurisdiction over the property

o If both veterans’ entitlement is used and the veterans are married to each other, loan can be underwritten by ResMac

o All veterans using entitlement must occupy the property

 Un-remarried surviving spouse of veteran who died from service-connected injuries or un-remarried surviving spouse of a veteran who was totally disabled at the time of death

o VA Regional Loan Center determines cause of death – see Certificate of Eligibility Section  Veteran’s spouse co-borrower

o The veteran must be the primary borrower on the loan, regardless of whether the veteran contributes income to the loan

o Veteran’s spouse is not required to be a veteran  Non-veteran co-borrower who is not the veteran’s spouse

o Eligible veteran must be primary borrower on the loan.

o Additional down payment that is ≥ 25% of the non-veteran’s half of the loan is required – Refer to VA Pamphlet 26-7, Chapter 7, Section 1 – Loans Requiring Special Underwriting - Joint Loans.

o Prior approval by VA Regional Loan Center having jurisdiction over the property is required.

o VA guaranty will not exceed the lessor of 25% of the veteran’s half of the loan or veteran’s available entitlement – If veteran’s half of the loan is ≤ $144,000, bonus entitlement cannot be used, regardless of total loan amount.

o Down payment plus VA guaranty must be ≥ 25% of the total loan amount, including the financed funding fee.

o All borrowers must occupy the property.

o Veteran’s income must be sufficient to qualify for his or her half of the loan.

4003.000

INELIGIBLE BORROWERS/LOANS

 Any borrower who does not meet the eligible borrower criteria described above  Any loan having any of the following characteristics:

o One borrower is required to pay a funding fee and the other is not (If the borrower not required to pay the funding fee is the veteran’s spouse, the loan remains eligible)

o Two veteran borrowers are required to pay different funding fees

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5000.000

CASH RESERVES

 Borrower is using rental income to qualify - Borrower’s ability to accumulate liquid assets and the current availability of liquid assets for unplanned expenses should be considered in the overall credit analysis

o Borrower is using rental income from multi-unit subject property to qualify – Six months reserves from the borrower’s own funds required.

o Borrower is using rental income from investment properties that are not the subject property to qualify – Three months reserves from the borrower’s own funds required.  Borrower’s debt-to-income ratio exceeds 60% - The loan is reviewed on a case-by-case basis. At a

minimum, two months reserves from the borrower’s own funds required:

o Reserves may not be gifted

o 401k funds may be used for ResMac’s reserve requirement. Unless funds may be withdrawn within 30 days of request, retirement savings accounts may not be used as reserves. If funds may not be withdrawn within 30 days of request, do not include in AUS findings

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6000.000

CERTIFICATE OF ELIGIBILITY

 A Certificate of Eligibility is required for all VA purchase and cash-out refinance transactions but is not required for VA IRRRLs.

 For IRRRL transactions, only a VA IRRRL case number is required.

Certificates of Eligibility greater than six months old are considered expired and an updated Certificate of Eligibility would be required prior to closing.

The following information is included on a Certificate of Eligibility:

 Veteran’s full name – The veteran’s name on the Certificate of Eligibility must match the veteran’s name in WebLGY, Point/Marti, the loan guaranty certificate and the Note and Mortgage

The following name discrepancies are the only acceptable variations:  James Everett Brown, James E. Brown, James Brown

 William Smith Jr., William Smith, William R. Smith, William Ryan Smith, Jr., William Ryan Smith, William R. Smith, Jr.

 The following name discrepancies must be resolved prior to the loan closing (this list is not all-inclusive and name discrepancies are reviewed on a case-by-case basis):

oName discrepancies due to marriage (C of E shows Mary Smith, but documentation in Point/Marti, WebLGY and/or the note and mortgage shows Mary Jones).

oHyphenated name discrepancies (C of E shows Bill Smith, but documentation in Point/Marti, WebLGY and/or the note and mortgage shows Bill Smith-Jones).

oMiddle name discrepancies (C of E shows Bill John Smith, but documentation in Point/Marti, WebLGY and/or the note and mortgage shows Bill Robert Smith).

oFirst name discrepancies (C of E shows Bill Smith, but documentation in Point/Marti, WebLGY and/or the note and mortgage shows William Smith).

oLast name prefix discrepancies (C of E shows Bill St. Pete, but documentation in Point/Marti, WebLGY and/or the note and mortgage shows Bill Stpete)

 Veteran’s truncated social security number  Entitlement code o 01 – World War II o 02 – Korean War o 03 – Post-Korean War o 04 – Vietnam War o 05 – Entitlement Restored

o 06 – Un-remarried Surviving Spouse

o 07 – Spouse of POW/MIA

o 08 – Post World War II

o 09 – Post Vietnam War

o 10 – Gulf War

o 11 – Selected Reserves  Veteran’s branch of service

 Funding fee status – “Exempt” or “Non-Exempt”

 Itemized list of entitlement amounts charged to previous loans – The following information is provided for each loan:

o VA loan number

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o Total loan amount

o Date of loan

o Entitlement amount charged  Amount of basic entitlement available.

