100 CONVENTIONAL UNDERWRITING GUIDELINES

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E MORTGAGE MANAGEMENT, LLC

100 CONVENTIONAL

UNDERWRITING

GUIDELINES

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E Mortgage Management, LLC

Lender NMLS 2926. This document is intended for use only by E Mortgage Management, LLC and its business partners. It may not be distributed without express, written consent of E Mortgage Management, LLC.

Last Updated 05/29/2015 Page 1

101 Eligible Transactions ... 4

101.1 Occupancy Types ... 4

101.2 Purchase Transactions ... 6

101.3 Refinance Requirements ... 8

101.4 Purchase or Refinance of Inherited Property ... 12

101.5 Contributions ... 12

101.6 Subordinate Financing ... 13

101.7 Prepaid Charges ... 15

101.8 Tax and Insurance Escrows ... 15

101.9 Mortgage Insurance ... 16

101.10 Higher-priced Mortgage Loans (new) ... 17

101.11 Mortgage Credit Certificates ... 17

101.12 Relocation Loans ... 18

101.13 Permanent Financing for New Construction ... 19

101.14 REO Contracts... 22

102 Documentation Requirements ... 22

102.1 Age of Documents ... 22

103 Borrower Guidelines ... 23

103.1 Inter Vivos Revocable Trust ... 23

103.2 Permanent Resident Aliens ... 25

103.3 Non-permanent Resident Aliens ... 26

103.4 Foreign Nationals ... 27

103.5 Diplomatic Immunity ... 27

103.6 Non-occupant Co-borrower ... 27

103.7 Non-borrower Spouse or Domestic Partner ... 29

103.8 Separated Borrowers ... 29

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103.10 Social Security Number ... 29

104 Credit Report and Credit Score ... 30

104.1 Merged Credit Reports ... 30

104.2 Residential Mortgage Credit Report (RMCR)... 30

104.3 Credit Report Alerts ... 30

104.4 Credit Report Standards ... 31

104.5 Non-Traditional Credit Report ... 32

104.6 International Credit Report ... 32

104.7 Credit Scores ... 33

104.8 Bureaus Reporting ... 33

104.9 Selection and Validation of Credit Score ... 33

105 Credit History ... 35

105.1 Inquiries and Undisclosed Liabilities ... 35

105.2 Credit History Review ... 36

105.3 Payment History ... 36

105.4 Housing Payment History ... 36

105.5 Adverse Credit... 37

105.6 Requirements for Reestablishing Credit ... 39

105.7 Significant Inaccurate Credit ... 40

105.8 Disputed Credit Obligations ... 40

106 Debt Ratios and Tradelines ... 40

106.1 Housing-To-Income Ratio ... 40

106.2 Debt Ratio Calculations ... 41

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E Mortgage Management, LLC

Lender NMLS 2926. This document is intended for use only by E Mortgage Management, LLC and its business partners. It may not be distributed without express, written consent of E Mortgage Management, LLC.

Last Updated 05/29/2015 Page 3

106.10 Contingent Liabilities ... 43

106.11 Authorized User Accounts ... 44

106.12 Past Due Accounts ... 45

106.13 Incorrect Information ... 45

107 Employment and Income ... 46

107.1 Employment ... 46

107.2 Documentation Types ... 47

107.3 Income Types ... 51

107.4 Rental Income ... 56

107.5 Departure Residence ... 62

107.6 Non-employment Income and Other Income Types ... 64

108 Assets, Reserves, and Funds to Close ... 75

108.1 Minimum Down Payment ... 75

108.2 Assets for Down Payment and Closing Costs ... 75

108.3 Reserves ... 85

108.4 Gifts ... 86

108.5 Other Asset Types ... 88

108.6 Real Estate Owned ... 96

108.7 Unacceptable Sources of Assets ... 98

109 Property and Appraisal... 99

109.1 Appraiser Requirements ... 99

109.2 Appraisal Document Standards ... 99

109.3 Appraisal Evaluation ... 104

109.4 Additional Review Considerations by Property Type ... 107

109.5 Non-permitted Additions ... 110

109.6 Zoning ... 111

109.7 Condominium and PUD Warranties ... 114

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101

ELIGIBLE TRANSACTIONS

Occupancy Types

101.1

The feasibility of a borrower occupying the subject property must be examined when the borrower indicates the property will be his or her primary residence. On refinance transactions, compare the current address reported on the loan application to the addresses listed on the credit report. A full explanation is required for any red flags or inconsistencies noted in the last 24 months.

101.1.1 Primary Residence

A primary residence is a one- to four-unit property that at least one borrower occupies as his or her primary residence. Residency is defined by the following criteria:

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Borrower occupies the property as his or her primary residence

•

Borrower occupies the property for the majority of the year

•

Property location is convenient to the borrower's principal place of employment Property address of record can be documented by, but is not limited to, one of the following:

•

Personal income tax returns

•

Voter registration

•

Driver's license

•

Occupational licensing

At least one borrower must occupy the property within 60 days of closing and continue to occupy the subject property for at least one year.

An Occupancy Certification is required when the AUS issues an Occupancy Finding or at the underwriter’s discretion. Borrowers may be required to certify occupancy for second homes at the underwriter’s discretion. In addition, loan documents must provide that the loan may be declared in default if the borrower makes misrepresentations for any provision of the application, including occupancy.

The following restrictions apply to primary residence transactions:

• Multiple primary residence purchases within the past 12 months will be considered on a case-by-case basis when the borrower has satisfactorily explained and documented the following:

- The reason the current home is no longer owner occupied - The motivation to occupy the subject property

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Section 102 Documentation Requirements

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This document is intended for use only by E Mortgage Management, LLC and its business partners. It may not be distributed without express, written consent of E Mortgage Management, LLC. EMM Wholesale Lending is a division of E Mortgage Management, LLC. Last Updated: 05/29/2015 ©2013 - E Mortgage Management, LLC Page 5

101.1.2 Second Home

A second home is a one-unit property that the borrower occupies for some portion of the year in addition to his or her primary residence.

