1. Table of Contents - MWF Wholesale · 2020. 2. 19. · the – – –

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Page 1 of 85

Rev 02-19-20

1. Table of Contents

1. TABLE OF CONTENTS ................................................................................................. 1

2. LOAN PURPOSE ..........................................................................................................10

2.1. Purchase ................................................................................................... 10

2.1.1. Lease Option ............................................................................ 10

2.2. Refinance .................................................................................................. 10

2.2.1. Rate/Term & Cash-out ............................................................... 10

2.2.2. Current Status Of Refinance Mortgage ....................................... 11

2.2.3. Properties Previously Listed For Sale ......................................... 11

2.2.4. Refinance of Existing Modified Loan ........................................... 11

2.2.5. Refinance Seasoning Requirement ............................................. 12

2.3. VA Eligibility .............................................................................................. 12

2.3.1. VA Entitlement .......................................................................... 12

2.3.2. Guaranty Guidelines .................................................................. 13

2.3.3. Guaranty Requirements ............................................................. 13

2.3.4. Compromise Claims .................................................................. 14

3. PROGRAM BASICS ......................................................................................................14

3.1. Product Codes ........................................................................................... 14

3.2. Eligible States ............................................................................................ 14

3.3. LTV/CLTV .................................................................................................. 15

3.4. Standard Qualifying Ratios for VA Loans ..................................................... 15

3.4.1. VA Required Compensating Factors ........................................... 15

3.5. Exceptions to MWF Guidelines ................................................................... 15

4. GENERAL INFORMATION ...........................................................................................16

4.1. Lien Position .............................................................................................. 16

4.2. Loan Submissions ...................................................................................... 16

5. BORROWER ELIGIBILITY ............................................................................................17

5.1. Eligible Borrowers ...................................................................................... 17

5.2. Ineligible Borrowers .................................................................................... 17

5.3. Permanent Resident Alien .......................................................................... 17

5.4. Non-Permanent Resident Alien ................................................................... 18

5.5. Inter Vivos Revocable Trust Lending California ............................................ 18

5.6. Social Security Numbers ............................................................................ 18

5.7. Co-Borrowers ............................................................................................. 18

5.8. Non-Occupant Co-Borrower ........................................................................ 18

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5.9. Co-Signers ................................................................................................ 18

5.10. Identity of Interest and At-Interest Transactions ...................................... 18

5.10.1. Family Sales ............................................................................. 19

5.11. Same Sex Marriages ............................................................................. 19

6. OCCUPANCY ...............................................................................................................19

6.1. Primary Residence ..................................................................................... 19

6.2. Investment Properties................................................................................. 19

6.3. Maximum Number of Owner-Occupied in 12 Month Period ........................... 20

6.4. Maximum Loans to One Borrower in a Contiguous Area ............................... 20

6.5. Occupancy After Retirement ....................................................................... 20

6.6. Intermittent Occupancy ............................................................................... 20

7. UNDERWRITING ..........................................................................................................21

7.1. AUS Decisions ........................................................................................... 21

7.1.1. AUS Approved Loans (Credit evaluated by AUS) ........................ 21

7.1.2. Fannie Mae Desktop Underwriter ............................................... 21

7.1.2.1. Loans With "Approve/Eligible" Recommendation .................. 21

7.1.3. Freddie Mac Loan Prospector .................................................... 21

7.1.3.1. Loans with an "Accept" Risk Class ........................................ 21

7.1.4. MWF Underwriting ..................................................................... 22

7.1.5. VA Prior Approval ...................................................................... 22

7.1.5.1. Underwriting Prior Approval Loans ........................................ 22

7.1.6. VA Reservist or National Guard Certification ............................... 22

7.2. Documentation ........................................................................................... 22

7.2.1. Special Documentation Requirements or Enhancements ............. 23

7.2.1.1. VA Payment Comparison Letter (IRRRL) .............................. 23

7.2.2. Age of Credit Documents ........................................................... 24

7.2.3. CAIVRS .................................................................................... 24

7.2.4. Sales contract - Escape Clause .................................................. 25

7.3. Credit ........................................................................................................ 25

7.3.1. Credit Score Requirements ........................................................ 25

7.3.2. Credit Score Selection ............................................................... 25

7.3.3. FICO Scores 600 – 619 ............................................................. 25

7.3.4. FICO Scores 620 – 639 ............................................................. 26

7.3.5. Underwriting Score .................................................................... 26

7.3.6. Underwriting Score Selection ..................................................... 26





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7.3.7. Inquiries .................................................................................... 27

7.3.8. Credit History ............................................................................ 27

7.3.9. Thin Credit ................................................................................ 27

7.3.10. Non-Traditional Credit ............................................................... 27

7.3.11. Downgrade Policy ..................................................................... 27

7.3.12. Housing (Mortgage/Rental) Payment History Requirements ......... 28

7.3.13. Purchasing Spouse with no FICO Score ..................................... 28

7.3.14. Non-purchasing Spouse in a Community Property State .............. 28

7.3.15. Delinquent Credit ...................................................................... 29

7.3.15.1. Adverse Credit ...................................................................... 29

7.3.15.2. Previous Mortgage Foreclosure ............................................ 29

7.3.15.3. Bankruptcy ............................................................................ 29

7.3.15.4. Waiting Periods ..................................................................... 29

7.3.15.5. Foreclosure with Deficiency Balance ..................................... 30

7.3.15.6. Foreclosure - Veteran on Title/Not on Loan ........................... 30

7.3.15.7. Purchase with Deficiency Balance ........................................ 30

7.3.15.8. Consumer Credit Counseling ................................................ 31

7.3.15.9. Outstanding Collections ........................................................ 31

7.3.15.10. Judgments/Tax Liens ....................................................... 31

7.3.15.11. Charge-Offs ..................................................................... 31

7.4. Income / Employment ................................................................................. 32

7.4.1. Employment History .................................................................. 32

7.4.2. Active Duty with Less Than 1 Year Remaining ............................ 32

7.4.3. Reservist Subject to Activation ................................................... 32

7.4.4. Re-Entering the Workforce ......................................................... 32

7.5. Income Analysis ......................................................................................... 32

7.5.1. Non Taxable Income .................................................................. 32

7.5.2. Residual Income ....................................................................... 33

7.5.2.1. Calculating Residual Income for VA Loans ........................... 33

7.5.2.2. Family Size ........................................................................... 34

7.5.3. Tax Transcripts Required ........................................................... 34

7.5.3.1. Applicability ........................................................................... 35

7.5.3.2. Tax Return Not Filed ............................................................. 35

7.5.3.3. Tax Transcripts Not Available ............................................... 35

7.5.3.4. Tax Extension Filed ............................................................... 36





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7.5.3.5. Tax Return Filing Not Required By Borrower......................... 36

7.5.3.6. E-Filed Returns ..................................................................... 36

7.6. Income Sources ......................................................................................... 37

7.6.1. Dividend Income ....................................................................... 37

7.6.2. Farm Income ............................................................................. 37

7.6.3. Mortgage Credit Certificates....................................................... 37

7.6.4. Rental Income ........................................................................... 38

7.6.4.1. Multi-Unit (2-4) Property Secured by the VA Loan (Subject) .. 38

7.6.4.2. Other Rental Property Not Secured by the VA Loan (Non-Subject)

38

7.6.4.3. Documenting Taxes and Insurance ....................................... 39

7.6.5. Seasonal Employment ............................................................... 39

7.6.6. Temporary Leave/Disability Income ............................................ 39

7.6.7. Ineligible Sources of Income ...................................................... 40

7.7. Assets ....................................................................................................... 41

7.7.1. Access Letters .......................................................................... 41

7.7.2. Large Deposits .......................................................................... 41

7.7.3. Multiple NSF Charges and Overdraft Fees .................................. 42

7.7.4. Required Reserves .................................................................... 42

7.7.5. Homebuyer Assistance Programs ............................................... 42

7.7.6. Interested Party Contributions .................................................... 42

7.7.7. Gifts ......................................................................................... 43

7.7.7.1. Eligible Donors ...................................................................... 43

7.7.7.2. Ineligible Donors ................................................................... 44

7.7.7.3. Gift Letter Requirements ....................................................... 44

7.7.7.4. Documenting the Transfer of Funds ...................................... 44

7.7.7.5. Source of Gift Donor’s Funds ................................................ 45

7.7.8. Gift of Equity ............................................................................. 45

7.7.9. Prepaids ................................................................................... 45

7.7.10. Use of Business Funds .............................................................. 46

7.7.11. Use of Foreign Assets ............................................................... 47

7.8. Liabilities ................................................................................................... 47

7.8.1. Projected Obligations ................................................................ 47

7.8.2. Contingent Liability .................................................................... 47

7.8.3. Cosigned Obligations ................................................................. 47

7.8.4. Conversion of Principal Residence ............................................. 48





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7.8.4.1. Current Principal Residence is Pending Sale ........................ 48

7.8.4.2. Current Principal Residence is converting to a Second Home48

7.8.4.3. Current Principal Residence is converting to an Investment

Property 48

7.8.4.4. Relocation ............................................................................. 49

7.8.5. Installment loans with less than (10) Payments ........................... 49

7.8.6. Loans Secured by Retirement Accounts...................................... 50

7.9. Property/Appraisal Requirements ................................................................ 50

7.9.1. Ineligible Property Types ........................................................... 50

7.9.2. Assumptions ............................................................................. 50

7.9.3. Smoke, Fire & Carbon Monoxide Detector Requirements ............. 51

7.9.4. Home Inspection ....................................................................... 51

7.9.5. Maintenance and utility costs for all regions ................................ 51

7.9.6. Sales Contract .......................................................................... 51

7.9.7. Repair Inspections ..................................................................... 52

7.9.8. Water-Sewer Connection Requirements ..................................... 52

7.9.9. Well Certification Requirements ................................................. 52

7.9.10. Wood Destroying Insect Inspection Report .................................. 52

7.9.11. New Construction NOV .............................................................. 52

7.9.12. Value Adjustments .................................................................... 53

7.9.13. Interior Photographs .................................................................. 53

7.10. Secondary Financing ............................................................................. 53

7.10.1. New Construction ...................................................................... 54

8. PRODUCT GUIDELINES ..............................................................................................54

8.1. General Refinance Guidelines .................................................................... 54

8.1.1. Property Tax Calculation ............................................................ 54

8.2. General Refinance Guidelines .................................................................... 54

8.2.1. Eligibility to Refinance ............................................................... 54

8.3. Conforming Transactions ............................................................................ 55

8.3.1. Product Codes .......................................................................... 55

8.3.2. LTV/CLTV ................................................................................. 55

8.3.3. Product Types ........................................................................... 55

8.3.4. Program Types .......................................................................... 55

8.3.5. Property Types .......................................................................... 55

8.3.6. Temporary Buydowns ................................................................ 55

8.3.7. Maximum Loan Amount ............................................................. 55





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8.3.8. Prepayment Penalty .................................................................. 55

8.3.9. VA Funding Fee ........................................................................ 56

8.3.10. Escrow Requirements ................................................................ 56

8.3.11. Escrow/Impound Rollover .......................................................... 56

8.4. Cash-out Refinance .................................................................................... 57

8.4.1. General Guidelines .................................................................... 57

8.4.2. Maximum Cash-out.................................................................... 57

8.5. VA IRRRL .................................................................................................. 57

8.6. IRRRL Requirements ................................................................................. 58

8.6.1. Definition .................................................................................. 59

8.6.2. Program Types .......................................................................... 59


8.6.4. Credit ....................................................................................... 59

8.6.5. Max Loan Amount ..................................................................... 59

8.6.6. Payment History ........................................................................ 60

8.6.7. Net Tangible Benefit .................................................................. 60

8.6.7.1. Fixed Rate to Fixed Rate IRRRLs ......................................... 60

8.6.7.2. Fixed Rate to Adjustable Rate (Fixed to ARM) IRRRLs ......... 60

8.6.8. Additional Parameters ............................................................... 61

8.6.9. Documentation Requirements .................................................... 61

8.6.10. Eligible Borrowers for an IRRRL ................................................. 62

8.6.11. Occupancy ................................................................................ 62

8.6.12. Income ..................................................................................... 62

8.6.12.1. Income and Employment....................................................... 62

8.6.12.2. Verification of Employment .................................................... 62

8.6.12.3. Maximum DTI and Residual Income ..................................... 63

8.6.12.4. Standard Qualifying Ratios .................................................... 63

8.7. High Balance Transactions ......................................................................... 64

8.7.1. Product Codes .......................................................................... 64

8.7.2. LTV/CLTV ................................................................................. 64


8.7.4. Program Types .......................................................................... 64

8.7.5. Property Types .......................................................................... 64

8.7.6. Temporary Buydowns ................................................................ 64

8.7.7. Maximum Loan Amount ............................................................. 64





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8.7.8. Credit ....................................................................................... 64