 Total entitlement charged to previous VA loans (includes total of all entitlement amounts for all active VA loans).

 Comments stating the amount of the veteran’s disability pay, funding fee status, restoration/non restoration of previously used entitlement and/or instructions to contact the appropriate Regional Loan Center.

6001.000

ELIGIBILITY DETERMINATION

 Eligibility is based on the veteran’s length and type of military service. Generally speaking, VA determines that veterans who fulfill the criteria below are eligible for the VA home loan benefit:

o Veterans with two years of continuous active-duty and an honorable discharge

o Veterans with six years of service in the Selected Reserves or National Guard and an honorable discharge

o Veterans with 90 days active-duty wartime service and an honorable discharge

o Veterans with 181 days of continuous active-duty during peacetimes listed below and an honorable discharge:

July 26, 1947 – June 26, 1950 February 1, 1955 – August 4, 1964 May 8, 1975 – August 1, 1990

 Un-remarried surviving spouse of a veteran § Eligibility determined by Veterans Administration (VA)  Veteran must have been totally disabled at the time of death or died on active-duty or as a result of

service-connected injuries or illness - VA determines cause of veteran’s death

 For IRRRL transactions, the Certificate of Eligibility must be in deceased veteran’s name and social security number

 For purchase and cash-out refinance transactions, the Certificate of Eligibility must be in the surviving spouse’s name

6002.000

OBTAINING A CERTIFICATE OF ELIGIBILITY

There are three methods for obtaining a veteran’s certificate of eligibility:

 VA’s ACE (Automated Certificate of Eligibility) system – This must be attempted before using the Eligibility Center or Regional Loan Center

o Obtained through VA’s Website: https://vip.vba.va.gov/portal/VBAH/Home - For a brief on- line demonstration, refer to VA’s on-line training – Ordering a Certificate of Eligibility On- Line

o Register to receive a user name and password – You will need the lender ID and PIN number – Registration is required the first time only

o Select “WebLGY”

o Select “Eligibility” link

o Select “Eligibility” then “Create Record”

o Complete the required fields using information from veteran’s VA Form DD-214 or other Reservist/National Guard discharge papers

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o Usually successful for veterans who fulfill all of the following criteria:  Discharged after 1980

 Served two years on active-duty  Had no previous VA loan

o Print certificate from ACE system and include with file submission

o Users who do not have access to ACE may complete Automated Certificate of Eligibility

o Request and fax or e-mail to the fax number or e-mail address on the form with the following documentation:

oFully executed Request for Certificate of Eligibility, VA Form 26-1880

oMember 4 copy of form DD-214 or other discharge papers for retired or discharged borrowers

oHUD-I from previous VA loans, if applicable

oRequest for Certificate of Veteran Status, VA Form 26-8261a  VA’s Eligibility Center

o 1700 Clairmont Road, Decatur, GA 30031 – 888-768-2132

o Send the following documentation to the address above (faxes are not permitted):

oCopy of veteran’s Member 4 copy of VA Form DD-214 or other Reservist/National Guard discharge papers

oActive-duty veterans must provide a current statement of service on military letterhead and signed by the appropriate personnel stating all of the following:

 Veteran’s name  Veteran’s date of birth  Active-duty entry date

 Lost time, if any and its duration

 Name of commanding officer providing the information

o Turn time is typically seven days from receipt of documentation to VA mailing out the completed Certificate of Eligibility – Turn times may increase with volume increase.

o Up-load a certified true copy of the Certificate of Eligibility into the paperless file – A blanket certified-true-copy stamp for all the items in the file is sufficient.