Often located in a vacation/resort area, the property must be suitable for year-round occupancy and must not be located in the same market area as the borrower's primary residence. Second homes may be located in a major metropolitan area that the borrower visits on a regular basis. Obtain a letter of explanation from the borrower stating the reason that the home is not located in a vacation/resort area.

Transactions where the property is being purchased for occupancy by someone other than the borrower will be treated as an investment property.

The borrower must have exclusive control over the property and the property may not be subject to any kind of time sharing agreement, rental pools, or agreements that require the borrower to rent, share or give a management firm control over occupancy.

Rental income may not be used to qualify the borrower. The loan is not eligible if borrower’s tax returns reflect occasional seasonal rental income, even if the income is not used to qualify the borrower and the rental period is for a negligible amount of time. The hazard insurance policy may not contain rent loss coverage.

101.1.3 Investment Property

An investment property is a one- to four-unit property owned but not occupied by the borrower, regardless of revenue generation. The property must be suitable for year-round rental and occupancy.

Refer to Employment and Income Rental Income in this guideline section for additional requirements.

101.1.4 Product Restrictions for Multiple Financed Investment Properties

The subject investment property must be secured by one of the following mortgage products when the borrower owns more than one financed one- to- four-unit investment property.

•

15-year, 20-year or 30-year fixed rate mortgage, or

•

7/1 or 10/1 ARM

Reserve Requirements

Refer to Assets, Reserves, and Funds to Close Reserves Multiple Financed Properties in this guideline section for requirements.

Documentation Requirements

An Operating Income Statement (Form 998/Form 216) is required at underwriting whether or not rental income is used for qualifying. The gross monthly rent per unit is mandatory with two- to four-unit primary residences and all investment properties on conventional loans.

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Purchase Transactions

101.2

A purchase money transaction is one in which the proceeds are used to finance the acquisition of a property. The proceeds from the transaction must be used to:

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Finance the acquisition of the subject property

•

Convert an interim construction loan or term note into permanent financing

•

Pay off the outstanding balance on the installment land contract or contract for deed

Purchase transactions do not allow for cash back to the borrower at closing. If the borrower receives a refund of the original cash deposit at closing, evidence of payment of the deposit is required (e.g., cancelled check). Unless restricted by the loan program, the borrower may receive cash back for prorated taxes at closing.

Within limitations imposed by applicable state laws, closing costs may not be financed as part of a purchase transaction (with the exception of mortgage insurance).

Complete purchase agreements, including all addenda, are required for all purchase transactions. Purchase agreement terms must be considered in the underwriting decision and any evidence of undisclosed conditions of the transaction must be investigated.

Examples of undisclosed conditions are evidence of straw buyers (changes in purchaser on the purchase agreement) or possible undisclosed seller concessions, such as making mortgage payments on behalf of the borrower for the first few months of the loan. Loans where the purchase agreement has been assigned are not eligible.

101.2.1 Owner of Record and Chain of Title

• The seller must be the owner of record.

• Proof the property seller has owned the property for 24 months or a chain of title for the last 24 months is required. Acceptable sources for the chain of title include copies of recorded deeds, tax statements, or a 24-month chain of title on the title commitment.

- A transaction where the property has been sold within the last 12 months requires scrutiny to

ensure the transaction is legitimate. Some characteristics of fraudulent transactions include but are not limited to foreclosure bailouts, distressed sales, and inflated values due to stated improvements that are unsupported.

• Where the seller is not the current owner, all intervening purchase agreements must be submitted and carefully reviewed to ensure any price increases are supported by data. Where the seller is the current owner, ensure the sales history of the subject is adequately disclosed on the appraisal and any price increases are supported.

• If the seller is a corporation, partnership, or any other business entity, ensure the borrower is not an owner of the business entity selling the subject property.

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101.2.2 Non-Arm's Length Transactions

A non-arm's length transaction exists when the borrower has a direct relationship or business affiliation with the builder, developer or property seller. Extra diligence should be exercised when there are interested parties to the transaction, other than the builder, developer, or property seller (e.g., broker, loan officer, client, etc.).

• These transactions are not intended to bail out a family member or the current owner from an existing delinquent mortgage. When individuals wish to purchase or refinance property currently or recently owned by an individual with whom they have an established relationship the Title Commitment may not evidence foreclosure proceedings or Notice of Default/Notice of Intent to Foreclose.

- A 12-month mortgage history from the property seller is required to confirm the subject

transaction is not a bailout or partial bailout.

- A field review will be ordered by EMM.

• When the seller is a corporation, partnership, or any other business entity, the borrower may not have an ownership interest in the business entity selling the subject property.

• Second homes and investment properties are not eligible.

101.2.3 Property Resales

Properties being resold with 180 days of the previous sale are subject to the following restrictions: • Non-arm’s length transactions are not eligible.

• In addition to a standard appraisal, a 2055 exterior-only (drive-by) appraisal is also required if the current sales price is more than 20 percent greater than the previous sales price.

101.2.4 Title Restrictions

Loans with the following title restrictions are not eligible for financing at EMM: • Private Transfer Fee Covenants

• Title encumbrances preventing EMM from taking first position

101.2.5 Sales Contract Changes

EMM does not accept re-negotiated purchase agreements that increase the sales price after the original appraisal has been completed if:

• The appraised value is higher than the contracted sales price provided to the appraiser, and • The new purchase agreement and/or addendum used to modify the sales price is dated after the

appraisal is received, and

• The only change to the purchase agreement is an increase in sales price.

If the purchase agreement is re-negotiated subsequent to the completion of the appraisal, then the LTV calculation is based on the lesser of the original purchase price or the appraised value, unless:

• Re-negotiation of only seller paid closing costs and/or pre-paid costs where seller paid closing costs/pre-paid costs are common and customary for the market and supported by the comparables, or

• An amended purchase agreement for new construction property is obtained due to improvements that have been made that impact the tangible value of the property. In the event of such changes, an updated appraisal must be obtained to confirm the value of the modifications.

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Refinance Requirements

101.3

101.3.1 Less Than One Year of Seasoning

The underwriter should analyze transactions involving the payoff of a first lien that has been seasoned for less than one year.