8.7.8.1. Non Traditional ...................................................................... 64

8.7.8.2. Housing Payment History ...................................................... 64

8.7.8.3. Delinquent Credit .................................................................. 64

8.7.8.4. Previous Mortgage Foreclosure ............................................ 65

8.7.8.5. Bankruptcy ............................................................................ 65

8.7.8.6. Waiting Periods ..................................................................... 65

8.7.9. Maximum DTI (High Balance) ..................................................... 65

8.7.10. Secondary Financing ................................................................. 65

8.8. Termite Report Requirements ..................................................................... 66

8.9. Escrow Withholds ....................................................................................... 66

8.9.1. Eligible Products ....................................................................... 67

8.9.2. Ineligible Products/Features ....................................................... 67

8.9.3. Ineligible Repairs with Escrow Withholds .................................... 67

8.10. Solar Equipment Restrictions ................................................................. 68

8.10.1. UCC-1 ...................................................................................... 68

8.10.2. Solar Payments ......................................................................... 68

9. SPECIFIC PROPERTY TYPES - ELIGIBLE PRODUCTS .............................................69

9.1. Deed Restrictions ....................................................................................... 69

9.2. Properties Subject to Age Restrictions ......................................................... 69

9.2.1. Age Restrictions - Any Age Restriction ....................................... 69

9.2.2. Required Documents for Age Restricted Properties ..................... 69

9.3. Manufactured Home Transactions ............................................................... 69

9.3.1. Product Codes .......................................................................... 69

9.3.2. Loan Term ................................................................................ 70

9.3.3. LTV/CLTV ................................................................................. 70

9.3.4. Maximum Acreage ..................................................................... 70

9.3.5. Ineligible Manufactured Housing Terms/Products ........................ 70

9.3.6. Credit Score .............................................................................. 70

9.3.7. Ratios ....................................................................................... 70

9.3.8. Appraisal .................................................................................. 70

9.3.9. Pricing ...................................................................................... 70

9.3.10. Property Eligibility ..................................................................... 70

9.3.10.1. Foundation Systems ............................................................. 71

9.3.10.2. Modifications to Property ....................................................... 71





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9.3.10.3. New Construction .................................................................. 71

9.3.11. State Specific Manufactured Home Requirements ....................... 71

9.3.11.1. California ............................................................................... 71

9.3.11.2. Colorado ............................................................................... 71

9.3.11.3. Washington ........................................................................... 71

9.4. Condominium Projects ................................................................................ 71

9.4.1. General Condo Eligibility Requirements ...................................... 72

9.4.2. Ineligible Projects ...................................................................... 72

9.4.3. Completion ............................................................................... 72

9.4.4. Multiple Ownership .................................................................... 73

9.4.5. Commercial Use ........................................................................ 73

9.4.6. Right of Refusal ........................................................................ 73

9.4.7. Adverse Environmental Factors .................................................. 73

9.4.8. Litigation ................................................................................... 73

9.4.9. Delinquent HOA Dues ................................................................ 74

9.4.10. Insurance Requirements ............................................................ 74

9.4.11. Pooled Insurance ...................................................................... 74

9.5. Detached (Site) Condominiums ................................................................... 74

9.6. Planned Unit Developments ........................................................................ 74

9.7. Accessory Units ......................................................................................... 74

9.8. Illegal Accessory Units ............................................................................... 75

9.9. Non-Permitted Additions, Improvements or Conversions .............................. 75

9.10. Multiple Parcels .................................................................................... 76

9.11. VA EEM ............................................................................................... 76

9.11.1. Product Codes .......................................................................... 76

10. APPENDIX ....................................................................................................................77

10.1. MWF Inter Vivos Revocable Trust Lending California .............................. 77

10.1.1. Definition .................................................................................. 77

10.1.2. Key Compliance Components .................................................... 77

10.1.3. Trust Requirements ................................................................... 77

10.1.4. Eligible Property and Occupancy Types include .......................... 78

10.1.5. Eligible Programs ...................................................................... 78

10.1.6. Documentation Requirements .................................................... 78

10.1.7. Signature Requirements ............................................................ 78

10.1.8. Title and Title Insurance Requirements ....................................... 81





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10.1.9. Loan File Requirements ............................................................. 81

10.1.10. Power of Attorney .................................................................. 82

10.1.11. Live and Well Certificate ........................................................ 83

10.2. Borrower Fees and Charges .................................................................. 83

10.2.1. One Percent Origination Fee ...................................................... 83

10.2.2. Unallowable Itemized Fees ........................................................ 83

10.2.3. Reasonable and Customary Itemized Fees ................................. 84

10.2.4. Fees that Cannot be Financed in Loan Amount ........................... 85

10.2.5. Credit Report and AUS Fees ...................................................... 85

10.3. Fees Q&A ............................................................................................. 85





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2. Loan Purpose The purpose of a loan is an important tool in determining lending limits and risk. The purpose of a loan has an effect on pricing, loan documentation, regulatory requirements, and underwriting/credit risk.

2.1. Purchase A purchase money transaction is a transaction in which the proceeds are used to finance the purchase of a property. The loan-to-value (LTV) is determined by using the lower of the sales price or appraised value of the property. A copy of the fully executed purchase contract and all attachments or addendums is required for all purchase transactions. Any changes and/or alterations to the purchase contract must be initialed by all parties involved in the transaction.

The borrower cannot receive any monies back from the transaction unless the cash back is for overpayment or reimbursement of borrower’s fees, or reimbursement of costs paid for by the borrower in advance. Proof of the payment(s) from the borrower is required to provide evidence that the fees were paid.

Loans for which a borrower is not a vested party on the title report prior to the submission of the loan will generally be handled as a purchase transaction.

2.1.1. Lease Option

A transaction in which a borrower holds a lease with an option to purchase the subject property will be treated as a purchase transaction. The LTV will be based on the lower of the purchase price or the current appraised value.

The seller may give the borrower credit toward the down payment based on a portion of previous rent payments by the borrower. Copies of cancelled checks evidencing the monthly rent payment, per the lease with an option to purchase agreement are required.

2.2. Refinance A refinance transaction replaces an existing loan(s) with a new loan to current owners, or places financing on a property currently owned by the borrower where no financing exists. At least one of the borrowers must have a vested ownership interest in the subject property offered as security for the new loan. Refinance transactions are defined as either a limited cash-out (rate/term) or cash-out.

2.2.1. Rate/Term & Cash-out

VA does not differ between Rate/Term and & Cash-out transactions.

If the property has been owned less than 12 months and the appraisal reflects a substantial increase in value from the original purchase price, the appraiser should ensure the increase in value is valid.

The mortgage amount is limited to sufficient funds required to accomplish the following:





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Payoff the unpaid principal balance of the existing first lien mortgage, including any prepayment penalty.

Payoff the unpaid principal balance of any existing subordinate mortgage that was used to purchase the subject property, including any prepayment penalty. A copy of the final HUD-1 executed by buyer and seller from the previous transaction may be required.

The amount of cash disbursed in the form of paying off or paying down any unsecured or unseasoned debt plus cash to the borrower may not exceed the limits specified in the program details based on occupancy, CLTV, and documentation type.

2.2.2. Current Status Of Refinance Mortgage

Mortgagors must be current on the mortgage being refinanced for the month due prior to the month in which they close the refinance, and for the month in which they close. For example, if the mortgagor is closing on April 8, the mortgagor must have paid the March payment within the month of March and the mortgagor must make the April payment by closing. The mortgagor has the option to make the April payment at the beginning of the month, or may include the April payment in the payoff amount at closing.

2.2.3. Properties Previously Listed For Sale

Properties listed in last six months not eligible unless the subject transaction complies with the following guidelines:

Property removed from Multiple Listing Service (MLS) at least 6 months prior to borrower’s application date.

Evidence listing cancellation/expiration required.

Loan-to-value determined using lower of current appraised value or listing price at time cancelled/expired.

A copy of the cancelled/expired listing should be placed in the file and a search of the current multiple listing services should be completed to verify that the property is not currently listed by a different agency.

Cash-out Refinance Listing agreements on the subject property must be cancelled 6 months prior to the loan application date or the loan is subject to a maximum loan-to-value of 70%.

2.2.4. Refinance of Existing Modified Loan

If the existing mortgage being refinanced was modified by the current lender, or is currently in loan modification program, the following guidelines apply:

No mortgage lates for the past 12 month period.

Existing Modification agreement to be received and reviewed to ensure that there was no debt forgiveness as part of the modification.





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2.2.5. Refinance Seasoning Requirement

The Note date of the refinance loan must be on, or after, the later of:

the date on which the borrower has made at least six monthly payments on the loan being refinanced; AND

the date that is 210 days after the first payment due date of the loan being refinanced:

For loans being refinanced within 1 year from the date of closing, lenders must obtain a payment history/ledger from the servicing lender documenting all payments.

2.3. VA Eligibility All VA loans must conform to applicable VA one- to four-family housing requirements. All Loans must be eligible for guaranty by the Veterans Administration.

Must be a veteran who served the minimum duty with other than a dishonorable discharge

Active duty with at least 181 days of duty

Un-remarried surviving spouse of eligible veteran (COE)

Reservists/National Guard

Certificate of Eligibility must have sufficient entitlement to meet minimum 25% guarantee

Veteran must be in First Position on all documents

Joint loans where entitlement of husband and spouse (both veterans) will be used.

Joint loans involving two unmarried veterans (VA prior approval required.

2.3.1. VA Entitlement

Eligibility for the VA Home Loan program is based on VA entitlement. VA entitlement is based on the type and length of service. Check the VA Certificate of Eligibility to determine the amount of entitlement available to the veteran.

An online Certificate of Eligibility must be obtained from the Automated Certificate of Eligibility (ACE) application in WebLGY.

Original Certificates of Eligibility may only be used if obtained from Atlanta Regional Loan Center, Attn: COE (262), P.O. Box 100034, Decatur, GA 30031 and are less than 60 days old at time of approval.

VA ENTITLEMENT CODES

Entitlement Code

Meaning

01 World War II

02 Korean

03 Post Korean





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VA ENTITLEMENT CODES

Entitlement Code

Meaning

04 Vietnam

05 Entitlement Restores

06 Un-remarried Surviving Spouse

07 Spouse of POW/MIA

08 Post World War II

09 Post Vietnam

10 Persian Gulf War

11 Selected Reserves

2.3.2. Guaranty Guidelines

The VA will guarantee VA Home Loans based on the following schedule:

The Maximum guaranty amount for loans up to and including $144,000 is $36,000.

The Maximum guaranty amount for loans > $144,000 and ≤ $453,100 is calculated as 25% x the lesser of the purchase price or appraised value.

The Maximum guaranty amount for loans > $453,100 is calculated as 25% of the lesser of the county limit or total loan amount.

2.3.3. Guaranty Requirements

VA requires a minimum 25% guaranty. This minimum guaranty is calculated as 25% of the lesser of the sales price or appraised value in the form of entitlement and/or equity in the property.

Example – Purchase transaction: If the base loan amount is greater than $453,100, a down payment may be required and the LTV may be reduced accordingly.

Bonus Entitlement when the Veteran has FULL Entitlement Max basic entitlement: $36,000.00

Plus bonus entitlement: $68,000.00

Equals total entitlement: $104,250.00

Example: $104,250 x 4 = $453,100 (Maximum loan amount the veteran can receive to obtain another zero down payment VA loan, unless county limit is higher)

Bonus Entitlement when the Veteran has PARTIAL Entitlement If veteran has used $15,000 of his entitlement on an open VA loan:

Max basic entitlement: $36,000.00

Plus bonus entitlement: $68,250.00

Minus entitlement used: $15,000.00





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Equals total entitlement: $89,250.00

$89,250 x 4 = $357,000 (Maximum loan amount the veteran can receive to obtain another zero down payment VA loan)

Note: Loan amount must be greater than $144,000 (Tier II Entitlement).

2.3.4. Compromise Claims

Entitlement charged on a loan terminated with a compromise claim cannot be restored until VA’s loss on the loan has been fully repaid. Information about repayment of the loss may be obtained by contacting the El igibility Center.

How does a VA compromise claim payment work? When a veteran attempts to sell his or her home and the expected proceeds from the sale are not enough to pay off the existing loan, and the veteran has no other source of funds to complete the transaction, a VA compromise claim pays the difference. As with any claim payment by VA, the veteran usually remains liable to VA for the amount of the claim payment. However, the compromise claim is usually less than the claim which would have been if the sale had fallen through, the veteran had failed to make the loan payments, or the lender had foreclosed on the loan.

This type of claim requires that you calculate remaining entitlement using the veterans “bonus or Tier II” entitlement. In other words, the veteran only has partial entitlement available. As such, the new (proposed) sales price must be in excess of $144,000 but no more that 25% of the maximum county loan limit factoring in the entitlement previously charged due to the compromise.

3. Program basics

3.1. Product Codes

Code Description

VF30 VF20 VF15 VA5T VF30IRRRL VF15IRRRL VF30J VF30IRRRLJ VF30D VF30HH VF30JHH

30 Year Fixed 20 Year Fixed 15 Year Fixed VA 5/1 ARM 30 Years Fixed Streamline 15 Years Fixed Streamline 30 Year Fixed High Balance 30 Years Fixed Streamline High Balance 30 Year Fixed – Direct 30 Year Fixed House Hunter 30 Year Fixed High Balance House Hunter

3.2. Eligible States Eligible States Matrix


http://www.mwfwholesale.com/wp-content/uploads/2018/04/Eligible-State-Matrix-Wholesale.pdf




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3.3. LTV/CLTV Conforming LTVs

High Balance LTVs

3.4. Standard Qualifying Ratios for VA Loans Refer to product/program specific guidelines for complete parameters.

Qualifying Ratios for VA Loans

Underwriting Method Total Debt to Income Ratio

AUS Approved Loans Per AUS

AUS Refer Loans* 41%

Manual Underwrite* 41%

*DTI Ratios > 41% and ≤ 47% require residual income > 120% in addition to significant documented compensating factors (see below).