 Veteran Walk-In

o Most Regional loan centers prepare Certificates of Eligibility for walk-in veterans.

o Call in advance to verify Regional Loan Center accepts walk-in requests and the office hours during which Certificates of Eligibility are prepared.

o Provide the following documentation to regional loan center team member (faxes are not permitted):

oCopy of veteran’s Member 4 copy of VA Form DD-214 or other Reservist/National Guard discharge papers

oActive-duty veterans must provide a current statement of service on military letterhead and signed by the appropriate personnel stating all of the following:

 Veteran’s name  Veteran’s date of birth  Active-duty entry date

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 Name of commanding officer providing the information

o Up-load a certified true copy of the Certificate of Eligibility into the paperless file – A blanket certified-true-copy stamp for all the items in the file is sufficient

 Un-remarried Surviving Spouse

o Send fully executed Request for Determination of Loan Guaranty – Unmarried Surviving Spouses – VA Form 26-1817 to the VA Eligibility Center at the Atlanta Regional Loan Center – Turn times may be lengthy

6003.000

INTEREST RATE REDUCTION REFINANCING LOANS

 No Certificate of Eligibility is required

 Prior Loan Validation printout is no longer required

6004.000

CERTIFICATE OF ELIGIBILITY RESOURECES

 VA Pamphlet 26-7, Chapter 2

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7000.000

CLOSING COSTS

ALLOWABLE CLOSING COSTS

Veteran may pay any of the following reasonable closing costs and fees:  1% origination fee

o For purchase and cash-out loans, the origination fee is calculated using the total loan amount, including the financed funding fee

o For IRRRLs, the origination fee is calculated using the payoff minus any cash payments by the veteran, if applicable

Reasonable discount points

 Branches may charge a discount, however, the discount points charged must be reasonable and customary.

VA appraisal fee – The veteran may not pay a fee higher than the maximum allowable appraisal fee for the state in which the property is located and may not pay for more than one appraisal. Therefore, do not order appraisals for properties under construction until the property is at least 90% complete – See VA Appraisal Fee Schedules.

 VA compliance inspector fees – Only if required by the NOV (Notice of Value)  Recording fees

 Taxes and stamps  Pre-paid items

 Insurances (hazard and flood, when required)  Flood zone determination

 Well and septic inspection fees

 Survey, if required by veteran, except for surveys of condominiums

 Title insurance, title examination, title endorsement, title policy, title search, including the owner’s title policy

 Environmental protection lien endorsement

 Express mail fees for refinances if the saved per diem interest cost to the veteran will exceed the cost of the special handling – Anything over $50, provide the invoice to verify fee

 VA funding fee

 Mortgage Electronic Registration System (MERS) fee  Closing protection letter – Should not exceed $35  Fraud protection report

 Termite, provided the loan is a cash-out refinance (The borrower may never pay this fee for purchase transactions)

 If a fee is not listed above, assume VA does NOT permit the veteran to pay it

NON-ALLOWABLE BORROWER-PAID CLOSING COSTS

Generally, the veteran may NOT pay any of the fees listed below, but the seller or lender may pay the non-allowable fees. However, if no origination fee is charged and the fee is not listed in the section below that itemizes fees the Veteran may never pay, the Veteran may pay non-allowable costs up to 1% of the purchase price. The veteran may also pay a combination of non-allowable fees and an origination fee, provided the combination does not exceed 1% of the purchase price.

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The non-allowable fees are:

 Attorney fees other than for title commitments  Lender’s appraisals

 Lender’s inspections, except construction loan inspections and inspections required on the appraisal/NOV

 Loan closing or settlement fees

 Doc prep, underwriting, loan application, admin or processing fees  Assignment fees

 Photographs

 Interest rate lock-in fees

 E-Mail, fax, copying, postage, stationery, telephone or other overhead charges  Amortization schedules, Truth-in-Lending fees, etc.

 Notary fees

 Escrow fees or charges

 Commitment fees or marketing fees of secondary purchasers  Trustee fees

 Fees charged by third parties, regardless of affiliation with lender  Tax service fees

The veteran may never pay any of the following fees or charges, regardless of whether an origination fee was paid:

 Termite inspection fee for a purchase transaction  Attorney fee that benefits the lender

 Broker fee

 Brokerage fees or commissions charged by real estate agents or real estate brokers in connection with a VA loan

 Prepayment penalties financed through a refinance transaction – When the payoff states a prepayment penalty is due, veterans may pay pre-payment penalties out-of-pocket only

 FHA/VA inspection fees for builders (Normal new construction inspections of the dwelling are permitted when required by the appraiser)

 Any portion of the seller’s lien(s) or short sale fees

 For purchase transactions, the cost of required repairs and inspections must be paid by the seller. This policy applies to all purchases, including purchases of REO properties. VA does not permit the veteran to pay for repairs other than minor termite damage repairs

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8000.000

CLOSING REQUIREMENTS

8001.000

PROPERTY ADDRESSES

 The property addresses on the appraisal, mortgage, note, flood certification and in Point/Marti must be identical. However, abbreviation of “Street,” “Road,” etc. is acceptable, even if “Street” or “Road” is fully spelled in another document. This is the only acceptable variance

o VA appraiser is required to use the physical address upon inspection. This may differ from the USPS address, but in most cases should be the same. If the address differs, appraiser comment is required.