If the first lien being paid off was a purchase transaction, and the original purchase price, as stated on the application, is less than the new appraised value the file should contain documentation supporting the increase in value (e.g. appraisal indicates increasing values for the market, appraisal comparable support increasing values, documented home improvements, or a copy of the original appraisal showing the original appraised value higher than the original sales price).

If the increase in value is unsupported, the underwriter should use the lower of the original purchase price or the new appraised value to determine LTV/TLTV/CLTV.

If the underwriter has knowledge that the first lien being paid off was a cash-out refinance transaction with an LTV greater than 80%, the new loan will not be eligible for rate/term refinance parameters. Provide the HUD-1 from the previous loan.

101.3.2 Rate/Term Refinance

EMM will consider transactions meeting the following criteria to be rate/term (i.e., limited cash-out) refinances: • If the last transaction on the property was a cash-out refinance within the last six months, the new

mortgage must be treated as a cash-out refinance. Use Note date to Note date to calculate the six months.

• Pay off existing first lien

- Principal balance plus accrued interest, and any required prepayment penalty, only; other costs

such as late fees and past-due amounts may not be paid with the new loan

- Seasoning requirement-

o DU loans- no seasoning requirement

o LP loans- minimum 120 days (Note date to Note date)

- If the first mortgage is a Home Equity Line of Credit (HELOC), then a copy of the HUD-1 Settlement

Statement from the borrower’s purchase of the subject property must be provided evidencing the proceeds were used in their entirety to acquire the subject property

• Pay off any subordinate mortgage lien that was used in its entirety to acquire the subject property-

- Principal balance plus accrued interest, and any required prepayment penalty, only; other costs

such as late fees and past-due amounts may not be paid with the new loan

- No seasoning requirement

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• Continuity of obligation must be established.4

• Loan meets requirements for properties listed for sale 5

1

If a particular state law does not allow a lender to require an escrow account under certain circumstances, loan proceeds may be used to pay property taxes more than 60 days delinquent without establishing an escrow account. Refer to Eligible Transactions Tax and Insurance Escrows in this guideline section.

2 _{Refer to Eligible Transactions}

Refinance Requirements Buyout of a Co-owner below for requirements.

3

Refer to section 303 DU Refi Plus and 306 Open Access for product-specific cash out restrictions.

4

Refer to Eligible Transactions Refinance Requirements Continuity of Obligation in this guideline section for requirements.

5 _{Refer to Eligible Transactions}

Properties Recently Listed for Sale in this guideline section for requirements.

Refer to Fannie Mae Seller Guide B2-1.2-02 Limited Cash-Out Refinance Transactions for information regarding ineligible limited cash-out refinance transaction types.

Short Term Refinance

A short-term refinance mortgage is a loan that combines an existing first mortgage and a non-purchase money subordinate mortgage into a new first mortgage within six months of closing the prior transaction or a previous transaction was a out refinance transaction. A short-term refinance is ineligible for a no cash-out refinance transaction and must be considered a cash-cash-out refinance. A HUD-1 Settlement Statement is required for any transaction within the previous six months to determine eligibility.

Buyout of a Co-owner

A refinance transaction that results in a buyout of the other party's interest in his or her primary residence is considered a no cash-out refinance, e.g., divorce settlement, or buyout of a sibling, etc. Refinance to buyout a co-owner or ex-spouse is permitted provided:

• Maximum LTV is 90%

• All parties have jointly owned the subject property for 12 months preceding the application date. Parties who inherit an interest in the property do not have to satisfy this requirement.

• All parties are able to demonstrate they occupied the subject property as their primary residence (e.g., driver's license, bank statement, credit card bill, utility bill, etc. mailed to the individual at the subject property). Parties who inherit an interest in the property do not have to satisfy this

requirement.

• All parties provide a signed, written agreement (divorce decree, separation agreement or buy-out agreement) outlining the terms of the property transfer and disposition of proceeds.

• The owner-occupant borrower who acquires sole ownership of the property receives no cash proceeds from the transaction.

• The party who is buying out the other party's interest qualifies using only his/her own income.

101.3.3 Cash-out Refinance

Any refinance transaction not meeting the requirements for a rate/term refinance is treated as cash-out. Cash-out refinances are eligible provided:

• At least one borrower on the current transaction has owned the property for a minimum of six months. Use Note date to Note date for the calculation and refer to Delayed Financing below for additional information. A borrower that inherits or was legally awarded (by divorce, separation, or dissolution of

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a domestic partnership) a property is exempt from the 6-month waiting period requirement that applies to cash-out refinances.

• Mortgage payment history is 0 x 30 for the lesser of the last 12 months or the life of the loan. • The new loan amount cannot include financing of real estate taxes that are more than 60 days

delinquent, unless an escrow account is established (except if establishing an escrow account is not permitted by applicable law). Refer to Eligible Transactions Tax and Insurance Escrows in this guideline section.

• No limit on cash out (refer to 304 Fannie Mae High Balance for separate product-specific guideline) • Pay off a non-purchase second lien

• Pay off tax liens, judgments, borrower liabilities, etc.

• LP loans- borrowers must have owned the property a minimum of six months (unless the transaction meets requirements for delayed financing. Use settlement date on HUD-1 for the purchase

transaction to application date for subject transaction. • Delayed financing (see below)

Texas Cash-out Refinance

Texas cash-out and (a)(6) refinance transactions are eligible. Refer to product guidelines for requirements. Delayed Financing

Borrowers who purchased the subject property less than six months prior to the application date are eligible for a cash-out refinance provided-

• New loan amount is not greater than the borrower’s documented initial investment in purchasing the property plus any financed closing costs, prepaid costs, and points.

• Cash out does not exceed borrower’s initial investment • Original purchase transaction was an arm's length transaction.

• If the seller is an LLC, documentation reflecting the names of the LLC’s principals is included in the loan file.

• HUD-1 in file confirms the purchase was an all-cash transaction.

• LTV/CLTV/HCLTV is based on the lesser of the original sales price or the current appraised value. • Source of funds for the purchase transaction is documented in the loan file.