3.4.1. VA Required Compensating Factors

Excellent credit history

Conservative use of consumer credit

Minimal consumer debt

Long-term employment

Significant liquid assets

Sizable down payment

The existence of equity in refinancing loans

Little or no increase in shelter expense

Military benefits

Satisfactory homeownership experience

High residual income

Low DTI Ratio

Tax credits for child care

Tax benefits of home ownership

3.5. Exceptions to MWF Guidelines Requests for exceptions to posted MWF Guidelines may be considered only if the loan file contains one or more supporting factors from the table below:

Note: This applies to exceptions relating to existing MWF guidelines ONLY, and should accompany a Loan Exception Request Form.


http://www.mwfwholesale.com/wp-content/uploads/2018/06/VA-Product-Matrix-Wholesale.pdf

http://www.mwfwholesale.com/wp-content/uploads/2018/06/VA-Product-Matrix-Wholesale.pdf#page=2




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Acceptable MWF Exception Request Supporting Factors

Verified reserves of 3 Months for 1-2 Units*

New housing payment (PITI) increase ≤ 5% from previous total monthly housing payment. (No late payments in past 12 months).

Borrower has a potential for increased earnings, as indicated by a VOE.

Total DTI ≤ 35%.

Borrower carries no discretionary debt (can document that revolving credit has been paid off in full each month for at least the previous six months).

LTV ≤ 90% for FHA/VA/USDA or LTV ≤ 75% for Conventional.

*The following are ineligible for reserves:

The amount of cash taken at settlement.

Gift funds in excess of the amount required for the cash investment.

Equity in another property

Borrowed funds from any source

Note: Exception Requests are subject to a complete review of all pertinent loan documentation. Compensating factors are not a guarantee of loan approval.

4. General Information

4.1. Lien Position The loan application must be a valid first lien on the residential mortgage property. The mortgaged property must be free and clear of all liens and encumbrances and no rights may be outstanding that could give rise to such liens, except for liens for a real estate taxes and special assessments not yet due and payable. Any additional liens to the aforementioned mortgage must be either paid off or subordinated with a recorded and approved subordination agreement.

MWF does allow for simultaneous subordinate liens through an approved down payment assistance program.

4.2. Loan Submissions Loan submissions must contain the minimum submission requirements as published by policy. Any loans received that are incomplete may not be accepted and submitted to underwriting. A MWF associate will notify the loan originator or branch designate to advise of the missing documents. Once notified, the submitting broker or branch will have 24 hours from submission to cure the missing items. Documentation not received in the specified time frame will result in the file being rejected as a submission. Once all minimum submission requirements are received, the loan file may be resubmitted.

If a file is rejected due to a RESPA violation, the loan originator/branch may not resubmit the loan for a minimum of 15 days.





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5. Borrower Eligibility

5.1. Eligible Borrowers Eligible borrowers include natural persons, U.S. Citizens or permanent resident aliens with valid Social Security numbers and borrowers who are of age to enter into a binding contract prior to the execution of the Note and Security Instrument. Vesting in the name of a partnership, or corporation is not allowed.

In addition to the high level requirements above, applicants seeking a VA guaranty must meet one or more of the following requirements:

Must be a veteran who served the minimum duty with other than a dishonorable discharge

Active duty with at least 181 days of duty

Un-remarried surviving spouse of eligible veteran (COE)

Reservists/National Guard

Certificate of Eligibility must have sufficient entitlement to meet minimum 25% guarantee fee

Joint loans where entitlement of husband and spouse (both veterans) will be used.

Joint loans must be underwritten by MWF and then forwarded to the VA for FINAL approval before closing.

Joint loans involving two unmarried veterans

Joint loans must be underwritten by MWF and then forwarded to the VA for FINAL approval before closing.

5.2. Ineligible Borrowers Borrowers without a valid, legitimate Social Security number.

Non-Resident Alien or Foreign Nationals.

Borrowers with diplomatic immunity.

Corporations, estates, life estates, limited or general partnerships, not -for-profit organizations, schools, churches, etc.

Conservatorships.

5.3. Permanent Resident Alien Permanent resident aliens are non United States citizens who hold acceptable evidence of permanent residency issued by The Citizenship and Immigration Services within the Department of Homeland Security.

Permanent resident aliens, whose income and/or assets are being used to qualify for a loan, must provide an unexpired, legible copy of the front and back of USCIS form 1-551 (Permanent Resident/“Green” Card).

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)





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allows photocopying of the Green Card. Making an enlarged copy or copying on colored paper may alleviate any concerns the borrower may have with photocopying.

5.4. Non-Permanent Resident Alien By law, non-permanent resident aliens cannot enlist in a branch of the military, therefore are ineligible for a VA loan.

A non-permanent resident alien who is a veteran’s spouse is eligible if all of the following is provided:

Proof of non-permanent resident alien status

Employment authorization, if applicable

5.5. Inter Vivos Revocable Trust Lending California See Trust Requirements

5.6. Social Security Numbers All borrowers are required to have a valid Social Security number.

5.7. Co-Borrowers A co-borrower is an individual who applies jointly with the applicant for shared or joint credit and who takes title to the property and is obligated on the mortgage and the Note. The co-borrower must execute the Note and the Security Instrument.

The VA guaranty requires all borrowers occupy the subject property. MWF provides financing in cases where the spouse or another veteran also utilizes Entitlement (dual Entitlement) will be an owner occupied co-borrower.

5.8. Non-Occupant Co-Borrower Not allowed.

5.9. Co-Signers Not allowed.

5.10. Identity of Interest and At-Interest Transactions Certain transactions pose an increased risk and additional precautions must be taken to evaluate and prudently underwrite for that risk. In-depth analysis of transactions between parties with family or business relationships may reveal unsupported values, straw borrowers, non-arm's length or at-interest influences, inflated sales prices, or excessive fees or disbursements. Identity of Interest Transactions includes both Non-Arm’s Length and At-Interest transactions.

Further due diligence must be completed when transactions contain Identity of Interest relationships.





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5.10.1. Family Sales

A Family Sale occurs when one family member is selling to another. Often there is no real estate agent involved or the agent may also be a family member. These transactions carry the potential for increased risk as they may be bailout situations. In these situations, the following is required:

A payment history for the existing mortgage (verification of seller’s mortgage) on the subject property must be obtained and show no pattern of delinquency within the past 12 months.

5.11. Same Sex Marriages Process the loan application involving same-sex marriage in the same manner as loan applications based on opposite-sex marriage, without any additional scrutiny or development.

6. Occupancy Occupancy is an important factor in determining risk and appropriate lending levels as it is typically viewed that borrowers will be more diligent in the handling of credit related to their primary residence than an investment property or second home and therefore less likely to default on a loan secured by their owner occupied residence.

Occupancy intent must be established and documented by disclosures. Note Addendum, and/or Security Interest Riders.

6.1. Primary Residence A principal residence, also referred to as an owner occupied primary residence, is 1- to 4- family property that is the borrower’s primary residence. At least one of the borrowers must occupy and hold title to the property, and also must execute the Note and Deed of Trust. The borrowers must occupy the subject property within 60 days of close of escrow.

For owner occupied transactions, acceptable documentation is required to confirm the borrower’s intent to occupy the property as their principal residence and if there are any address discrepancies or “red flags” that would imply occupancy other than indicated. Documentation must be scrutinized to ensure reasonableness of the owner occupancy status in order to proceed with the transaction.

6.2. Investment Properties An investment property is defined as a 1- to 2-unit property that is owned by, but not occupied by, the borrower. An investment property will generally be subject to higher pricing and lower loan-to-value allowances. Most regulatory disclosures do not apply to investment properties. VA only guarantees investment properties as part of an Interest Rate Reduction Refinance Loan (IRRRL) on properties previously occupied by the borrower as their primary residence.





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6.3. Maximum Number of Owner-Occupied in 12 Month Period Typically, MWF will not lend on more than one owner-occupied transaction in a twelve-month period. This is not to imply, however, that all multiple owner-occupied transactions in the said time period are ineligible.

If the review of the application and credit indicate that the borrower has participated in another mortgage transaction within the last twelve months, evidence as to the nature of the borrower’s occupancy must be provided with the loan file when submitted to Underwriting, along with a strong motivational letter.

At no time will MWF allow for the intended misrepresentation of borrower occupancy through simultaneous owner-occupied transactions.

6.4. Maximum Loans to One Borrower in a Contiguous Area General Underwriting Guidelines limit the number of MWF financed rental properties that a borrower may own in one contiguous area (generally defined as within a two-block radius) to no more than two properties. MWF further limits the maximum number of MWF loans to one borrower to 4 loans or $2 million in aggregate.

6.5. Occupancy After Retirement If the veteran states that he or she will retire within 12 months and wants a loan to purchase a home in the retirement location:

Verify the veteran’s eligibility for retirement on the specified date.

Include a copy of the veteran’s application for retirement submitted to his or her employer.

Carefully consider the applicant’s income after retirement.

If retirement income alone is insufficient, obtain firm commitments from an employer that meet the usual stability of income requirements.

Note: Only retirement on a specific date within 12 months qualifies. Retirement “within the next few years” or “in the near future” is not sufficient.

6.6. Intermittent Occupancy The veteran need not maintain a physical presence at the property on a daily basis. However, occupancy “as the veteran’s home” implies that the home is located within reasonable proximity of the veteran’s place of employment. If the veteran’s employment requires the veteran’s absence from home a substantial amount of time, the following two conditions must be met:

the veteran must have a history of continuous residence in the community, and

there must be no indication that the veteran has established, intends to establish, or may be required to establish, a principal residence elsewhere.





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Note: Use of the property as a seasonal vacation home does not satisfy the occupancy requirement.

7. Underwriting

7.1. AUS Decisions

7.1.1. AUS Approved Loans (Credit evaluated by AUS)

Fixed Rate

VA Hybrid ARM

VA Credit Standards apply

Note: CAIVR System must be checked on all loans regardless of underwriting

method.

7.1.2. Fannie Mae Desktop Underwriter

VA Loans (Including High Balance)

7.1.2.1. Loans With "Approve/Eligible" Recommendation

The subject mortgage loan must pass all the eligibility and underwriting tests performed by Desktop Underwriter and any verification messages or approval conditions specified on the Desktop Underwriter Findings Report must be satisfactorily resolved before closing.

Terms and conditions of the closed loan and underwriting information in the loan file must match the data on which the Desktop Underwriter recommendation/verification messages are based.

Note: Loans receiving a feedback response of Refer / Eligible from

DU are eligible for VA as manually underwritten.

7.1.3. Freddie Mac Loan Prospector

VA Loans (Including High Balance)

7.1.3.1. Loans with an "Accept" Risk Class

The subject loan must pass all eligibility and underwriting tests performed by Loan Prospector. Any verification messages or approval conditions specified on the Loan Prospector Feedback Certificate must be satisfactorily resolved.

Terms and conditions of the closed loan, and underwriting information in the loan file must match the data on which the Loan Prospector "Accept" risk class is based.





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7.1.4. MWF Underwriting

Appraisals reviewed by a VA Staff Appraisal Reviewer (SAR)

AUS Approved loans – must follow documentation requirements

If loan requires VA’s prior approval, additional underwriting turnaround time is required

7.1.5. VA Prior Approval

Loans exhibiting the following characteristics require VA prior approval:

Joint loans involving two or more veterans who intend to use their entitlement and take title jointly (IRRRL loans are ineligible).

Loans to veterans in receipt of VA non-service related pension (IRRRL loans are ineligible).

Loans to veterans rated incompetent by VA (IRRRL loans are ineligible).

7.1.5.1. Underwriting Prior Approval Loans

o Files submitted to the VA for prior approval must be labeled “PRIOR APPROVAL”

o The MWF Underwriter will first underwrite the loan and issue a credit decision

o Underwriter submits a copy of the loan file to the VA Phoenix Regional Loan Center. The MWF Underwriter is required to access the VA Information Portal at https://vip.vba.va.gov and retrieve specific Loan Analysis data in the VA WebLGY system.

7.1.6. VA Reservist or National Guard Certification

All veteran applicants whose income is being used to qualify for the loan transaction must complete and sign a VA Reserves or National Guard Certification.

The VA Underwriter will then use this information to determine the veteran borrower’s true monthly qualifying income.

7.2. Documentation Full Documentation is required on all VA Loans unless an individual program specifically allows an alternative. For loans receiving a DU/LP approval, follow AUS Findings.

The application package must contain acceptable documentation to support the underwriting decision.

When standard documentation does not provide sufficient information to support the decision, additional explanatory statements must be provided.

Verification forms must pass directly between lender and creditor without being handled by any third party.





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Certified copies of exhibits will be accepted by MWF with verification of authenticity by the underwriter as necessary. This verification must be in the form of verbal verification performed by a MWF associate.

Documentation must not contain any alterations, erasures, or white-outs. Copies must be stamped, "Certified, True and Exact Copies of the Original." Or a blanket certification can be provided.

7.2.1. Special Documentation Requirements or Enhancements

The following documents are required at the time of submission to underwriting:

Case Assignment screen print out to confirm new case number (verify that Veteran’s name and address match the new application).

All Veteran applicants whose income is being used to qualify for the loan transaction must complete and sign the VA Reserved or National Guard Certification. The VA Underwriter must then use this information to determine the Veteran-Borrower’s true monthly qualifying income and service pay.

Signed and completed Uniform Residential Loan Application (URLA)

HUD/VA Addendum to the URLA (VA Form 26-1802a)

Mortgage history for past 12 months

Current payoff statement for existing mortgage

Copy of original note

VA Interest Rate Reduction Refinancing Worksheet VA Form 26-8923 signed by the MWF VA Authorized Official, for IRRRL loans only.

Nearest Living Relative Information

Initial Good Faith Estimate (GFE) and Truth in Lending (TIL) disclosures

Counseling checklist for Military Homebuyers VA Form 26-0592 only required for credit qualifying transactions where borrower will be released from active duty within 12 months.

Federal Collection Policy Notice VA Form 26-0503

Provide all other applicable VA related forms.