8002.000

CLOSING REQUIREMENTS

 A fully executed Report and Certification of Loan Disbursement – VA Form 26-1820 must be included in the closing package http://www.vba.va.gov/pubs/forms/VBA-26-1820-ARE.pdf

o Section 6 stating the name and address of nearest living relative not living with the veteran must be completed for all VA loans – Spouse may not be listed as nearest living relative

o Active duty veterans must complete the active duty certification by checking the box located between item 27g and 28A on page 2 of the form

 A fully executed VA Origination Statement itemizing all of the fees from lines 801 and 1101 and all of the credits in section 200 of the HUD-I Settlement is required

o Complete VA Origination Statement.

 Interest credit allowed - Loan must close by the 7th calendar day of the month preceding the first payment date

 A minimum of 24 months chain of title as evidenced by the title commitment satisfactory to ResMac review

 Fully executed Undisclosed Debt Acknowledgement, is required at origination and closing for all loans  In addition to the Junior underwriter-performed VOE, a verbal VOE must be submitted with the

funding request.

o Verbal VOEs for hourly, salaried, or commission income borrowers must be completed within 3 business days of the note and must confirm the borrower is currently employed and must address the probability of continued employment. If the company representative states they do not perform verbal verifications, confirm borrower is still employed via a receptionist, phone extension directory and/or active voice mail box. If the company representative indicates they do not

comment on probability of continued employment, indicate that response on Verbal Verification of Employment.

o Verifications for active-duty military borrowers may be in the form of a military Leave and Earnings Statement (LES) dated within 30 days of closing.

o Verifications for self-employed borrowers must be within the most recent 30 days and must be obtained from a third party such as a CPA, regulatory agency or the applicable licensing bureau and verification of the business’ phone listing and address via phone book, the internet or directory assistance is also required

o Verification of employment/certification of non-employment income is required for all loans prior- to-funding and must be completed on Verbal Verification of Employment.

 For purchase transactions, VA does not permit the borrower to bring additional funds to close to pay any portion of the remaining lien(s) on behalf of the seller or short sale fees on behalf of the seller –

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For example, if the seller owes $120,000 on an existing property, and the sales price is $100,000, the borrower may not pay any portion of the remaining $20,000 on behalf of the seller

 A payoff statement must be included in all refinance transaction files and must be reviewed by the underwriter.

 All conditions must be collected and provided in the closing package

o Down payment assistance funds are typically wired to the closing agent – Wire transfer documentation must be included in the file prior to funding or purchase.

 For a borrower that is currently on Active Duty, the following are required:

o Active Duty borrower is required to provide a Certification of Continuous Service dated no earlier than the noted date as stated on the COE.

o Borrower to provide an Alive and Well statement at closing from the Commanding Officer.

o If the borrower is unmarried and deployed on active duty, provide verification from the borrower that the subject will be owner occupied within 1 year of closing.

 Any changes to loan amount, funding fee, cash-to-close, interest rate, points, PITI, etc. must be reviewed by underwriter prior to closing and disbursing loan

 Principal reductions are required when the total of lender and/or seller credits reflected on the HUD-I Settlement Statement exceeds the total of the actual closing costs, pre-paid expenses and discount points

 Principal reductions are required when the borrower receives any cash back at a purchase transaction closing

o Documented funds paid by the borrower outside of closing for items such as EMD or appraisal and credit report may be refunded by the borrower at closing

o Document funds paid outside of closing with one of the following:  Cancelled checks

 Bank statement showing transfer of funds

 Money order receipts and evidence of source of funds

 To ensure prompt loan approvals, ResMac requires verification of all EMD prior to closing  Principal reductions are required when the borrower is receiving more than $500 cash at closing on an

interest rate reduction refinancing loan. The principal reduction must include all cash back and not just the portion of cash back that exceeds $500. For example, if the HUD Settlement Statement indicates the borrower is receiving $626 cash back, a principal reduction in the amount of $626 is required. A principal reduction in the amount of $126 is insufficient.

 Closing documents must be signed and notarized on or before the closing date indicated on the closing documents, regardless of the state in which the property is located and/or whether it’s an escrow state.

 For properties located in California, interest may not be charged prior to loan disbursement unless disbursement of the closing funds occurs on a Monday or a day immediately following a bank holiday. If the interest is charged prior to disbursement, the loan closing package must contain a fully executed California Per Diem Letter. For additional information, refer to the Phoenix Regional Loan Center’s Loan Guaranty Bulletin 26-11-01.