• The preliminary title search or report does not reflect any existing liens on the subject property. • If the source of funds to acquire the subject property was an unsecured loan or HELOC secured by

another property, the new HUD-1 Settlement Statement must reflect that source* being paid off with the proceeds of the new refinance transaction.

*Note- Funds received as gifts and used to purchase the property may not be reimbursed with

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•

EMM will close loans if the subject property was listed for sale within the last six months but was taken off the market prior to the application date.

Cash-Out Refinance

• EMM will not close a loan transaction where the subject property was listed for sale at the time of application.

• EMM will close conforming cash-out refinance transactions where the subject property was listed for sale within the last six months prior to the loan application date provided-

- The property was taken off the market prior to the application date; and - The maximum LTV/TLTV/CLTV is the lesser of 70 percent or the maximum for

product/occupancy/property type.

Note- A cash-out refinance transaction without an appraisal is not eligible when the property is listed for sale.

101.3.5

Short Refinance

Short refinances or restructured mortgage loans are not eligible for subject property currently owned by borrower.

101.3.6

Continuity of Obligation

There must be continuity of obligation if there is currently an outstanding lien that will be satisfied with the refinance transaction. Loans with an acceptable continuity of obligation may be underwritten as either a rate/term or a cash-out refinance transaction. Continuity of obligation is now measured from date of the original event (for example, transfer of title) and ends with the disbursement date of the new refinance transaction.

Acceptable Continuity of Obligation

Continuity of obligation is met when any one of the following exists:

•

At least one borrower obligated on the new loan was also a borrower obligated on the existing loan being refinanced.

•

The borrower has been on title and residing in the property for at least 12 months and has either paid the mortgage for the last 12 months or can demonstrate a relationship (relative, domestic partner, etc.) with the current obligor.

•

The loan being refinanced and the title to the property are in the name of a natural person or limited liability company (LLC) as long as the borrower was a member of the LLC prior to transfer. Title should not be transferred back to the LLC after closing. Transfer of ownership from a corporation to an individual does not meet the continuity of obligation requirement.

•

The borrower has recently inherited or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).

Not Acceptable Continuity of Obligation

If the borrower is currently on title but is unable to demonstrate an acceptable continuity of obligation, or there is no outstanding lien against the property, the loan is still eligible as a cash-out refinance transaction with these additional limits:

• No outstanding liens (i.e., purchased for cash or previous mortgage loans that have been paid off)

- If the property was purchased within the 6 to 12 month period prior to the application date,

the LTV/CLTV/HCLTV ratios will be based on the lesser of the original sales price/acquisition cost (documented by the HUD-1 Settlement Statement) or the current appraised value.

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- If the property was purchased more than 12 months prior to the application date, the current

appraised value will be used to calculate the LTV/CLTV/HCLTV ratios. • Outstanding liens with no continuity of obligation

- If the borrower has been on title for at least 6 months but continuity of obligation does not

exist, the maximum LTV/CLTV/HCLTV ratios will be limited to 50 percent based on the current appraised value.

Purchase or Refinance of Inherited Property

101.4

Inherited properties are eligible for all occupancy types. The following limitations apply if the subject property was inherited within the prior 12 months:

• Must have clear title or copy of probate showing that the borrower was awarded the property.

• The transaction may be considered a no cash-out refinance when buying out additional heirs identified in the will or probate document. A copy of the will or probate document must be provided, along with the buy-out agreement signed by all beneficiaries.

Contributions

101.5

101.5.1

Interested Party Contributions

Interested party contributions (IPCs) are costs that are normally the responsibility of the property purchaser that are paid directly or indirectly by someone else (e.g. the seller) who has a financial interest in, or can influence the terms and the sale or transfer of, the subject property.

Because the interested party has a financial interest in or can influence the terms and the sale or transfer of the subject property, interested party contributions are limited. Refer to the table below for limits.

Interested parties to a transaction include the property seller, the builder/developer, the real estate agent or broker, or an affiliate who may benefit from the sale of the property and/or the sale of the property at the highest price possible. A lender or employer is not considered an interested party to a sales transaction unless it is the property seller or is affiliated with the property seller or another interested party to the transaction.

IPCs are either financing concessions or sales concessions. The following are considered to be IPCs: • funds that are paid directly from the interested party to the borrower;

• funds that flow from an interested party through a third-party organization, including nonprofit entities, to the borrower;

• funds that flow to the transaction on the borrower’s behalf from an interested party, including a third-party organization or nonprofit agency; and

• funds that are donated to a third party, which then provides the money to pay some or all of the closing costs for a specific transaction.

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101.5.3 HUD-1 Review

To ensure that all fees, disbursements and charges reflected on the settlement statement were fully disclosed in the purchase agreement and available to the appraiser for consideration in determination of the property’s market value, review of both the borrower’s and seller’s side of the HUD-1 is required. Disbursements on the seller side of the HUD-1 to the borrower or an entity controlled by the borrower, or to a company owned by the seller require additional consideration.

EMM considers real estate commissions to include the commissions appearing in on page two of the HUD-1 (700 series section), as well as any non-lien related disbursements such as marketing expenses, finder’s fees, referral fees, consulting fees or assignment of sale fees. Any combination of these disbursements to exceeding 8% of the sales price must be treated as a sales concession and deducted dollar-for-dollar from the sales price for calculation of the LTV.

Subordinate Financing

101.6

Subordinate financing is permitted on most EMM loan programs. There are two types of subordinate financing: • Home Equity Line of Credit (HELOC): a mortgage loan that allows the borrower to obtain multiple

advances from a line of credit at his/her discretion and that is typically in a subordinate position.

• Closed End Loan: a mortgage providing a single advance of funds at the time of loan closing and that is not eligible for additional draws.

101.6.1 Subordinate Financing Terms

For transactions including subordinate financing, the following requirements apply for both HELOC and closed end loans:

• The maximum LTV/CLTV may not exceed the guideline limits for the product and occupancy type shown in the product guidelines.

• If there is/will be an outstanding balance at the time of closing, the payment on the subordinate financing must be included in the calculation of the borrower's debt-to-income ratio(s).

• Negative amortization is not permitted; scheduled payments must be sufficient to cover at least the interest due.