The following documents will be required at closing:

Final 1003 & HUD VA addendum to the URLA

Payment Comparison Letter must be signed at closing

7.2.1.1. VA Payment Comparison Letter (IRRRL)

o Statement signed by the Veteran acknowledging the effect of the refinance loan on the Veteran’s loan payment and interest rate. (The statement must show the interest rate and monthly payments for the new loan versus the old loan).





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o The statement must also disclose to the borrower how long it will take for him/her to recoup ALL closing costs (both those included in the loan and those paid outside of closing).

o The VA Underwriter signs and certifies that “the borrower qualifies for the new monthly mortgage payment which exceeds the previous payment by 20% or more.”

o VA Loan Analysis 26-6393

7.2.2. Age of Credit Documents

The standard age of credit documents is 120 days for existing properties and 180 days for new construction. Credit documents include employment, credit reports, asset and income documentation.

The maximum age for appraisals is 6 months for VA appraisals. The age of documents is measured from the date of the document to the date the note is signed.

If any document listed below is older than allowed, it must be updated prior to receiving final approval.

AGE OF CREDIT DOCUMENTS

Document Title Max Age To Date Of

Credit Report

120 Days from date of application Signed Note Date

Verification of Employment (VOE or VVOE)

Verification of Deposit (VOD) (Seasoning guidelines apply)

Verification of Mortgage

Pay Stubs (must be dated within 30 days of

application date)

Asset Statements

Preliminary Title Report 90 days from date of Prelim

Payoff Demand 30 days from receipt of payoff Closing/Funding Date

Pre-funding Verbal VOE 10 days

Appraisal 6 months from date of application From Inspection Date

Termite 90 days From Inspection Date

Septic & Well Certification 90 days From Inspection Date

7.2.3. CAIVRS

A CAIVRS inquiry is required for all applicants and co-obligors (veteran or non-veteran) on all VA Loans, including IRRRLs.





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Note: For IRRRLs, enter the code on VA Form 26-8923, IRRRL Worksheet, beside the word “note” located near the bottom of the form.

7.2.4. Sales contract - Escape Clause

The Escape Clause must be contained in the sales contract for all VA-Guaranteed Loans.

Note: In the event the clause is not in the sales contract, VA may not guarantee the loan.

7.3. Credit

7.3.1. Credit Score Requirements

All loans require a credit score to be established. The three major Credit Repositories ("Agencies") offer a product that scores each consumer's credit history using the Fair Isaac model. Trademark names include the Experian "Fair Isaac Credit Score" (FICO), Trans Union "Emperica Score" and Equifax "Beacon Score". All are acceptable and are referred to as the "Credit Score.”

All borrowers must have a minimum of 1 FICO score. Co-borrowers with no FICO score are allowed with “DIRECT” pricing.

Co-borrower will be allowed with no FICO score, as long as documentation is provided to verify borrower and co-borrower have been living together for the past 12 months consecutively. One borrower needs to have a FICO score and meet all FICO score requirements. Approve/Eligible only.

7.3.2. Credit Score Selection

The following criteria should be used to determine each individual borrower's credit score using the "middle/lower" method:

If there are three valid credit scores for a borrower, the middle score of the three scores is to be used.

If there are three valid credit scores for a borrower but two of the scores are the same, the duplicate score is used.

If there are two valid scores for a borrower, the lower of the two scores is to be used.

If there is one valid score for a borrower, that score is used.

If a tri-merged credit report is provided, the report must be analyzed to ensure there are no serious delinquent obligations in the last 12 months. Loans may be subject to further review and 12-month income documentation.

7.3.3. FICO Scores 600 – 619

SFRs, Condos, PUDs only.

Manual Underwrites not allowed.





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2 months reserves (PITI + HOA if applicable). Must be the borrower’s own funds (no gifts).

Ineligible loan products:

High Balance VA

IRRRLs

ARMs

Manufactured

PLEASE NOTE ALL OF THE ABOVE GUIDELINES MUST BE ADHERED TO, NO EXCEPTIONS WILL BE ALLOWED.

7.3.4. FICO Scores 620 – 639

SFRs, Condos, PUDs only.

Manufactured - less than or equal to 90% LTV

Ratios per AUS (DU or LP) with an AUS Approval.

On AUS Refer/Eligible, Manual Underwrites are allowed, subject to:

o 41% maximum DTI ratio (DTI ratio ≥ 43% will be considered with strong compensating factors).

o Minimum of three (3) trade lines on the credit report reflecting 12 months reviewed. Less than (3) trade lines will be considered "thin" credit and must comply with "thin" credit guides.

Gifts and DPAs allowed for downpayment.

Ineligible loan products:

ARMs

PLEASE NOTE ALL OF THE ABOVE GUIDELINES MUST BE ADHERED TO, NO EXCEPTIONS WILL BE ALLOWED.

7.3.5. Underwriting Score

The term "Underwriting Score" refers to the overall credit score applicable to a specific mortgage loan transaction as determined using the Agencies' "middle/lower, then lowest" credit score selection methodology, which is equivalent to Fannie Mae's "Representative Credit Score" and Freddie Mac's "Indicator Score."

7.3.6. Underwriting Score Selection

After selecting the appropriate credit score for each borrower, the Underwriting Score must then be determined:

If there is more than one borrower, the lowest selected credit score among all borrowers is the Underwriting Score.

When there is only one borrower, the selected credit score for that borrower is also the Underwriting Score.





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Additionally, the original credit report must be included in the file showing the score.

7.3.7. Inquiries

Letter of explanation is required on all inquiries reported on credit report. Mortgage inquiries will require the borrower to address the inquiry and indicate the borrower is not currently obtaining a new mortgage through the new lender. “Shopping for a mortgage” is no longer acceptable.

7.3.8. Credit History

Housing (Mortgage/Rental) payment history (PITIA) is inclusive.

7.3.9. Thin Credit

A “thin” credit report is one where at least one credit score was generated, but based on less than three (3) trade lines.

Rent and Mortgage Payment History The applicant’s rental history and any outstanding, assumed, or recently retired mortgages must be verified and rated.

Housing expense payment history is often the best indicator of how motivated the applicant is to make timely mortgage payments in the future.

Absence of Credit History For applicants with no established credit history, base the determination on the applicant’s payment record on utilities, rent, automobile insurance, or other expenses that applicant has paid.

Absence of a credit history is not generally considered an adverse factor. It may result when:

recently discharged veterans have not yet developed a credit history,

applicants have routinely used cash rather than credit, and/or

applicants have not used credit since some disruptive credit event such as bankruptcy or debt pro-ration through consumer credit counseling. In these cases, develop evidence of timely payment of non-installment obligations such as rent and utilities since the disruptive credit event.

See also Non-Traditional Credit Below

See Minimum Credit Score section.

7.3.10. Non-Traditional Credit

Non-traditional credit is allowed for loan amounts less than $453,100 to supplement credit history only

7.3.11. Downgrade Policy

VA does not require a manual downgrade.





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7.3.12. Housing (Mortgage/Rental) Payment History Requirements

It may be necessary to verify the current and previous mortgage to establish a 12-month payment history.

Housing (Mortgage/Rental) Payment History (PITIA) is inclusive of all liens regardless of position, as well as occupancy types.

All mortgage loans must be current

12 month payment history or life of loan if property is owned less than 12 months via a credit report, cancelled checks, or VOM to reflect no more than 0 x 30 during the previous 12 months

Loans where the P&I increases more than 20% require credit report or tri-merged in-file credit report.

7.3.13. Purchasing Spouse with no FICO Score

MWF will accept a purchasing spouse with “no FICO score,” as long as the remaining purchasing spouse has the minimum FICO score for the program requested and an approval through AUS.

Purchasing spouse with “no FICO” must have a valid Social Security number.

All other guidelines still apply.

7.3.14. Non-purchasing Spouse in a Community Property State

MWF Approved community property states:

Arizona

California

Nevada

Washington

If property is located in a community property state, or the borrower resides in a community property state, the following requirements apply:

A credit report for the non-purchasing spouse is required to determine any joint or individual debts. The spouse’s authorization to pull a credit report must be obtained. If the spouse refuses to provide authorization for the credit report, the loan will be rejected.

If the non-purchasing spouse does not have a social security number, the credit reporting company should verify that the non-purchasing spouse has no credit history and no public records recorded against him/her.

Credit Company should be given the non-purchasing spouse’s information: Name(s), address, birth date and any other significant information requested in order to do the records check.

The debts of the non-purchasing spouse must be considered in the qualifying ratios.





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All defaulted federal debt, open judgments and liens, including those of the non-purchasing spouse, must be satisfied prior to or at closing.

The greater of the monthly payment amount or 5% of the outstanding balance (if minimum payment is not reflected on credit report) of the non-purchasing spouse must be included in the qualifying ratios.

Disputed debts of the non-purchasing spouse need not be counted provided the file contains documentation to support the dispute.

Additional Restrictions: California, Arizona, Washington, and Oregon

All defaulted federal debt, open judgments and liens, including those of the non-purchasing spouse, must be satisfied prior to or at closing.

Collection accounts of the non-purchasing spouse to be satisfied at the discretion of the VA Underwriter.

7.3.15. Delinquent Credit

7.3.15.1. Adverse Credit

When significant adverse credit is identified in a borrower's credit history, documentation must be provided evidencing whether the derogatory information was due to extenuating circumstances or financial mismanagement, and that an acceptable credit history has been re-established.

7.3.15.2. Previous Mortgage Foreclosure

See Derogatory Credit Waiting Period Table below.

7.3.15.3. Bankruptcy


7.3.15.4. Waiting Periods

The following table summarizes the waiting period requirements for all significant derogatory credit events for loan amounts ≤ $453,100 (click here for applicable waiting period table for loan amounts > $453,100).

Derogatory Item

Waiting Period – Conforming Loan Limit

Foreclosure Deed-in-Lieu of Foreclosure

Foreclosure: Home was given back to the bank – no owner participation. Deed-in-Lieu: Home returned to lender in exchange for loan cancellation.

2 Years from the date of completion and transferred back to the bank.

Short Sale

Short Sale: Home sold, but sales price did not cover amount owed.

2 Years from the date the sale closed and was transferred to new owner or transferred back to the bank.

Bankruptcy Chapter 7

Debts are discharged through BK, client does not pay any debts owing.

2 Years from the date of discharge.





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Regular payments are made to a court appointed trustee over a 2 to 3 year period or, in some cases, up to 5 years, to pay off scaled down or entire debts. If the borrower is currently undergoing a Chapter 13 Bankruptcy, borrower must have 12 consecutive payments on time, and receive approval from the Trustee or Bankruptcy Judge for the new credit.

Bankruptcy Discharge v Dismissal A Discharge indicates a successful completion of the bankruptcy filing. In the case of a Chapter 13, the discharge is ordered by the court after the debtor successfully completes the repayment plan. A Dismissal indicates that the bankruptcy filing was either not approved or not completed and debts were not forgiven (discharged).

Extenuating Circumstances Examples Unemployment, prolonged strike, medical bills not covered by insurance. Divorce is not an acceptable extenuating circumstance.

7.3.15.5. Foreclosure with Deficiency Balance

A Charge-Off showing a deficiency balance as a result of a foreclosure or short-sale does not have to be paid off provided that:

o The Derogatory Credit Waiting Period has been met.

o AUS approval has been received.

Note: outstanding collection accounts resulting from a foreclosure or short-sale will be required to be paid-off prior to closing.

7.3.15.6. Foreclosure - Veteran on Title/Not on Loan

Instances where the veteran was not a borrower associated with the previous mortgage, but added to title (not Note) prior to the property entering into foreclosure, the veteran would NOT be subject to the derogatory credit waiting periods noted above (this is applicable to foreclosures relating to both borrowing and non-borrowing spouse).

7.3.15.7. Purchase with Deficiency Balance

The purchasing veteran may pay for a deficiency balance associated with the seller of the property as long as it is stated in the purchase contract and is not financed into the loan. A deficiency balance may result when the subject property is a short sale and the lien holder, typically associated with a second lien, is requesting payment outside of the sales price.

Note: if the deficiency amount plus the purchase amount exceed the appraised value, the proceeds used toward the deficiency may not come from a gift source.

Veteran can not pay for a 3rd Party Negotiator Fee.





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7.3.15.8. Consumer Credit Counseling

If a veteran, or veteran and spouse, have prior adverse credit and are participating in a Consumer Credit Counseling plan, they may be determined to be a satisfactory credit risk if they demonstrate 12 months’ satisfactory payments and the counseling agency approves the new credit.

If a veteran, or veteran and spouse, have good prior credit and are participating in a Consumer Credit Counseling plan, such participation is to be considered a neutral factor, or even a positive factor, in determining creditworthiness. Do not treat this as a negative credit item if the veteran entered the Consumer Credit Counseling plan before reaching the point of having bad credit.

7.3.15.9. Outstanding Collections

Aggregate amounts less than or equal to $5,000.00 Any aggregate amount of $5,000.00 in outstanding collections, MWF will follow the AUS decision (DU or LP) excludes IRRRL.

Aggregate amounts > $5,000.00 Any aggregate amount of $5,001.00 or greater in outstanding collections, MWF will require the outstanding collections to be paid in full.

o If borrower(s) are currently on a payment plan for the collection accounts, and has made payments for (3) consecutive months, the collection accounts will not be required to be paid. The monthly payment will be included in the debt ratio.

o Medical Collections are exempt.

Note: If there is an existing payment plan, an acceptable pay history is required (i.e. no late pays, or skipped payments).

7.3.15.10. Judgments/Tax Liens

o Any delinquent taxes as well as judgment and tax liens that are outstanding will also be required to be paid in full, unless there is an existing payment plan in existence, and (6) consecutive months of payments have been made. Again the payment will be included in the debt ratio.