 A fully executed Social Security Number Validation required in all closing packages

8003.000

ESCROW STATES

·Alaska · Arizona · California

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· Colorado · Hawaii ·Idaho ·Montana ·Nevada · New Mexico ·Oregon · Utah · Washington · Wyoming

8004.000

NOTARY POLICY

 Notaries may not be associated with the borrower or branch. Ineligible notaries include but are not limited to the following:

o Any employee of the branch, including but not limited to loan originators, processors, etc. (When closing loans in-house, banks and credit unions may use an employee to perform notary services)

o Any family member of one of the principal owners

o Anyone who receives funds, other than the notary fee, upon loan closing

 Loans that close with an unacceptable notary must be re-closed with a non-associated notary prior-to- funding

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9000.000

CO-BORROWERS

 See also Joint Loan Eligibility/Ineligibility

 Co-borrower must be Veteran’s spouse and/or eligible veteran OR loan requires prior approval by VA regional loan center having jurisdiction over the property.

 When co-borrower is not a veteran or the veteran borrower’s spouse, VA will guaranty only the veteran’s portion of the loan

o A down payment ≥ 25% of the non-veteran co-borrower’s portion of the loan is required

o If there is one co-borrower who is not the veteran’s spouse and is also not a veteran, the veteran’s “portion” of the loan is half of the loan amount.

o Combination of veteran’s entitlement plus down payment must be ≥ 25% of the total loan amount, including the financed funding fee.

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10000.000 COMPENSATING FACTORS

 Ratio guidelines may be exceeded when compensating factor(s) that support loan approval are documented in the file. The remarks section of Loan Analysis, VA form 26-6393 must contain the underwriter’s list of compensating factors that were used to justify approval. The following items are VA recognized compensating factors:

o Excellent credit history

o Conservative use of consumer credit

o Minimal debt

o Long-term employment

o Significant liquid assets

o Sizable down payment

o Equity position in refinance loans

o Minimal or no increase in monthly housing expense

o Military benefits

o Satisfactory homeownership experience

o High residual income

 For loans that exceed VA’s 41% total debt ratio guideline, residual income must be at least 20% more than the loan’s residual income requirement

 Supervisory underwriter signature and written justification required when ratio exceeds 41% but borrower’s residual income is < 120% of requirement

o Low debt-to-income ratio

o Tax credits for child care

o Tax benefits of homeownership

When any of the above factors have been evaluated by automated underwriting and the loan receives a “refer” response, automated underwriting has determined the compensating factor is not sufficient to render an “approve” or “accept” response. Alternative compensating factors must be provided for review.

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11000.000 CONDOMINIUMS

 For all VA loan purposes, condos, including site condos must be VA-approved

o Condominiums should not be appraised until the project and/or phase in which the unit is located is approved by VA

o Condominium projects denied by FHA or FNMA are ineligible  Condominiums located in Florida are subject to the following overlays:

o Purchases of new construction condos are permitted, provided the condominium was approved by VA and the borrower does not receive a gift, grant, down payment assistance and/or loan from family member for funds to close

o Refinances of new construction condominiums are ineligible

o Attached new construction PUDs that do not meet ResMac’s 70% presale requirement are not permitted

 Condominiums without Homeowner’s Associations are ineligible for ResMac financing

11001.000 CONDOMINIUM RESOURCES

VA Pamphlet 26-7, Chapter 16

http://www.hud.gov/offices/adm/hudclips/handbooks/lh95/26-7c16LH95.pdf

VA Approved Condo Search Engine

https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch

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12000.000 CONFLICT OF INTEREST

Transactions in which the realtor and the originator are the same individual are ineligible.

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13000.000 CREDIT HISTORY

Underwriters must address all recent derogatory credit and provide justification for loan approval, regardless of AUS

13001.000 CREDIT INQUIRIES

 Inquiries within the most recent 90 days must be explained in writing, regardless of AUS response  Fully executed Undisclosed Debt Acknowledgement is required at origination and closing for all loans

13002.000 “REFER” RESPONSES

 All “refer” response loans are reviewed on an exception basis, case-by-case.

13003.000 “REFER” RESPONSES – CREDIT EXPLANATIONS

 All “refer” response loans with derogatory credit data must contain a credit explanation letter at time of initial submission. The following must be explained:

o Late payments within the most recent two years

o Collections, chargeoffs, judgments, and public records, regardless of time frame

o Inquiries within the most recent 90 days

13004.000 NO CREDIT SCORE

 All borrowers are required to have a credit score of at least 620.