• Equity share or shared appreciation is not eligible.

• Subordinate financing from the borrower's employer may not include a provision requiring repayment upon termination. Must also be part of the benefits package and available to all employees. A copy of the benefits package from the HR department should be obtained.

• Subordinate financing from the property seller (seller carry-back, including any property seller or other private party-carried financing) is not permitted.

Note- CLTV ratio for conforming loans is equal to the HCLTV ratio. It is calculated by adding the HELOC

credit line limit (rather than the amount of the HELOC in use) to the first mortgage amount, plus any other subordinate financing, and dividing that sum by the value of the mortgaged premises.

Closed End Second Terms

For new closed end subordinate financing the following also apply:

• Maturity date or amortization basis of the junior lien must not be less than five years after the Note date of the first lien mortgage, unless the junior lien is fully amortizing

• The loan may not have a balloon or call option within five years of the date of the Note for the subject transaction.

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HELOC Terms

The terms of a HELOC may not provide for a balloon or call option within the first five years after the Note date of the subject transaction first mortgage.

DU loans- refer to Fannie Mae Seller Guide Subordinate Financing for additional requirements. LP loans- refer to Freddie Mac Seller Guide Secondary Financing and Other Financing Agreements for additional requirements.

101.6.2 Acceptable Documentation

The terms of any subordinate financing must be verified. The following sources of verification are acceptable: • Existing subordinate loans (loans that will be re-subordinated):

- Copy of the mortgage Note (the Note is required for all transactions) and - Copy of the credit report, or

- Direct verification from the lender, or - Copy of the loan statement

Note- If an existing HELOC is reduced without modifying the original Note, the original line limit must be used

to calculate the Combined-Loan-to-Value ratio. New Loans

New subordinate loans obtained prior to or at closing: • Copy of the Note (required for all transactions) and • Direct verification from the lender, or

• Copy of the commitment letter from the lender, or • Copy of the HUD-1 evidencing proceeds

Note-• Whether subordinate financing is existing or new, a full underwrite of the documentation provided is required to ensure the subordinate financing meets the requirements identified in this section.

• If the subordinate lien’s terms cannot be verified in their entirety with a single source of verification, the use of a combination of the above documentation options is acceptable.

• If the subordinate financing is a community second or affordable second, it must comply with Fannie Mae and Freddie Mac requirements.

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Prepaid Charges

101.7

Prepaid settlement costs, normally paid by the borrower, are: • Interest charges covering any period after the settlement date • Real estate taxes covering any period after the settlement date • Hazard insurance premiums

• The escrow accruals required for the renewal of the MI premium

Any amount that the property seller pays towards prepaid costs is included in the seller contribution limitations. Any amount that the borrower's employer pays towards prepaid costs is not included in the seller contribution limitations.

The property seller (or the borrower's employer) may pay the following prepaid costs: • Interest charges covering any period after the settlement date

• Real estate taxes covering any period after the settlement date • Hazard insurance premiums

• Escrow accruals required for renewal of the MI premium

• HOA dues paid directly to the homeowners association for future dues* * LP loans- Property seller may not pay future HOA dues.

Any amount that EMM or the property seller pays towards these prepaid items is included in the seller contribution limitations. Any amount funded by the borrower's employer is excluded from the seller contribution limitations.

Lender Contributions

Any amount that EMM pays towards prepaid costs must be included in the seller contribution limits. Any amount that EMM pays towards closing costs or buydown funds is not included in the seller contribution limitations.

Tax and Insurance Escrows

101.8

Escrows are required for loans with an LTV greater than 80% (89.99% in California); a 25 basis point (0.250%) price adjustment will be added to the Note rate if the new loan does not include escrow account for property taxes.

If the borrower finances the payment of real estate taxes for the subject property in the loan amount, but does not establish an escrow account, the loan is not eligible to be closed as a rate/term refinance transaction and must be closed as a cash-out refinance.

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Mortgage Insurance

101.9

EMM will permit transferred mortgage insurance on DU Refi Plus and Open Access programs. Please see section 303 (DU Refi Plus) and section 306 (Freddie Mac Open Access) product matrices for allowable MI Companies

101.9.1 Eligible Mortgage Insurance Providers

Eligible mortgage insurance providers for new policies are-

• Genworth • Essent Guaranty • Radian

• United Guaranty (UGIC) • National MI

Refer to product guidelines for eligible mortgage insurance programs and mortgage insurance requirements. Mortgage insurance providers provide access to guidelines, rates, training and other services on their

websites without requiring a user ID or password.

Note- Essent is not eligible MI provider’s for DU Refi Plus and Open Access loans.

101.9.2 Types of Mortgage Insurance

Four standard types of mortgage insurance (MI) are offered. Refer to product guidelines for MI requirements. Alternative mortgage insurance products not named in EMM product guidelines are not eligible.

Borrower Paid Monthly Mortgage Insurance

This is standard monthly mortgage insurance the borrower pays every month in the escrow account required for taxes and insurance. Investors require this to be a zero-option or end-of-month premium, which begins coverage at closing, but does not require the first payment until the first mortgage payment is due.

Borrower Paid Single Premium Mortgage Insurance

Single premium MI is a onetime premium that is listed as a standard closing cost on the GFE and HUD-1. This may be included in the loan as a standard closing cost, paid outside of closing, or covered by a credit from the builder, seller, lender or other interested party.

Borrower Paid Single Premium Financed Mortgage Insurance

Borrower Paid Single Premium Financed MI (Financed MI) is a single premium that is added to the mortgage amount and included in the monthly principal and interest payment. Unlike Lender Paid MI (see below), financed MI may be cancelled provided certain requirements are met, typically when the loan balance reaches 78% LTV. Financed MI is available for certain loan programs.Refer to product guidelines for eligibility and requirements.

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Higher-priced Mortgage Loans

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101.10

Regulation Z defines a higher-priced mortgage loan (HPML) as a consumer credit transaction secured by the borrower’s primary residence with an APR that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set, by 1.5 or more percentage points for loans secured by a first lien, or by 3.5 or more percentage points for loans secured by a subordinate lien. APOR, defined by a provision of Regulation Z, is an APR that is calculated and published by the Federal Reserve Board for a number of different mortgage products. APORs are derived from interest rates, points and fees, and other pricing terms obtained from a survey of prime mortgage lenders.