7.3.15.11. Charge-Offs

o Charge-off accounts will not be required to be paid.






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7.4. Income / Employment

7.4.1. Employment History

Determine if the borrower has stable and reliable income to support the proposed housing payment along with the other recurring monthly obligations:

Documentation

Paystubs covering at least the most recent 30-day period

W-2s per AUS

Tax returns for self employed borrowers per AUS

Telephone VOE of the borrower’s current employment

Executed #4506T

7.4.2. Active Duty with Less Than 1 Year Remaining

Veterans who have less than one year remaining time in service (ETS date) must certify that they are going to re-enlist, along with their commander certifying that they are eligible to re-enlist. If the applicant does not plan to continue with the military, s/he must provide a firm job commitment or contract from the new employer verifying the job position, rate of pay, starting date, hours scheduled per week and probability of continued employment. Document sufficient retirement income if this will be the income source.

7.4.3. Reservist Subject to Activation

Prior to funding, it must be verified that borrowers who are active reservists and subject to military activation have not been activated. In addition to the military/activation/deployment form, documentation must be obtained from a commander or military official confirming that the borrower has not been activated.

7.4.4. Re-Entering the Workforce

A borrower re-entering the workforce must be in their current job for a minimum of 6 months and provide evidence of a 2-year prior work history prior to the absence.

7.5. Income Analysis

7.5.1. Non Taxable Income

Tax-free income may be “grossed up” for purposes of calculating the debt to income ration only (not residual income). This is a tool that may be used to lower the debt ratio for veterans who clearly qualify for the loan. “Grossing up involved adjusting the income upward to a pre-tax or gross income amount which, after deducting state and federal income taxes, equals the tax exempt income.





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Use a figure of 125% of the borrower’s non- taxable income when “grossing up”. If the income is split between taxable and non-taxable income, only the non-taxable portion of the income can be grossed-up.

Tax-free income includes certain military allowances, child support payments, worker’s compensation benefits, disability retirement payments, and certain types of public assistance payments. Verify that the income is indeed tax free before “grossing-up”.

Note: For accurate DU Findings for the grossed-up amount, be sure to show the dollar amount of the gross-up on line 35 of the “VA Analysis” under “Other” deductions. This will remove the grossed-up amount from the residual income, yet the DTI will calculate correctly.

7.5.2. Residual Income

Residual income is the amount of net income available to the applicant after all monthly debts are paid. The appropriate residual income amounts vary according to loan size, family size and region of the country. Refer to the following calculation to determine residual income.

7.5.2.1. Calculating Residual Income for VA Loans

Residual income is calculated in accordance with the following:

o Calculate the total gross monthly income of all occupying borrowers.

o Deduct from gross monthly income the following items:

– State income taxes – Federal income taxes – Municipal or other income taxes – Retirement or Social Security – Proposed total monthly fixed payment – Estimated maintenance and utilities – Job related expenses (e.g., child care)

o Subtract the sum of the deductions above from the total gross monthly income of all occupying borrowers.

o The balance is residual income.

o

Residual Income

For loan amounts $79,999 and below

Family Size1 Northeast Midwest South West

1 $390 $382 $382 $425

2 $654 $641 $641 $713

3 $788 $772 $772 $859

4 $888 $868 $868 $967

5 $921 $902 $902 $1004

o 1 Add $75 for each additional member up to a family of seven

Residual Income

For loan amounts $80,000 and above





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Family Size2 Northeast Midwest South West

1 $450 $441 $441 $491

2 $755 $738 $738 $823

3 $909 $889 $889 $990

4 $1025 $1003 $1003 $1117

5 $1062 $1039 $1039 $1158

o 1 Add $80 for each additional member up to a family of seven

7.5.2.2. Family Size

Count all members of the household (without regard to the nature of the relationship) when determining “family size,” including:

o an applicant’s spouse who is not joining in title or on the note, and

o any other individuals who depend on the applicant for support. For example, children from a spouse’s prior marriage who are not the applicant’s legal dependents.

Exception: The lender may omit any individuals from “family size” who are fully supported from a source of verified income which, for whatever reason, is not included in effective income in the loan analysis. For example:

o a spouse not obligated on the note who has stable and reliable income sufficient to support his or her living expenses, or

o a child for whom sufficient foster care payments or child support is received regularly.

Reduce the residual income figure (from the following tables) by a minimum of five percent if:

o the applicant or spouse is an active-duty or retired serviceperson, and

o there is a clear indication that he or she will continue to receive the benefits resulting from use of military-based facilities located near the property.

Use five percent unless the VA office of jurisdiction has established a higher percentage, in which case, apply the specified percentage for that jurisdiction.

7.5.3. Tax Transcripts Required

It is the responsibility of Originators to request the most recent year’s tax transcripts. An executed IRS 4506-T is required of all borrowers. Fully complete and signed 4506-T(s) are required for each tax return used to underwrite the loan. IRS Form 4868 is required for extensions filed for personal tax returns.





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7.5.3.1. Applicability

Loans receiving AUS Approval must have the tax transcripts for the number of years of income documentation required on the AUS Findings Report or Feedback Certificate, as applicable.

MWF requires the most recent tax year via IRS transcripts, regardless of AUS income requirements.

7.5.3.2. Tax Return Not Filed

Loans underwritten prior to April, Originator must obtain the number of year’s income documentation according to the AUS Findings.

7.5.3.3. Tax Transcripts Not Available

Loans underwritten on or after April through June, upon receipt of the tax transcript request returned from the IRS, reflecting “No Record of Return Filed,” Originator must obtain the following:

All Borrowers o A current year tax transcript showing “No Record or Return Filed”

o A copy of the current year tax return.

Salaried Borrowers o If AUS requires 1 year income documentation, Originator must obtain

– Current year tax transcript – Current paystub – Current W-2

o If AUS requires 2 years income documentation, Originator must obtain

– Previous 2 years’ tax transcripts – Current paystub – Previous year and current year’s W-2s

o If AUS requires a current paystub, Originator must obtain

– Current year tax transcript – Current paystub – Current W-2 may be required based on the overall loan when

determined by underwriting.

Self Employed Borrowers o If AUS requires 1 year income documentation, Originator must obtain

– Current year tax return – Current year tax transcript


– Current year tax return – Previous 2 years’ tax transcripts





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7.5.3.4. Tax Extension Filed

Loans underwritten on or after June, current tax return transcripts are required. If a borrower has filed an extension, the following must be provided:

All Borrowers o Evidence of a filed extension and tax payment made

o A current tax transcript showing “No Record of Return Filed”

Salaried Borrowers o If AUS requires 1 year income documentation, Originator must obtain

– Current year tax transcript – Current paystub – Current W-2


– Previous 2 years’ tax transcripts – Current paystub – Previous year and current year’s W-2s

o If AUS requires a current paystub, Originator must obtain

– Current year tax transcript – Current paystub – Current W-2 may be required based on the overall loan when

determined by underwriting

Self Employed Borrowers o If AUS requires 1 year income documentation, Originator must obtain

– Current year tax return – Current year tax transcript


– Previous 2 years’ tax returns – Previous 2 years’ tax transcripts – Current P & L

7.5.3.5. Tax Return Filing Not Required By Borrower

If a borrower is not required to file a tax return and the source of income cannot be validated through the #4506-T process, Originator must obtain alternative documentation, along with a transcript for year in question showing “No Record of Return Filed.”

7.5.3.6. E-Filed Returns

E-filed returns are not acceptable. Originator must obtain tax transcripts on all e-filed returns.





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7.6. Income Sources

7.6.1. Dividend Income

This taxable/tax-exempt income may be added back to the adjusted gross income only if it:

has been received for the past two years, and

is expected to continue.

If the asset will be liquidated as a source of the cash investment, the lender must appropriately adjust the amount.

Document a two-year history of the income, as verified by

copies of the borrower's signed federal income tax returns

Develop an average of the income received for the most recent two years.

7.6.2. Farm Income

The primary use of the property must be residential and any income produced as a result of agricultural activities must be incidental and non-commercial in nature. The area of the property dedicated to agricultural use can not exceed 25% of the total size of the property.

7.6.3. Mortgage Credit Certificates

Mortgage Credit Certificates (MCCs) issued by state and local governments may qualify a borrower for a Federal tax credit. The Federal tax credit is based on a certain percentage of the borrower’s mortgage interest payment. A copy of the MCC must be included with the loan package and indicate the following:

percentage to be used to calculate the tax credit, and

amount of the certified indebtedness. The certified indebtedness can be comprised of a loan incurred by the veteran to acquire a principal residence or a qualified home improvement or rehabilitation loan.

Note: If the percentage on the MCC is more than 20 percent, there is an annual limit on the tax credit equal to the lesser of $2,000 or the borrower’s maximum tax liability.

Calculate the tax credit by applying the specified percentage to the interest paid on the certified indebtedness. Then, apply the annual limit .

Example: The MCC shows a 30-percent rate and $100,000 certified indebtedness. The borrower will pay approximately $8,000 in annual mortgage interest. Borrower’s estimated total Federal income tax liability is $9,000. Calculate the tax credit as follows:

30 percent of $8,000 = $2,400

Apply the annual $2,000 limit

The tax credit will be $2,000





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Use $167 in the monthly analysis ($2,000 / 12)

Note: If the mortgage on which the borrower pays interest is greater than the amount of certified indebtedness, limit the interest used in the tax credit calculation to that portion attributable to the certified indebtedness.

7.6.4. Rental Income

7.6.4.1. Multi-Unit (2-4) Property Secured by the VA Loan (Subject)

o Cash reserves totaling at least 6 months (PITI)

o Documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental.

Include the prospective rental income in effective income only if: o Evidence indicates the applicant has a reasonable likelihood of

success as a landlord, and cash reserves totaling at least 6 months (PITI).

o The amount of rental income to include in effective income is based on 75 percent of:

– verified prior rent collected on the units (existing property), or – the appraiser’s opinion of the property’s fair monthly rental

(proposed construction).

7.6.4.2. Other Rental Property Not Secured by the VA Loan (Non-Subject)

Rental income verified as stable and reliable may be included in effective income. If there is little or no prior rental history on the property, make a determination based upon on review of:

o Documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental.

o Any leases on the property, and the strength of the local rental market.

o History of receiving rents based on Schedule E, if applicable.

Note: Property depreciation claimed as a deduction on the tax returns may be included in effective income.”

o Documentation of cash reserves totaling at least 3 months (PITI).

o Individual income tax returns, signed and dated, plus all applicable schedules for the previous 2 years, which show rental income generated by the property.





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7.6.4.3. Documenting Taxes and Insurance

Verification of property tax and insurance expense may be taken directly from the respective lines of the Schedule E if the property is listed. If the property is not listed on the Schedule E, obtain copies of the property tax bill and home owner’s insurance statement to verify the amounts.

7.6.5. Seasonal Employment

Borrower(s) with seasonal employment may still be considered for a loan and seasonal income may be used to qualify the borrower, with the following documentation being provided:

Proof borrower(s) have been in the same line of work for the past two years.

Expects to be rehired the next season with a VOE from employer indicating borrower will be returning to work. If borrower works for several employers, only (1) VOE is required.

PITI reserves will be required for the period of time borrower will be off work.

o If borrower receives unemployment compensation, and unemployment compensation is sufficient to cover PITI, reserves may not be required.

Borrower(s) do not have to be back on the job at time of closing if all of the above is met.

Examples of seasonal employment include:

Farm worker.

Umpiring of baseball games in the summer.

Working at a department store during the holiday shopping season.

7.6.6. Temporary Leave/Disability Income

Temporary leave/disability income may be used if properly documented in the form of award letters and verification from the payer of the disability income along with supporting letters from the borrower and employer. There is no restriction on the length of time the income has been received, and there should be reasonable likelihood that the borrower’s standard income will continue for at least three years after the disability payments cease.

Documentation Qualifying Income Calculation

All of the following:

Award Letter or equivalent written documentation confirming the following:

The applicant is eligible to receive temporary leave income

The amount of the temporary leave income

The applicant as the recipient of the payments

Applicants that will return to work with their current employer prior to the first Mortgage payment due date:

Qualify using regular gross monthly employment income that will be received upon return to current employment

Applicants that will NOT return to work prior to the first Mortgage payment due





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Documentation Qualifying Income Calculation

The name of the payer (insurance company, employer, agency, or other qualified and disinterested party) and the effective date

Letter from applicant clearly stating full intent to return to work and the agreed upon date of return

Must be consistent with documentation provided by the current employer

Letter from employer confirming the applicant’s position and rate of pay upon return to work

date:

Qualify using the lesser of the applicant’s temporary income or any regular gross monthly employment income.

If no temporary leave income is being received, the gross monthly regular employment income can NOT be used for qualification purposes.

Note: when documenting the likelihood of continuance for disability income, the lender should not request additional documentation from the borrower to demonstrate continuance of the SSA income.

Note: Under no circumstances should the borrower or anyone associated with the borrower, such as a doctor, be asked to identify the condition or disability of the borrower.

7.6.7. Ineligible Sources of Income

The following types of income are not permitted to be used for qualifying purposes:

Asset Dissipation

Educational benefits

o Such as Department of Veterans Affairs (VA) benefits or scholarships

Student loans/grants

Gifts, regardless of duration or amount

Lump sum payments

o Such as inheritances or lawsuit settlements (however, may be verified as assets to close)

One time signing bonus

Payments that are received for purchase or reimbursement of specified items

Retained earnings

Reverse mortgage loan proceeds

Secondary income that will continue for less than 3 years

Taxable forms of income that the applicant does not declare on federal income tax returns (if the borrower is required to file income taxes).