13005.000 DEBTS EXCLUDED FROM THE CREDIT REPORT

 Debts exceeding 2% of the stable monthly income for all borrowers but not appearing on the credit report must be verified by the creditor.

o If the debt is held by a private individual, 12 months canceled checks are required.

o If the loan receives an “approve” or “accept” response through automated underwriting but the payment history reflects more than 1 30-day late payment within the most recent 12 months, the loan must be downgraded to a “refer” response and manually underwritten

o The debt must be included as a liability in the ratio and residual income calculations

13006.000 FORECLOSURES

 The fact that a home loan foreclosure (or deed-in-lieu of foreclosure) exists in an applicant’s (or spouse’s) credit history does not in itself disqualify the loan:

o Develop complete information on the facts and circumstances of the foreclosure.

o Apply the guidelines provided for bankruptcies filed under the straight liquidation and discharge provisions of the bankruptcy law.

o If the foreclosed loan was a VA loan and VA took a loss, the Veteran’s entitlement for the property is not restored until VA is reimbursed for their loss. If the borrower’s Certificate of Eligibility indicates a foreclosure, VA permits the Veteran to use any remaining entitlement. If there is no remaining basic entitlement, the loan amount must be greater than $144,000.

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 Loans for borrowers having foreclosures within the most recent two years are rarely acceptable unless both of the following requirements are met:

o Borrower has obtained consumer credit with a satisfactory payment history over a continued period (at least one year)

o Foreclosure was due to documented extreme extenuating circumstances such as unemployment, prolonged strikes, medical bills not covered by insurance, etc. Divorce is not generally viewed as beyond the control of the borrower. When the foreclosure was related to failure of a self- employed business, the following must be documented:

Evidence that borrower is employed in a permanent position after business failure Evidence of no derogatory credit prior to self-employment

Evidence of no derogatory credit after the foreclosure

Evidence business failure was not due to borrower’s misconduct

 Loans for borrowers having foreclosures within the most recent 12 months cannot be approved  Defaulted time-share loans are considered foreclosures.

13007.000 SHORT SALES

 The borrower must have made all mortgage and installment payments within the month due for the 12 months prior to the short sale.

 The short sale must serve as payment in full on the existing lien(s) and the existing mortgage servicer may not require repayment of the difference between the mortgage balance and the short payoff.  Borrowers may not execute a short sale to take advantage of declining market conditions and

purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.  If a borrower was delinquent on the mortgage at the time of short sale, ResMac will not approve the borrower for VA financing for at least two years after the date of the short sale unless the borrower experienced significant extenuating circumstances and the loan receives and automated underwriting “approve” or “accept” response.

 Borrowers having short sales will be reviewed on a case-by-case basis if they also have a previous bankruptcy or foreclosure.

13008.000 CHAPTER 7 BANKRUPTCIES

 The fact that a bankruptcy exists in an applicant’s (or spouse’s) credit history does not in itself

disqualify the loan. Develop complete information on the facts and circumstances of the BK. Consider the reasons for the BK and the type of BK filing.

 Loans for borrowers having Chapter 7 bankruptcies within the most recent two years are rarely acceptable unless both of the following requirements are met:

o Borrower has obtained new consumer credit with a satisfactory payment history over a continued period (at least one year)

o Bankruptcy was due to documented extreme extenuating circumstances such as unemployment, prolonged strikes, medical bills not covered by insurance, etc. Divorce is not generally viewed as beyond the control of the borrower. When the Chapter 7 bankruptcy was related to failure of a self-employed business, the following must be documented:

Evidence that borrower is employed in a permanent position after business failure. Evidence of no derogatory credit prior to self-employment.

Evidence of no derogatory credit after the foreclosure.

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 Loans for borrowers having Chapter 7 bankruptcies within the most recent 12 months cannot be approved.

13009.000 CHAPTER 13 BANKRUPTCIES

 Must document at least one year into the payout plan has elapsed.  Must document satisfactory payment history.

 Must obtain court permission to enter into new mortgage.

 When the bankruptcy is still in repayment, include Chapter 13 payment in the debt ratio.

 If the borrower has satisfactorily completed the repayment, the borrower is considered to have re- established credit.

13010.000 CREDIT COUNSELING

 The following documentation is required if veteran entered credit counseling after becoming delinquent on one or more obligation. However, if borrower entered into credit counseling prior to incurring delinquent credit, credit counseling is treated as a neutral or positive factor.

o Must document at least one year into the payout plan has elapsed

o Must document satisfactory payment performance

o Must document the debts/trade lines included in the payment plan

o Must obtain counseling agency permission to enter into new mortgage

13011.000 JUDGMENTS

 Judgments must be paid in full prior to closing unless the borrower is in a re-payment plan – Provide the following:

o Fully executed repayment agreement

o Evidence timely payments have been made (Evaluated on a case-by-case basis generally for a minimum of a 12-month period) - Payment must be included in ratios when qualifying borrower  Judgments belonging to a non-purchasing spouse in a community property state are subject to all of

the above requirements.