Refer to specific product guidelines for additional HPML requirements.

Mortgage Credit Certificates

101.11

Mortgage Credit Certificates (MCCs) are payment subsidies issued by a government entity to eligible first time homebuyers. MCCs may be in the form of direct payments or tax rebates/credits. MCCs may be used with conforming conventional products (unless specified otherwise within a specific product description). The following guidelines apply:

101.11.1 Sources of MCC

The MCC must be from an authorized state or local housing finance agency. Total monthly housing expense may be reduced by the amount of the borrower's mortgage interest tax credit. This applies to fixed and adjustable rate mortgages subject to the following:

• Underwrite ARMs at the maximum second year rate.

• Underwrite fixed rate mortgages with a buydown at the full Note rate.

101.11.2 Documentation

If the borrower obtaining the MCC needs the monthly subsidy to qualify, the mortgage file must contain the following:

• Copy of the MCC, and

• Copy of the W-4 and worksheet, and • MCC worksheet

Example

The subsidy established in the MCC is calculated on a monthly basis and then deducted from the actual monthly housing payment.

• Example:

- MCC of 20% times total annual mortgage interest of $9,600 = $1,920 annual MCC credit. - The total MCC credit of $1,920 divided by 12 months = $160 per month MCC credit.

o Actual monthly housing expense $975

o Less monthly MCC credit - $160

o Monthly housing expense to be used in qualifying = $815

Note- The amount included in qualifying income may not exceed the maximum mortgage interest credit

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Relocation Loans

101.12 101.12.1 General Requirements

To qualify for the relocation program, the borrower must meet all of the following requirements:

• Borrower's new principal place of work is at least 35 miles farther from his/her former residence than was his/her former principal place of work (borrower's commute to work increases at least 35 miles). • Employer must provide significant financial assistance with the relocation, such as paying to move the

employee to a new location or contributing to the employee's mortgage costs. The financial assistance should equal, at minimum, 3% of the mortgage amount.

• Seller must provide written verification of the transfer and financial assistance.

101.12.2 U.S. Military Personnel

The U.S. military services are known for frequently transferring personnel to various parts of the country and the world. Most members of the Armed Services do not fit the profile of a corporate sponsored relocating employee and do not usually receive substantial amounts of financial assistance from the U.S. government to assist in this move. However, there are occasions when the U.S. government, like corporations, is willing to invest money into certain employees to assist in relocating them. In general, those military individuals hold ranks or jobs that are comparable to middle and upper management jobs in the private sector.

Qualification for Military Personnel Relocation Program Characteristics of these individuals include:

• Commissioned and/or career officers

• Professional jobs (e.g. doctor, lawyer, dentist) or management jobs (e.g. Lieutenant, Commander, Captain, Major, Colonel, Admiral, General, etc.)

• The relocation package offered by the government resembles that of a private corporation. Significant financial assistance is given to the military person to compensate for and assist with the relocation. Examples of this assistance include:

- Additional housing allowance to offset a higher cost of living area;

- Additional monthly supplemental pay for the duration of the time living in the relocated area; - Lump sum moving bonus;

- Financial assistance in selling the current home and/or buying a new home

The amount of the financial assistance required is the same as would be acceptable for a corporate sponsored relocation.

Note-Written verification of benefits is required.

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E Mortgage Management, LLC

This document is intended for use only by E Mortgage Management, LLC and its business partners. It may not be distributed without express, written consent of E Mortgage Management, LLC. EMM Wholesale Lending is a division of E Mortgage Management, LLC. Last Updated: 05/29/2015 ©2013 - E Mortgage Management, LLC Page 19 or monthly) and the duration of the income. To be considered as stable monthly income, the compensation should continue for a minimum of three years.

101.12.5 Trailing Co-Borrower Income

Trailing co-borrower income may not be used to qualify. This does not prohibit the trailing co-borrower from being a party to the transaction.

101.12.6 Lump Sum Cash Payments

Transferring borrowers often receive a substantial lump sum cash payment from their employer as an incentive to move to a new location. The lump sum payment may be used as a source of funds for the initial down payment provided:

• Lump sum cash payment is non-revocable; • Down payment must be made in after-tax dollars.

101.12.7 Departure Residence Policy

Standard Agency guidelines apply with the following exception: EMM does not allow the use of a Brokers Price Opinion (BPO) or AVM to determine the value of the departing residence. EMM accepts only a full appraisal or 2055.

101.12.8 Employer Financing

Financing provided by the employer, whether secured by the property or unsecured, is treated as secondary financing and is subject to requirements in-

• Eligible Transactions Subordinate Financing in this guideline section; and

• Assets, Reserves, and Funds to Close Other Asset Types Employer Assistance Programs in this guideline section; and

• LTV//CLTV limits in product guidelines

Permanent Financing for New Construction

101.13

Conversion of construction-to-permanent financing involves the granting of a long-term mortgage to pay off an interim construction loan that the borrower obtained to fund construction of a new residence.

A single disbursement to a builder for the purchase of a completed property is not considered a conversion of construction-to-permanent financing transaction. This would be considered a standard purchase transaction. Conversion of interim financing can occur in the following manner:

• Upon completion of the home construction and just prior to occupancy of the property • After completion of the home construction when the borrower has already taken residency

• Borrower must hold title to the lot, which may have been previously acquired or purchased as part of the current transaction. The borrower must be the primary obligor on the mortgage or deed of trust for the permanent financing. When paying off an interim construction loan, administer the loan using one of the following three methods.

101.13.1 Purchase

Arm's Length Transactions

The transaction is treated as a purchase if the funds from the permanent loan proceeds will be used to pay off an interim construction loan (which may or may not include repayment of lot financing) and/or to reimburse the borrower for documented acquisition or construction costs. Refer to Construction Costs below.