Unverifiable income

Value of a company furnished automobile

Value of employment benefit packages that are not received as cash wages





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Lump sum payments of lottery earnings that are not ongoing

Non-applicant spouse income

Allowance income

Stock options

Room and board received for the applicant's principal residence

Severance pay

Trailing wage earner income

7.7. Assets No verification of veteran’s source of funds is required if closing costs plus the difference between the sales price of the property and the base loan amount is < 4 percent of the lesser of the following:

Sales price, or

Reasonable value established by an NOV.

7.7.1. Access Letters

In the event assets statements indicate a non-borrowing individual listed as a joint account owner, written documentation evidencing the borrower has access and full use of funds is not required.

7.7.2. Large Deposits

Large deposits are defined as either a single deposit or an aggregate of deposits that exceed 25% of the total monthly qualifying income for the loan. If the source of the large deposits(s) is readily identifiable on the account statement, such as direct deposits where the source of the deposit is printed on the statement, then further documentation is not required. Otherwise, the source of the deposit must be fully documented utilizing the following:

A signed letter of explanation from the borrower, and

If being used for funds-to-close (or as reserves), further documentation is required to source the deposit(s).

If the borrower is able to provide a reasonable explanation, but unable to document the source of the deposit(s) and has other assets sufficient to cover the cash-to-close and reserve requirements, the following guidelines apply:

Caution and analysis must be used to ensure the deposit(s) are not from an unacceptable source.

If the source of the deposit has been found to be acceptable, but undocumented, the amount may be deducted from the account balance.





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7.7.3. Multiple NSF Charges and Overdraft Fees

Non-sufficient funds (NSF) and Overdraft (OD) are viewed as derogatory information and could be a detriment to overall file quality. AUS (GUS) does not read NSF or OD charges on bank statements; therefore that variable is not a part of the AUS (GUS) decision making.

When reviewing the bank statements it is important to determine if the NSF/OD fees are an isolated instance or a re-occurring issue. The bank statements should be reviewed for current month charges as well as YTD charges. An isolated instance could reflect several NSF/OD fees that can be attributable to a one time occurrence. For example, an automatic deposit was not received causing 3 payments in one month to be covered by overdraft, opposed to several NSF/OD fees in the same month that can not be attributable to a specific issue.

If it is determined not to be an isolated occurrence, the underwriter must consider the overall credit risk of the file in determining its acceptabil ity.

7.7.4. Required Reserves

2 months PITIA* required for credit scores 600-639

None Required for credit scores 640 and above

7.7.5. Homebuyer Assistance Programs

Federal, state, local government agencies and VA approved non-profit agencies considered by VA to be an instrumentality of the government may provide funds for down payment, closing costs and prepaid expenses.

o Must be approved by MWF.

Homebuyer Assistance Programs (HAP) in the form of “soft second” or “silent” mortgages that are administered by non-profit entities require VA approval.

HAPs administered by state, county or municipal government entities have VA blanket approval.

7.7.6. Interested Party Contributions

The maximum allowable contributions from interested parties based on the lesser of the purchase price or appraised value are:

Seller can pay 100% of discount points and borrower’s non-recurring closing costs

Seller can provide an additional amount not to exceed 4% of the estimated reasonable value to assist the borrower’s payment of

o funding fee

o property taxes

o insurance

o gifts





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o extra points for permanent rate buydown

o temporary buydown

o payoff credit balances or judgments on behalf of buyer.

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.

Real estate commissions must include all commissions on page two of the HUD-1 (700 series section), as well as any non-lien related disbursements such as:

o Marketing expenses;

o Administration fees;

o Finder’s fees;

o Referral fees

o Consulting fees; or

o Assignment of sale fees.

Any combination of the above disbursements exceeding 8% of the sales price must be treated as a sales concession and deducted dollar-for-dollar from the sales price for purposes of calculating the LTV/TLTV/CLTV.

7.7.7. Gifts

An applicant, purchasing or refinancing, may receive a gift to be used towards the down payment, closing costs, discount points, prepaids and any required cash reserves unless otherwise specified.

Gift funds are not allowed for borrowers with insufficient credit histories.

7.7.7.1. Eligible Donors

o The applicant’s spouse, child or dependent, or any other individual related to the applicant by blood, marriage, adoption or legal guardianship or from a close friend with a clearly defined interest in the applicant

o Applicant’s employer or labor union

o A charitable organization that does not receive funding from seller or builder contributions





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7.7.7.2. Ineligible Donors

May not be a person or entity with an interest in the sale of the property, such as:

o Seller

o Real estate agent

o Broker

o Builder

o Charitable organizations or nonprofit agencies that are seller or builder funded

Gifts from these sources are considered inducements to purchase, and requires a reduction to the sales price.

Cash-on-hand from the donor is not an acceptable source of funds.

7.7.7.3. Gift Letter Requirements

The lender must document any gift funds through a gift letter, signed by the donor and borrower. The gift letter must include:

o Donor’s name, address, telephone number

o Donor’s relationship to the borrower

o Specify the dollar amount of the gift, and

o State that no repayment is required.

7.7.7.4. Documenting the Transfer of Funds

Prior to Close o Provide documentation to verify that the gift funds are either in the

donor's account or have been transferred to the borrower's account through any one of the following:

– Copy of the donor’s withdrawal slip or bank statement and the applicant’s deposit slip or bank statement reflecting the amount of the gift.

– Copy of the donor’s cancelled check, cashier’s check or certified check and the applicant’s deposit slip or bank statement reflecting the amount of the gift.

Provided at Closing o Provide documentation to verify the transfer of gift funds by any of the

following:

– Copy of a certified check in the amount of the gift that clearly identifies the donor’s name and bank statement, and shows the withdrawal from the donor’s account.

– Copy of a cancelled check, cashier’s check, official check or money order in the amount of the gift, that clearly identifies the donor’s name and the withdrawal document or copy of the donor’s cancelled check.





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– Copy of the donor’s withdrawal slip or electronic wire transfer confirmation to closing agent.

7.7.7.5. Source of Gift Donor’s Funds

As a general rule, VA is not concerned with how a donor obtains gift funds, provided that the funds are not derived in any manner from a party to the sales transaction.

Donors may borrow gift funds from any other acceptable source, provided the mortgage borrowers are not obligors to any note to secure money borrowed to give the gift. Documentation can include one of the following:

o All pages of most recent bank statement

o VOD

o Letter from Bank, including:

– Account # – Current Balance

o Internet Print Out, Including:

– Account # – Current Balance

Note: No alterations, erasures, blackouts or white-outs are allowed on any documentation.

Donors may borrow gift funds from any other acceptable source, provided the mortgage borrowers are not obligors to any note to secure money borrowed to give the gift.

Any large deposits on the donor’s bank statement may require a letter of explanation as the donor may (or may not) have the type of employment that warrants/justifies large deposits through their account.

Note: Cash is not an acceptable source of donor funds.

7.7.8. Gift of Equity

Not Allowed

7.7.9. Prepaids

Prepaid settlement costs that are normally paid by the borrower, are classified as:

Per diem interest charges from the date of disbursement through the end of the then current month.

Real estate taxes covering any period after the date of settlement.

Hazard insurance premiums and reserves toward future premiums.

Escrow accruals required for the renewal of the MI premium.





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The amount the property seller may pay toward prepaid items must be included in total contribution limits.

The property seller may pay the following prepaids:

o Interest charges from date of disbursement through the end of the current month.

o Real estate taxes covering any period after the date of settlement.

o Hazard insurance premiums and reserves toward future premiums.

7.7.10. Use of Business Funds

The following requirements must be met when the borrower is using business funds for cash-to-close or reserves:

Must have 100% ownership of the Business

Structure Documentation

Sole Proprietorship Copy of Business License

Corporation Tax Return (1120/1120s) and K-1

Business average annual cash flow must be greater than the amount to be withdrawn or used as reserves.

o Corporation: This information is found on line 1 of schedule L for Corporations and S-Corporations. A three-year history of a balance greater than or equal to the amount being considered for reserves or down payment is required. Two years of the schedule L will show three years of cash on hand for the company.

o Sole Proprietorship: Sole Proprietorship funds may be in a personal or business account.

– If utilizing Business Bank statements, the average ending balance of the most recent 3 consecutive statements must be greater than the amount to be withdrawn or used as reserves. If utilizing Personal Bank statements, the number of statements will be determined by AUS or program guidelines.

Full analysis of the business must consider the effect of the withdrawal of the assets and how it will impact the strength and viability of the business in the future. The following questions need to be considered:

o What is the pattern of company cash flows? Do we have declining gross or net income?

o Do we have concerns about the type of business? Is the business experiencing a downturn?

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





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7.7.11. Use of Foreign Assets

Funds from foreign asset sources that are being used for down payment, closing costs, discount points or prepaids, must be deposited into a financial institution in the US.

The loan file must contain evidence of the currency exchange rate used to convert the funds into US dollars from a financial institution or publication.

A written conversion of the beginning and ending balances must be included.

Currency exchange rates provided by the real estate agent, broker, seller, applicant or any interested party to the transaction are not permitted.

Currency conversions can be calculated at the Exchange Foreign Currency for U.S. Dollars Web site.

Funds only used to meet the reserve requirement may be held in a foreign financial institution as long as the following conditions are met:

Meet the standard reserve requirement guidelines.

Contain evidence of the currency exchange as noted above.

Adequately translated, if needed.

Note: Large deposits must be appropriately sourced as per the requirements contained in this document.

7.8. Liabilities

7.8.1. Projected Obligations

Debt payments such as a student loan or balloon note scheduled to begin or come due within 12 months of the mortgage loan closing must be included by the lender as anticipated monthly obligations during the underwriting analysis.

Debt payments do not have to be classified as projected obligations if the borrower provides written evidence that the debt will be deferred to a period outside the 12-month timeframe.

7.8.2. Contingent Liability

A contingent liability exists when an individual is held responsible for the payment of a debt if another obligated party defaults on the payment.

7.8.3. Cosigned Obligations

Contingent liability applies to cosigned obligations. The debt must be included in the underwriting analysis if the borrower is a cosigner/co-obligor on a:

car loan

student loan


http://www.xe.com/currencyconverter/

http://www.xe.com/currencyconverter/




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mortgage, or

any other obligation

If the lender obtains documented proof that the PRIMARY OBLIGOR has been making regular payments during the previous 12 months, and does not have any history of delinquent payments during that period, the payment does not have to be included in the borrower’s monthly obligations.

7.8.4. Conversion of Principal Residence

7.8.4.1. Current Principal Residence is Pending Sale

If the current principal residence is pending sale and the transaction will not be closed (with title transfer to a new owner) prior to the close of the new transaction, then both the current and proposed mortgage payments must be included in the ratios.

2 months PITIA (Principal, Interest, Taxes, Insurance, and Association Dues) reserves are required for both properties if the equity in the departure residence is < 20%, as determined by an AVM or Appraisal ordered through MWF.

Note: The cost of the AVM or Appraisal cannot be charged to the borrower.

7.8.4.2. Current Principal Residence is converting to a Second Home

If the borrower is converting his/her current principal residence to a second home, then both the current and proposed mortgage payments must be included in the ratios.

2 months PITIA (Principal, Interest, Taxes, Insurance, and Association Dues) reserves are required for both properties if the equity in the departure residence is < 20%, as determined by an AVM or Appraisal ordered through MWF.

Note: The cost of the AVM or Appraisal cannot be charged to the borrower.

7.8.4.3. Current Principal Residence is converting to an Investment

Property

If the borrower is converting his/her current principal residence to an investment property, the borrower may use up to 75% of the prospective rental income to offset the mortgage payment on the rental property and only if there is no indication that the property will be difficult to rent. This rental income may not be included in effective income.

The rental income must be documented with: o A copy of the rental agreement on the property, if any.





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o Rental verification may be documented with an Appraisal, FNMA 1007 or other industry accepted source such as:

– Rents.com – Rentometer.com

o A working knowledge of the local rental market as described in the 1007. If there is no lease on the property, but the local rental market is very strong, MWF may still consider the prospective rental income to offset the mortgage payment.

See also Rental Income - Other Rental Property Not Secured by the VA Loan (Non-Subject).

Converting Property is Owned Free and Clear If the property being vacated is owned free and clear, 75% of the net rent (per the rental agreement) may be used as income as long as 3rd party documentation (such as those listed above) indicate that said rents are acceptable within the given market.

7.8.4.4. Relocation

A veteran borrower may be eligible to obtain another VA-Guaranteed mortgage without being required to sell an existing property covered by a VA-Guaranteed mortgage if the borrower is relocating and establishing residency in an area outside reasonable commuting distance from his/her current principal residence.

7.8.5. Installment loans with less than (10) Payments

Deduct significant debts and obligations from total effective income when determining ability to meet the mortgage payments. Significant debts and obligations include:

debts and obligations with a remaining term of 10 months or more; that is, long-term obligations, and

accounts with a term less than 10 months that require payments so large as to cause a severe impact on the family’s resources for any period of time.

Example: Monthly payments of $300 on an auto loan with a remaining balance of $1,500: even though it should be paid out in 5 months, would be considered significant. The payment amount is so large as to cause a severe impact on the family’s resources during the first, most critical, months of the home loan.

Determine whether debts and obligations which do not fit the description of “significant” should be given any weight in the analysis. They may have an impact on the applicant’s ability to provide for family living expenses.”

Note: This guidance is also applicable to alimony, child support and separate maintenance payments.





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7.8.6. Loans Secured by Retirement Accounts

Payments on loans secured by the borrower's 401(k) or SIP (Savings Investment Plan) are not included in long term debt because they are voluntary payments; however, the underwriter should consider these payments in terms of their possible impact on cash flow and debt ratios. The borrower should indicate plans for debt repayment if the inclusion of a 401(k) or SIP loan payment in the monthly debts would result in a very h igh total debt-to-income ratio or negative cash flow.