13012.000 DEFAULTED CAIVR NUMBERS

 Credit Alert Interactive Voice Response System (CAIVRS) verification required for all borrowers and non-borrowing spouses in community property states

 If the borrower or non-borrowing spouse is currently delinquent on any federal debt, VA mortgage, Title I Loan, Federal student loan, SBA loan, Federal taxes or has a lien against the property for debt owed to the United States, the borrower is not eligible until the delinquent account is brought current or satisfactory payment arrangements have been made. If the debt owed to the federal government is a judgment lien against the property, it must be satisfied. The borrower’s CAIVR number is preceded by one of the following codes indicating whether the borrower has an acceptable CAIVR number or the type of loan default:

o A – Clear (this indicates the borrower has no delinquent Federal debt)

o B – Bankruptcy

o C – Claim

o D – Default

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o F – Foreclosure

o J – Department of Justice

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14000.000 CREDIT REPORTS

 All credit reports must be imported to Point and Marti, including credit reports for IRRRL transactions

14001.000 AGE OF CREDIT REPORTS

 All credit reports must be tri-merge credit reports or Residential Mortgage Credit Reports

 Credit reports must be dated within 60 days of underwriting and must be dated within 90 days of the note

 To achieve ResMac’s and VA’s minimum credit requirements, a new credit report may be re-pulled after a borrower has repaired derogatory credit, and ResMac will honor the new credit score. The new credit report must be imported to Point.

 The following credit report discrepancies require a new credit report:

o Social Security number is incorrect

o Last name is incorrect

o Middle initial is incorrect

o Misspelled first names and/or missing or incorrect suffixes (Jr./Sr.) require a new credit report unless the name variation appears in the AKA section of the credit report

14002.000 OFAC

 Credit report must contain Office of Foreign Assets Control (OFAC) screening

 If credit report indicates a potential OFAC match, the credit report must be e-mailed to

[email protected] for review by ResMac’s Compliance Department – The loan may not close

without clearance from ResMac’s Compliance Department (violation of this policy is a federal crime).

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15000.000 CREDIT SCORES

15001.000 MEDIAN CREDIT SCORE (REPRESENTATIVE CREDIT SCORE)

The following methodology is used to determine a borrower’s representative credit score:

o Three Scores – Use the middle credit score

o Two Scores – Use the lowest credit score

o One Score – Use that score

15002.000 MINIMUM CREDIT SCORES

 Fixed Rate Mortgage

o Purchases – 620

o IRRRLs - 620

o Cash-Out refinances

 Borrower does not receive cash-out or consolidate non-mortgage debt – 620  Borrower receives cash back and/or consolidate non-mortgage debt:

oSingle family residence – 620

o2 units – 660

o3-4 unit properties are ineligible  Adjustable Rate Mortgage

o Purchases – 640

o IRRRLs - 640

o Cash-Out refinances

 Borrower does not receive cash-out or consolidate non-mortgage debt – 640  Borrower receives cash back and/or consolidate non-mortgage debt:

oSingle family residence – 640

o2 units – 660

o3-4 unit properties are ineligible

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16000.000 DECLINING MARKETS

At this time, there are no declining market restrictions

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17000.000 DISCLOSURES/FORMS

17001.000 REQUIRED DISCLOSURES AND FORMS

 Refer to Government Forms and Disclosures

 A fully-executed VA Origination Statement itemizing all of the fees from lines 801 and 1101 and all of the credits in section 200 of the HUD-I Settlement Statement is required

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18000.000 DOWN PAYMENT

 No minimum down payment or cash investment required unless:

o Veteran’s available entitlement is less than 25% of the total loan amount, including funding fee or

o Co-borrower is not a veteran or the spouse of the veteran borrower

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19000.000 DOWN PAYMENT ASSISTANCE

 Government Entities – VA approval not required when administered by state, county or municipal government.

 Private Entities – Regional Loan Center review and approval required. Submit the following documents to the Regional Loan Center having jurisdiction over the state in which the property is located:

o Program description

o Samples of all documents

 Regardless of source of down payment assistance, only grant funds may be used to pay the difference between purchase price and appraised value if the purchase price exceeds the appraised value – secondary financing, including a silent second is not permitted for the difference between sales price and appraised value.

 Down payment assistance funds are typically wired to the closing agent – Wire transfer documentation must be included in the file prior to funding.

19001.000 DOWN PAYMENT ASSISTANCE RESOURCES

VA Circular 26-08-14– VA Acceptance of Homebuyer Assistance Programs

http://www.benefits.va.gov/homeloans/documents/circulars/26_08_14.pdf

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20000.000 ELECTRONIC SIGNATURES

ResMac does accept Electronic Signatures on origination document. At the underwriter’s discretion, we may require corrected documentation on any program type at any time.