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If the lot was acquired 12 or more months before applying for the construction financing or if the lot was acquired through an inheritance or gift (regardless of acquisition date), LTV/CLTV/HCLTV is based on the lesser of:

- current appraised value for the property (lot and improvements) or

- the sum of the documented construction costs and the current appraised value of the lot.

Refer to Construction Costs below.

• If the lot was acquired within the 12 months preceding the date of the application for construction financing, the LTV/CLTV/HCLTV is based on the lesser of:

- current appraised value for the property (lot and improvements) or

- total acquisition costs (the sum of construction costs and the lesser of the sales price or

current appraised value of the lot). Refer to Construction Costs below.

• Document the sales price of the lot with a copy of either the purchase contract or the related HUD-1 Settlement Statement.

101.13.2 Rate/Term Refinance

The transaction is treated as a rate/term (i.e. limited cash-out) refinance when no loan proceeds are disbursed to the borrower and the proceeds are used to pay off an interim construction loan and allowable closing costs (which may include lot financing). The borrower must hold legal title to the lot and be named as the borrower for the construction loan.

If the lot was acquired 12 or more months before applying for the construction financing, the LTV/CLTV/HCLTV is based on the current appraised value of the property (lot and improvements).

If the lot was acquired within 12 months before applying for the construction financing, the LTV/CLTV/HCLTV is based on the lesser of:

•

current appraised value of the property (lot and improvements) or

•

total acquisition costs (the sum of construction costs and the lesser of the sales price or the current appraised value of the lot). Refer to Construction Costs below.

Document the sales price of the lot with a copy of either the purchase contract or the related HUD-1 Settlement Statement.

101.13.3 Cash-out Refinance

The transaction is treated as a cash-out refinance if any loan proceeds are disbursed to the borrower as reimbursement for the undocumented costs of improvements paid with the borrower’s own cash or for appreciated value of the lot improvements. The borrower must hold legal title to the lot and be named as the borrower for the construction loan.

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101.13.4 Construction Costs

For purposes of calculating LTV on conversion of construction-to-permanent loans, the following factors are considered when evaluating documented construction costs.

Construction costs generally include all materials and labor associated with completion of the subject dwelling. These costs are commonly referred to as “hard” costs or “sticks and bricks”. In addition, certain limited “soft” costs may be included if they cover tangible products/services associated with the subject. Items such as professional fees for services such as architectural fees, building permits, engineering fees, and environmental impact fees, while considered soft costs, are deemed typical and an integral component of the cost of construction and may be included in construction costs.

Other “soft” costs, sometimes paid through construction loan draws, are not considered a component of the cost to construct calculation and are deducted from the total documented costs. Disallowed “soft costs” include, but are not limited to:

• Costs attributed to financing of either loan (construction loan closing costs) • Real estate taxes on the property

• Insurance • Legal • Sweat equity

In the event the borrower is acting as general contractor, the following are excluded from allowable costs: • Employment tax benefits paid on behalf of laborers

• Profit

• Industry-related fees and dues • Insurance premiums

• Checks made payable to “cash” • Tools

• Hotel bills or costs for temporary housing or site visits

In certain areas, it is common practice to tear down or raze an older dwelling on a very desirable site and construct a new home there. Typically, the original purchase price of the site included a value attributed to both the dwelling and the land beneath. While it may be acceptable to include demolition costs in the construction costs of the new home, pay careful attention to the methodology applied when estimating the true land value versus the original purchase price of the land.

Costs incurred for materials and labor on newly constructed premises should be substantiated by a construction contract.

In the absence of a construction contract, construction costs must be verified by invoices, lien waivers, or contracts for services or materials provided by sub-contractors. Certain items may not be considered construction costs, e.g., bank fees, service charges, interest carry, etc.). Invoices must note the subject address or lot number and the builder or borrower's name. All costs paid must be documented with cancelled checks, paid receipts, or a certified draw schedule from the construction lender itemizing specific work covered by each draw.

If any of these costs were paid with the borrower's own funds, all costs paid must be documented with cancelled checks or paid receipts.

When the transaction is non-arm's length, as in the case of a borrower/builder or an employee, relative or business associate of the builder, document the cost of materials and labor plus the value of the lot. Builder's profit is not an allowable cost. If the lot was purchased less than 12 months prior to the application date, the

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value of the lot is based on the lesser of the purchase price or land value from the appraisal. The LTV is based on the lesser of the documented acquisition cost or appraised value.

REO Contracts

101.14

Real Estate Owned (REO) properties are eligible for financing when the following requirements are met: • The purchase contract for the property has no financing restrictions

• EMM orders a FNMA Field Review form 2000 or FHLMC form 1032.

• LTV is based on the lesser of the appraised value, sales price, auction/foreclosure bid value or auction/foreclosure sales price.

102

DOCUMENTATION REQUIREMENTS

Age of Documents

102.1

Maximum age of documents as of the Note date is:

Item Conforming Existing Property Conforming New Construction

Credit documents 120 days 120 days

Appraisal 120 days 120 days

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Section 103 Borrower Guidelines

E Mortgage Management, LLC

103

BORROWER GUIDELINES

Inter Vivos Revocable Trust

103.1

An inter vivos revocable trust (a "living trust") is a trust defined as follows: • Created by an individual during his or her lifetime

• Becomes effective during its creator's lifetime

• May be modified or canceled by its creator at any time, for any reason, during his or her lifetime Inter vivos trusts must comply with local and state regulations and the following requirements to be eligible for financing.

To be eligible the borrower must be:

• The settlor, or the person who created the trust, and

• The beneficiary, or the person designated to benefit from the trust, and

• The trustee or the person who administers the trust for the benefit of the beneficiary At least one individual establishing the trust must be used to qualify for the loan.

Eligible borrowers include:

• One or more borrowers with one living trust, or • Two or more borrowers with separate living trusts, or

• Multiple borrowers with one or more holding title as an individual and one or more holding title as a living trust.