7.9. Property/Appraisal Requirements Appraiser must be a VA Approved/VA Fee Panel Appraisers

VA Notice of Value issued by MOUNTAIN WEST FINANCIAL SAR

VA appraisal report in compliance with appraisal independence policies is required.

The appraisal is good for 6 months from effective date.

No minimum requirements regarding length of ownership will apply to value.

Market Conditions Addendum will be required (1004 MC).

Subject property must be rated as "average" or higher condition.

Any repair requirements noted by appraiser that impact the safety, structural soundness, and habitability of subject property must be completed.

Notice of Reasonable Value issued by MWF SAR.

Natural Disasters

Loans that are secured by properties located in areas federally declared as major disaster areas may be subject to additional requirements.

7.9.1. Ineligible Property Types

Co-ops

Commercial enterprises

Boarding houses, hotels, motels and tourist homes

Private clubs

Sanitariums

Fraternity and sorority houses

Condotels

Investment properties

Leaseholds

VA Indian leasehold properties

7.9.2. Assumptions

Allowed – Credit worthy borrowers only.

Offered through servicing lender only.





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7.9.3. Smoke, Fire & Carbon Monoxide Detector Requirements

Smoke, Fire & Carbon Monoxide Detector Requirements

7.9.4. Home Inspection

If the Home inspection fee is the only fee on the estimated Hud-1 or on the final HUD -1, we do Not ask for the Home Inspection report.

However, if there are repairs, originated from the Home inspection report, reflected on the estimated or final Hud-1, the underwriter or funder can have the repairs cost removed from the Hud-1. If the buyer and seller will not allow it to be removed, the home inspection report will need to be requested and reviewed by the underwriter.

7.9.5. Maintenance and utility costs for all regions

14 cents per square foot per month

Example: 1500 square foot home X .14 = $210.00 / month

7.9.6. Sales Contract

The Department of Veterans Affairs (VA) requires a copy of the agreement of sale or sales contract be provided to the fee appraiser by the requester of the VA appraisal immediately upon assignment.

When the value opinion to be developed is market value, Uniform Standards of Professional Appraisal Practice (USPAP) requires an appraiser to analyze all agreements of sale, options, or listings of the subject property, current as of the effective date of the appraisal, if such information is available to the appraiser in the normal course of business.

The requester of a VA appraisal must provide a copy of the agreement of sale and all addenda to the appraiser immediately upon assignment, but not later than 1-business day after the date of assignment.

The assigned VA appraiser will analyze the agreement of sale and consider that analysis in establishing the fair market value of the property and any effect on VA minimum property requirement repairs. Should the requester fail to provide the agreement of sale to the appraiser, the appraiser will, upon notice to the requester, hold the assignment and notify VA of the delay.

If the agreement of sale is amended during the process, the requester must provide the updated contract to the appraiser. Depending on the amount of time and/or the extent of any change to the originally considered agreement of sale, the circumstances may warrant the appraiser considering such change to constitute a new assignment under USPAP and an additional fee may be warranted up to the full amount of a new fee. Disputes in regard to any such additional fees should be referred to the Regional Loan Center of jurisdiction.


http://www.mwfwholesale.com/wp-content/uploads/2018/04/Smoke-Fire-CO-Detector-Requirements.pdf




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7.9.7. Repair Inspections

In addition to using their own letterhead, VA Fee Appraisers may now use Freddie Mac Form 442 or Fannie Mae Form 1004D, Part B, Certification of Completion, to certify satisfactory completion of the required repairs identified on the (NOV), or to report their repair inspection findings, if repairs were not acceptably completed. Photos of completed repairs are still required to be included with the inspection or certification. The inspection report or certification must include the following:

Re-list of the items on the NOV to be repaired or installed which were inspected by the appraiser.

Certification that quality materials were used and the identified repair or installation items were completed in a workmanlike manner.

o Repairs not addressed or not completed in a workmanlike manner should be identified and photos of items of non-compliance must be included with the inspection report or certification.

Note: Fannie Mae Form 1004D, Part A, Summary Appraisal Update Report is not acceptable for VA use.

7.9.8. Water-Sewer Connection Requirements

For properties that utilize individual water and/or sewer systems, connection to public water and/or public sewer will only be mandatory when such connection is required by the local building, planning, or health authorities.

If well water or septic tests (certifications) are required, the results and/or certifications will be valid for 90 days from the date of the test, unless the local health authority indicates otherwise.

All Notices of Value (NOVs) issued on properties served by individual water and/or sewer systems will require NOV Item #6 to be checked: for connection to public water or public sewer only if the local building, planning, or health authority requires such connection.

7.9.9. Well Certification Requirements

Well Certification is required on all VA Loans.

7.9.10. Wood Destroying Insect Inspection Report

Inspection must be performed by a qualified pest control operator (inspector must be affiliated with pest control company) who meets all requirements for pest control operators within the subject property state.

7.9.11. New Construction NOV

Per VA circular 26-14-28, VA will utilize 6-month validity periods for all proposed construction cases. If a Veteran is under contract during a validity period, processing may continue until that transaction is either completed or terminated.





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7.9.12. Value Adjustments

SARs must issue the NOV at the appraised value reflected in the appraisal report and may not issue an NOV that deviates from the fee appraiser’s value estimate.

Questions regarding appraisal errors, omissions, or discrepancies that arise during the initial review should be handled by following normal procedures involved in contacting the appraiser. If contact results in the appraiser uploading an amended appraisal report with a changed value in webLGY, the SAR must issue the NOV at that changed (current) value.

7.9.13. Interior Photographs

Appraisers must include interior photographs of the subject property, which at a minimum, show the following:

The kitchen

All bathrooms

Main living area

Examples of physical deterioration, if present

Examples of recent updates, such as restoration, remodeling, and renovation, if present.

In addition to the interiors photographs listed above, appraisal reports must include clear, illustrative, original photographs showing the front, rear view (preferably including a different side view in each photograph), and a street scene of the subject property and the front of each comparable sale.

The subject and all comparables must be appropriately identified. Photographs of comparable listings are not required, but are encouraged.

7.10. Secondary Financing Secondary Financing is allowed. However, secondary financing cannot be used to:

offset any required down payment

pay closing costs

cover any portion of the purchase price that exceeds the reasonable value

Additional requirements for secondary financing:

Must be MWF approved.

Cash back to the veteran from the VA first mortgage or second mortgage is not allowed.

The second lien should not restrict the veteran’s ability to sell the property (i.e. loan is assumable).

Transactions with subordinate financing cannot exceed 100% CLTV based on the lesser of the sales price or appraised value.

Secondary financing must meet requirements in VA Lender Handbook for Secondary Borrowing, Chapter 9, Section 4.





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7.10.1. New Construction

In situations where the recording of the property transfers from developer to builder, and builder to borrower occurs simultaneously at closing, MWF requires the review of a notarized agreement between the builder and developer. The verbiage of the agreement must allow the builder to have vested rights to the property and to act on the behalf of the developer with respect to the transfer of property to the new home owner. The agreement must be dated and notarized prior to the execution of the sales contract and submitted with the loan file for review

8. Product Guidelines

8.1. General Refinance Guidelines

8.1.1. Property Tax Calculation

The following table lists the documentation requirements for obtaining property tax factors used in calculating the accurate monthly property tax used in qualification:

State Required

Arizona Order tax roll. Use the existing tax rate to calculate taxes. Arizona re-assesses once a year.

California Order tax roll. Use the greater of 1.25% or current tax rate, plus any special assessments. With new construction and assessments are not available, use 1.25%.

Colorado Purchase and Refinance use the tax figures from the Certificate of Taxes (current taxes) called a Tax Cert. • Taxes are not listed on the Commitment of Title (prelim) a Tax Cert will need to be requested.

Oregon Order tax roll. Use the existing tax rate to calculate taxes. Use sales price or appraised value, whichever is greater.

Utah Order tax roll. Use the existing tax rate to calculate taxes. Utah re-assesses once a year. There are no supplemental taxes or transfer taxes in Utah.

Washington Order tax roll. Use the current tax rate times the of the sales price or appraiser value, whichever is greater.

8.2. General Refinance Guidelines

8.2.1. Eligibility to Refinance

The Borrower is eligible to refinance the loan if, he/she has legal title, even if he/she is not originally on the loan.





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8.3. Conforming Transactions

8.3.1. Product Codes

Code Description

VF30 VF15 VA5T VF30IRRRL VF30DR VF30D

30 Year Fixed 15 Year Fixed FHA 5/1 ARM 30 Years Fixed Streamline 30 Years Fixed Streamline - Direct 30 Year Fixed – Direct

8.3.2. LTV/CLTV

See VA Product Matrix

8.3.3. Product Types

VA Fixed Rate Mortgage

15 and 30 year loans

Fully Amortizing

VA Adjustable Rate Mortgage (ARM)

8.3.4. Program Types

Purchase

Cash-out Refinance

Streamline Refinance

8.3.5. Property Types

1 - 2 units

o VA High Balance limited to SFR only.

SFR / PUD

Condo

Modular Housing

Manufactured Homes

8.3.6. Temporary Buydowns

Not Allowed

8.3.7. Maximum Loan Amount

See Matrix

8.3.8. Prepayment Penalty

None.







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8.3.9. VA Funding Fee

The VA funding fee applies unless the veteran is exempt. The funding fee is calculated on the veteran’s portion of the loan. If a reduced funding fee percentage is required as a result of a down payment requirement, the veteran benefits from this reduction as the funding fee will be calculated on his/her portion of the loan.

Down payment must be made in liquid funds. Gift equity, borrowed funds or seller-equity is not an acceptable down payment to reduce the funding fee.

In cases in which the loan amount exceeds the current county limits, the:

o VA Funding fee can be financed, paid in cash or by the seller.

o VA guaranty of 25% requirement may not be financed and must be met through down payment and/or equity in subject property.

VA Funding Fee Chart

8.3.10. Escrow Requirements

Waivers not allowed

Withholds granted on a case-by-case basis with senior management approval.

8.3.11. Escrow/Impound Rollover

Allowed with FIXED products

Not allowed with ARM products


http://www.mwfwholesale.com/wp-content/uploads/2018/06/VA-Funding-Fee-Chart.pdf




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8.4. Cash-out Refinance

8.4.1. General Guidelines

Refinance of Construction Loans and Installment Land Sales Contracts – Not Allowed

Subject property must have an existing lien.

New loan amount may include:

o Unpaid principal balance (including accrued interest and late fees, if applicable)

o Allowable closing costs

o Prepaid expenses

o Maximum 2 discount points

o Funding fee, if applicable

If the base loan amount is greater than the county limit for a one unit dwelling, available entitlement plus equity in the property must be ≥ 25% of the appraised value. If it is not, the LTV may be reduced accordingly.

8.4.2. Maximum Cash-out

Cash-out - $325,000

8.5. VA IRRRL If the IRRRL meets the three requirements listed below, it will be considered a

Safe Harbor QM and the lender is not required to perform credit underwriting:

The loan being refinanced was originated at least 6 months before the new

loan’s closing, at least 6 payments have been made on the original loan, and the Veteran has not been more than 30 days past due during the 6 months preceding the new loan’s closing date; and

All fees and charges financed as part of the loan or paid at closing (i.e., all expenses associated with the cost of the refinance) are in compliance with 38 C.F.R. § 36.4313, and such fees are shown to be recouped within 36 months of the new loan closing; and

Exemption of income verification.

VA continues to exempt IRRRLs from income verification pursuant to 38 C.F.R.

36.4340(b)(2), as long as the following Dodd-Frank Act conditions are met:

The Veteran is not 30 or more days past due on the loan being refinanced;

The proposed IRRRL does not increase the principal balance outstanding on

the prior existing residential mortgage loan, except energy efficient





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mortgages and to the extent of fees and charges outlined in 38 CFR 36.4313.

Total points and fees (as defined in section 103(aa)(4) of the Truth-in-

Lending Act (TILA), other than bona fide third-party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator) payable in connection with the proposed IRRRL do not exceed three percent of the total proposed principal amount;

The interest rate on the proposed IRRRL is lower than the interest rate on

the loan being refinanced, unless the borrower is refinancing from an adjustable-rate to a fixed-rate loan, under guidelines that VA has established;

The proposed IRRRL is subject to a payment schedule that will fully

amortize the IRRRL in accordance with VA regulations;

The terms of the proposed IRRRL do not result in a balloon payment, as

defined in TILA; and

Both the residential mortgage loan being refinanced and the proposed

IRRRL satisfy all other VA requirements.

8.6. IRRRL Requirements If the IRRRL meets the three requirements listed below, it will be considered a

Safe Harbor QM and the lender is not required to perform credit underwriting:

The first payment due date of the loan being refinanced must be 210 days or more prior to the closing date of the refinancing loan; AND

Six monthly payments have been made on the loan being refinanced and the Veteran has not been more than 30 days past due during the 6 months preceding the new loan's closing date.

For loans being refinanced within 1 year from the date of closing, lenders must obtain a payment history/ledger from the servicing lender documenting all payments.

All fees and charges financed as part of the loan or paid at closing (i.e., all expenses associated with the cost of the refinance) are in compliance with 38 C.F.R. § 36.4313, and such fees are shown to be recouped within 36 months of the new loan closing.

VA continues to exempt IRRRLs from income verification pursuant to 38 C.F.R. 36.4340(b)(2), as long as the following Dodd-Frank Act conditions are met:

o The Veteran is not 30 or more days past due on the loan being refinanced;

o The proposed IRRRL does not increase the principal balance outstanding on the prior existing residential mortgage loan, except energy efficient mortgages and to the extent of fees and charges outlined in 38 CFR 36.4313.