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21000.000 EMPLOYMENT/INCOME

21001.000 INCOME DOCUMENTATION

 Income documentation requirements for AUS “approve” or “accept” responses and for manually underwritten loans are listed in VA Pamphlet 26-7, Section 8, Documentation for Automated Underwriting Cases and VA Circular 26-12-6 – Credit Policy Updates

http://www.benefits.va.gov/homeloans/documents/circulars/26_12_6.pdf

o While VA no longer requires a pay stub if the lender obtains a full VOE containing all required information, ResMac requires a pay stub

 If the property is located in a presidentially declared disaster area, and the disaster was declared by the President prior to the loan closing, the underwriter must determine the borrower remains employed and income has not declined as a result of the disaster or any other factors

21002.000 NON-MILITARY INCOME

 Borrowers with non-military employment must have a two-year history of employment prior to application

o Verify all employment within the most recent two years

21003.000 CURRENT EMPLOYMENT < 12 MONTHS

 Current employment less than 12 months is generally not considered stable and reliable. The following must be evaluated:

o Employer’s written statement of the probability of continued employment, if provided

o Applicant’s training and/or education related to the duties of the current position – This generally applies to skilled positions: nurses, medical technicians, lawyers, paralegals, computer systems analysts, etc.

o Underwriter must provide justification in writing on the Loan Analysis, VA Form 26-6393 for use of income from a borrower employed by his or her current employer less than 12 months -

http://www.vba.va.gov/pubs/forms/VBA-26-6393-ARE.pdf

21004.000 JOB CHANGES

 Frequent job changes for career advancement in the same or related field are acceptable – Borrower should be employed by current employer for the most recent 12 months unless there is strong justification provided by the employer for use of income.

 Frequent job changes from one field to another and/or that do not improve the borrower’s position are not acceptable without strong justification. Underwriter explanation must accompany the file

21005.000 DISABILITY INCOME

 VA disability income may be used to calculate the veteran’s ratio and residual income. When the amount of disability income is displayed on the Certificate of Eligibility, no further documentation is required

 Long term disability income used for qualification purposes must continue for at least three years after closing. The file must contain evidence of the amount of disability income and evidence of continuance

(47)

o To avoid any fair lending of HIPAA Privacy related violations, letters from doctors or evidence of specific medical conditions should never be requested.

 Social Security Disability income is the only disability income exempt from evidence of continuation  Short term disability income may not be used to calculate the borrower’s ratio or residual income

21006.000 MATERNITY LEAVE

 A borrower’s regular, stable income may be considered as acceptable income when a maternity leave occurs. The employer must state in writing on their letterhead that the borrower’s employment and wages will not be adversely affected and will be available when the borrower returns to work. The borrower must state in writing his or her intent to return to work.

21007.000 ACTIVE-DUTY MILITARY INCOME

 Obtain borrower’s Leave and Earnings Statement (LES)

 For active duty veterans, the ETS (Expiration of Term of Service) date must be at least 12 months after loan closing. If the active duty veteran’s ETS date is within 12 months of the closing date or the

borrower is a Reservists or National Guard veteran, regardless of remaining ETS, one of the following is required:

o Documentation that active-duty service personnel has re-enlisted or extended period of active duty beyond 12 months after closing

o A written statement from active-duty service personnel that he or she intends to re-enlist or extend period of active duty 12 months beyond closing and a written statement from

commanding officer stating active-duty service personnel is eligible to re-enlist and commanding officer has no reason to believe re-enlistment will not be granted

o Evidence of a valid offer of local civilian employment following release from active duty – Employer must document the following:

 Date employment will begin  Earnings, etc.

 If the ETS field on the Leave and Earnings Statement reflects “9999,” evidence of 12 months remaining enlistment must be obtained from the veteran’s commanding officer.

 Leave and earnings statements for officers will not have a date in the ETS field. The ETS field will be blank or contain “XXXX” - No documentation of remaining length of service is required.

 Explanation and documentation of allotments listed on the LES is required. Allotments that are obligations and/or debts must be included in the borrower’s liabilities. Small allotments need not be explained and/or counted as a liability. Bank allotments that are deposits to checking and/or savings accounts are not a liability.

 In addition to base pay, active-duty military personnel receive various allowances and pays –

allowances and pays may be included in income calculation when they are expected to continue due to the military personnel’s duty assignment

o Allowances are non-taxable (clothing allowance is reflected on LES as an annual figure – divide by 12 to determine monthly amount)

VA Underwriting Guidelines. v