Eligible occupancy includes: • Primary residence • Second home • Investment property

The following documentation is required:

• Attorney's Opinion letter from the borrower's attorney verifying all of the following:

- The trust was validly created and is duly existing under applicable law, - The trust is revocable,

- The borrower is the settlor of the trust and the beneficiary of the trust, - The trust assets may be used as collateral for a loan,

- The trustee is:

o Duly qualified under applicable law to serve as trustee, o Is the borrower,

o Is the settlor,

o Is fully authorized under the trust documents and applicable law to pledge or otherwise

encumber trust assets

• Complete copy of the trust documents certified by the borrower to be accurate OR a copy of the abstract or summary for jurisdictions that require a lender to review and rely on an abstract or summary of trust documents instead of the trust agreements.

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103.1.1 Exception for Trust Certificate Authorized States

In lieu of the Attorney's Opinion letter and copies of trust documents, the title company Trust Certification is acceptable for the following states:

• Arkansas • California • Delaware

• District of Columbia • Maine

• New Hampshire • New Mexico • North Carolina • Pennsylvania • South Carolina • Tennessee • Texas Vermont • Virginia

• Washington State

The same terms and conditions apply as shown above for the Attorney's Opinion letter.

103.1.2 Trust Requirements

Other title and closing requirements:

• Title to the property is vested in the trustee on behalf of the trust (or other such customary practices), • Title binder may not contain any exceptions to coverage based on the mortgaged property being held

by the living trust,

• Note must be executed individually by the settlor and by the trustee on behalf of the trust, • Mortgage or Deed of Trust is executed by the trustee on behalf of the trust. The Revocable Trust

Rider must be included with the Mortgage or Deed of Trust.

• Date of the Trust must be reflected on the note as part of the description below the Trustee's signature (e.g. Jane Doe, Trustee of the Jane Doe Trust dated April 1, 2000).

• Whenever possible, a certified copy of the entire recorded living trust agreement used by the title company must be obtained. The copy must include any amendments to the living trust that designate new parties and it must be certified by the grantor/trustor/settlor or an attorney.

Signatory Requirements

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Section 103 Borrower Guidelines

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103.1.3 Blind Trusts

A blind trust is an arrangement where financial holdings of a person are placed in the control of a fiduciary, typically to avoid a conflict of interest. Therefore, someone other than the borrower has control over the trust assets. Blind trusts are not eligible.

103.1.4 Life Estates

A life estate is an estate whose duration is limited to the life of the party holding it, or some other person, upon whose death the right reverts to the grantor or his heirs. Life estates are not eligible.

103.1.5 Irrevocable and Other Trusts

All other types of trusts, including irrevocable trusts, are not eligible.

Permanent Resident Aliens

103.2

A copy of the Green Card is required for all permanent resident aliens whose income and/or assets are being used to qualify for a loan. A copy of the front and back of the card is required and must be included in the loan file. Provide documents evidencing the individual’s legal right to live and work in the United States. This includes one of the following:

• I-551: Permanent Resident Card (Alien Registration Receipt Card/"Green Card") that has an expiration date on the back (valid for 10 years); or

• I-155: Conditional Permanent Resident Card (Conditional Alien Registration Receipt Card) that has an expiration date on the back valid for 2 years, provided it is accompanied by a copy of an USCIS form I-751 (Petition to Remove the Conditions on Residence); or

• Unexpired Foreign Passport with an unexpired stamp reading: "Processed for I-155 or I-551

Temporary Evidence of Lawful Admission for Permanent Residence Valid until MM-DD-YY

Employment Authorized"

Note-While the Green Card itself states "Do Not Duplicate" for the purpose of replacing the original card, U.S.

Citizenship and Immigration Services (USCIS) permits photocopying of the Green Card. Making an enlarged copy or copying on colored paper may alleviate any concerns the borrower may have with photocopying.

103.2.1 Refugees

• Form I-94 stamped with employment authorization, or;

• Foreign Passport stamped "Admission for Permanent Residence" with an unexpired date or an Employment Authorization Document

103.2.2 Asylees

• Form I-94 stamped with employment authorization, or; • Copy of Employment Authorization document

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Non-permanent Resident Aliens

103.3

Non-permanent resident aliens must provide evidence of a valid, acceptable visa. A copy of the unexpired visa must be included in the loan file evidencing one of the following visa classes:

• A Series (A-1, A-2, A-3)- given to officials of foreign governments, immediate family members and support staff. Only those without diplomatic immunity, as verified on the visa, are eligible.

• E-1 Treaty Trader and E-2 Treaty Investor- this visa is essentially the same as an H-1 or L-1; the title refers to the foreign country's status with the United States.

• G series (G-1, G-2, G-3, G-4, and G-5)- given to employees of international organizations that are located in the United States. Some examples include the United Nations, Red Cross, World Bank, UNICEF and the International Monetary Fund. Verification that the applicant does not have diplomatic immunity must be obtained from the applicant's employer and/or by the viewing the applicant's passport.

• H-1 (includes H-1B and H-1C), Temporary Worker- given to foreign citizens temporarily working in the United States.

• L-1, Intra-Company Transferee- given to professional employees whose company's main office is in a foreign country.

• O-1A- given to individuals with an extraordinary ability in the sciences, education, business, or athletics (not including the arts, motion pictures, or television industry)

• O-1B- given to individuals with an extraordinary ability in the arts or extraordinary achievement in the motion picture or television industry

• O-2- given to individuals who will accompany an O-1 artist or athlete, to assist in a specific event or performance.

• TN, NAFTA visa- used by Canadian or Mexican citizens for professional or business purposes. • TC, NAFTA visa- used by Canadian citizens for professional or business purposes.

All standards for determining stable monthly income, adequate credit history and sufficient liquid assets must be applied in the same manner to each borrower including borrowers who are non-permanent resident aliens.

103.3.1 Non-permanent Resident Alien Eligibility

Non-permanent resident aliens are eligible under the same terms (product, transaction type, occupancy status, and loan-to-value ratio) offered to U.S. citizens and permanent resident aliens, provided the following guidelines are met. Any non-permanent resident alien borrower/co-borrower whose income is used to qualify on the loan must:

• Currently reside in the United States. However, there are no minimum requirements with regards to that length of time; and

• Be employed in the United States. Source of income must be verified and expected to continue for three years; and

100 CONVENTIONAL UNDERWRITING GUIDELINES

E MORTGAGE MANAGEMENT, LLC