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o Total points and fees (as defined in section 103(aa)(4) of the Truth-in-Lending Act (TILA), other than bona fide third-party charges not retained by the mortgage originator, creditor, or an affiliate of the creditor or mortgage originator) payable in connection with the proposed IRRRL do not exceed three percent of the total proposed principal amount;

o The interest rate on the proposed IRRRL is lower than the interest rate on the loan being refinanced, unless the borrower is refinancing from an adjustable-rate to a fixed- rate loan, under guidelines that VA has established;

o The proposed IRRRL is subject to a payment schedule that will fully amortize the IRRRL in accordance with VA regulations;

o The terms of the proposed IRRRL do not result in a balloon payment, as defined in TILA; and

o Both the residential mortgage loan being refinanced and the proposed IRRRL satisfy all other VA requirements.

8.6.1. Definition

An IRRRL is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan and with lower principal and interest payments than the existing VA loan. An IRRRL (which can be a fixed rate, hybrid ARM or traditional ARM) must bear a lower interest rate than the loan it is refinancing unless the loan it is refinancing is an Adjustable Rate Mortgage (ARM).


Interest Rate Reduction Refinance Loan (IRRRL)


The loan being paid off through the refinance must be the loan indicated on the IRRRL Case Number. In some cases, a copy of the note may be required to verify the LGH number.

The minimum on an IRRRL is 25% regardless of the dollar amount of guaranty being transferred from the prior loan.

If the Veteran is deceased and the surviving spouse was a co-obligor, the spouse is considered a Veteran for the IRRRL.

o Surviving spouse must own the property.

8.6.4. Credit

IRRRL MWF to MWF - If a credit rating is used in lieu of a new credit report, the pricing will be based on the credit score of the original credit report. If a new credit report is obtained, the new credit score will be used to determine pricing.

8.6.5. Max Loan Amount

See Product Matrix.






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8.6.6. Payment History

A mortgage payment history reflecting no mortgage lates (0x30) in the 6 months preceding the new VA IRRRL’s closing date is required.

8.6.7. Net Tangible Benefit

A Net Tangible Benefit is required on all VA IRRRL’s.

8.6.7.1. Fixed Rate to Fixed Rate IRRRLs

In cases where the loan being refinanced has a fixed interest rate and the refinance loan will also have a fixed interest rate, the refinance loan’s interest rate must be not less than 0.50 percent (.50%) lower than the interest rate of the loan being refinanced. For example, if the interest rate of the loan being refinanced is 3.75% (fixed), then the interest rate of the refinance loan may not be greater than 3.25% (fixed).

8.6.7.2. Fixed Rate to Adjustable Rate (Fixed to ARM) IRRRLs

In cases where the loan being refinanced has a fixed interest rate and the refinance loan will have an adjustable interest rate, the refinance loan’s interest rate must be not less than 2.00 percent (2%) lower than the interest rate of the loan being refinanced. For example, if the interest rate of the loan being refinanced is 3.75% (fixed), then the initial interest rate of the refinance loan may not be greater than 1.750% (adjustable).

In Fixed to ARM cases, discount points may be added to the principal loan amount of a Fixed to ARM refinancing loan ONLY if one of the following circumstances exist:

o The lower interest rate is not produced solely from discount points. In other words the interest rate environment is such that some portion of the lower interest rate on the refinancing loan is the result of favorable changes in the market as compared to the Veteran’s current rate.

o The lower interest rate is produced solely from discount points (i.e. the interest rate environment is such that a lower interest rate cannot be achieved without charging discount points); discount points equal to or less than one discount point are added to the loan amount, and; the resulting loan balance after any fees and expenses, maintains a loan to value (LTV) ratio of 100% or less.

o The lower interest rate is produced solely from discount points (i.e., the interest rate environment is such that a lower interest rate cannot be achieved without charging discount points); more than one discount point is added to the loan amount, and, the resulting loan balance after any fees and expenses, maintains an LTV ratio of 90% or less. As a reminder, while the Veteran may pay any reasonable amount of discount points in cash, no more than two discount points can be included in the loan amount of an IRRRL.





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Valuation for Fixed to ARM IRRRLs. A new appraisal is required. The appraisal will enable lenders to determine the LTV for Fixed to ARM IRRRLs. It is VA’s interpretation that such appraisals need not be ordered through VA’s appraisal system. Lenders can use their appraisal management and assignment process to complete a property value determination. As a reminder, the Veteran may only be charged a reasonable and customary amount, and only charged for one appraisal. For VA audit purposed, any appraisal report and invoice should be included in the loan file. Loan to value is calculated by dividing the total loan amount by the value determined in one of the methods listed below:

o Exterior Only Inspection (Fannie Mae 2055)

o Uniform Residential Appraisal Report (Fannie Mae 1004)

o Exterior Only Inspection Individual Condominium Unit (Fannie Mae 1075)

o Individual Condominium Unit (Fannie Mae (1073)

o Industry accepted appraisal reports for manufactured and 2 – 4 multi-unit homes

8.6.8. Additional Parameters

Subject property must have an existing lien.

New loan amount may include:

o Unpaid principal balance (including accrued interest and late fees, if applicable).

o Allowable closing costs.

o Prepaid expenses

o Maximum 2 discount points

o Funding fee, if applicable

Note: The new IRRRL loan amount may be equal to, greater than, or less than the original amount of the loan being refinanced. This may impact the amount of the guaranty on the new loan, but not the veteran’s use of entitlement.

25% guaranty is considered satisfied.

No cash back to borrower allowed (incidental minor adjustment at closing not exceeding $500.00 cash back is acceptable).

No satisfaction of junior liens.

Premium pricing allowed

Completed VA Form 26-8923 Interest Rate Reduction Refinance Worksheet.

8.6.9. Documentation Requirements

Streamline Documentation





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8.6.10. Eligible Borrowers for an IRRRL

Generally, the parties obligated on the original VA loan must be the same parties on the new loan and the veteran must still own the property. However some ownership changes may be acceptable. The following outlines when a change in mortgagors is allowed with proper documentation:

Eligible Borrower Matrix

Existing VA Loan New Loan Yes/No

Unmarried Vet Veteran and new spouse Yes

Unmarried Vet Spouse only (deceased Veteran) No

Vet Different veteran who has substituted his/her entitlement

Yes

Vet and Spouse Divorced Veteran only Yes

Vet and Spouse Veteran and different spouse Yes

Vet and Spouse Spouse only (deceased Veteran) Yes

Vet and Spouse Divorced spouse only No

Vet and Spouse Different spouse only (deceased Veteran) No

Vet and Non-Vet (joint obligors)

Veteran only Yes

Vet and Non-Vet (joint obligors)

Non-Veteran only No

8.6.11. Occupancy

Owner Occupied – Primary Residences

Investment property previously occupied as veterans primary residence.

8.6.12. Income

8.6.12.1. Income and Employment

No income documentation required, except where P&I will increase 20%.

Documentation for loans if P&I increases by 20% or more:

o Determine if the borrower has stable and reliable income to support the proposed housing payment along with the other recurring monthly obligations

– Pay stubs covering at least the most recent 30 day-period – W-2s per AUS – Tax returns for self employed borrowers per AUS – Telephone VOE of the borrower’s current employment – 4506T must be executed

8.6.12.2. Verification of Employment

A Verbal Verification of Employment is required for a ALL High Balance IRRRLs.





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8.6.12.3. Maximum DTI and Residual Income

N/A

8.6.12.4. Standard Qualifying Ratios

If credit qualifying borrower due to P&I increasing over 20%, the following applies:

o a manual underwrite would apply and DTI is not to exceed 41%.





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8.7. High Balance Transactions


Code Description

VF30J VF30JD VA5TJ

30 Year Fixed High Balance 30 Year Fixed High Balance – Direct VA 5/1 High Balance ARM

8.7.2. LTV/CLTV

See VA High Balance Product Matrix


Standard Conforming VA Guidelines apply unless noted below


Purchase

Rate/Term & Cash-out Refinance

Streamline Refinance

8.7.5. Property Types

1 - 2 units

SFR

Condo

PUD

8.7.6. Temporary Buydowns

Not Allowed

8.7.7. Maximum Loan Amount

See Matrix

8.7.8. Credit

See Minimum Credit Scores section.

8.7.8.1. Non Traditional

Not Allowed with High Balance

8.7.8.2. Housing Payment History

No more than 0 x 30 during the previous 12 months

8.7.8.3. Delinquent Credit

See General VA Guideline Section


http://www.mwfwholesale.com/wp-content/uploads/2018/06/VA-Product-Matrix-Wholesale.pdf#page=2





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8.7.8.4. Previous Mortgage Foreclosure


8.7.8.5. Bankruptcy


8.7.8.6. Waiting Periods

The following table summarizes the waiting period requirements for all significant derogatory credit events for loan amounts > $453,100 (click here for applicable waiting period table for loan amounts ≤ $453,100).

Derogatory Item

Waiting Period – High Balance Loan Limit

Foreclosure Deed-in-Lieu of Foreclosure

Foreclosure: Home was given back to the bank – no owner participation. Deed-in-Lieu: Home returned to lender in exchange for loan cancellation.

Loan amounts greater than Conforming Loan Limits

2 Years from the date of completion and transferred back to the bank.

Short Sale

Short Sale: Home sold, but sales price did not cover amount owed.


2 Years from the date the sale closed and was transferred to new owner or transferred back to the bank.


Debts are discharged through BK, client does not pay any debts owing.


2 Years from the date of discharge. Bankruptcy Chapter 13

Debts are paid back on a monthly scheduled payment plan.


2 Years from the date of dismissal.

8.7.9. Maximum DTI (High Balance)

Per AUS

8.7.10. Secondary Financing

Not allowed under High Balance guidelines.





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8.8. Termite Report Requirements Transaction Type Termite Required

Purchase Full Qualifying Rate/Term & Cash-out

Refinance IRRRL

Yes Yes Yes No

For new and proposed construction properties in areas where wood-destroying insect information is required, Forms NPCA-99-A and NPCA-99-B will be obsolete and should no longer be used after January 1, 2015.

In areas where wood-destroying insect information was mandatory for under construction or proposed construction properties, Notice of Value (NOV) Item #2B currently requires: Soil Treatment Guarantee (Proposed or Under Construction). "A properly completed Form NPCA-99a is required. If the soil is treated with a termiticide, a properly completed Form NPCA-99b is also required.

NOV Item #2B will be revised in WebLGY to show the new requirements for HUD- NPMA-99A and NPMA-99B. Until the changes in WebLGY are made, reference to the NOV Item #2B requirement should now be considered to mean HUD-NPMA-99A and NPMA-99B.

HUD NPMA-99-A is completed and certified by the builder. It describes the treatment applied by the pest control company under Box 1. If Box 1 is checked, then HUD-NPMA-99-B must be completed by the licensed pest control company and attached to HUD-NPMA-99-B. If the builder checked Box 2, the builder is certifying that they installed pressure treated lumber as a means of subterranean termite prevention in compliance with applicable building codes and requirements of HUD Mortgagee Letter 2001-4. HUD-NPMA-99-B is completed by the licensed pest control company describing the code-accepted treatment(s) applied: Soil Applied Liquid Termiticide, Wood Applied Liquid Termiticide, Bait System Installed, or Physical Barrier System Installed. HUD-NPMA-99-B must be attached to the HUD-NPMA-99-A.

Condominiums VA no longer requires Termite Reports on condos, including first floor Condominiums. However, a termite report is still required if it is called out for by the Appraiser or in the Purchase Contract. If a Termite Report reveals problems with sections of the condo held in common with other owners, the work will need to be completed by the Homeowners Association.

Note: Any work identified must be completed PRIOR to closing.

8.9. Escrow Withholds MWF will allow Escrow Withholds under limited circumstances for repairs to the property that cannot be completed prior to the close of escrow. The Withhold Agreement is required to be completed in its entirety.

Maximum allowable repairs not to exceed $5,000 (including MWF Fees).





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MWF will charge a final inspection fee(s) to ensure the completion of the work.

There must be a minimum of 2 bids from licensed contractors in the designated field for all work to be completed (the higher of the two bids will be used to determine the cost of repairs).

MWF requires a withhold of 1 ½ times the amount of the highest bid or $1,000, whichever is greater.

All escrow withholds must be approved in advance by a MWF Underwriting Manager or designee.

Secondary Marketing MUST be notified of the Withhold Approval.

The applicable product code must be used.

All parties involved in the withhold must sign the MWF withhold agreement.

All required repairs must be completed within 14 days of closing. If repairs are not completed within 14 days, MWF is authorized to use the allotted money from the withhold to have all repairs completed.

Funds will be released when the satisfactory final inspection (1004D) has been received.

The loan lock period has to cover the withhold period. Should the lock expire prior to the withhold being completed, MWF will charge the required lock extension fee(s) to the branch.

The Escrow Withhold Agreement must be completed in its entirety.

Branch/Broker compensation will be held and released upon proof of work completion.

Escrow withholds are not required when the following is met:

the incomplete work is limited to the installation of landscaping features due to inclement weather (lawns, shrubbery, etc.),

the estimate of the cost to complete the work is not greater than $2,500, AND

there is adequate assurance that the work will be completed timely an satisfactorily (usually 90 to 120 days).

8.9.1. Eligible Products

Standard VA

8.9.2. Ineligible Products/Features

Manufactured Homes

High Balance

8.9.3. Ineligible Repairs with Escrow Withholds

Structural repairs.

Foundation work.

Roofs.





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Items creating a livability issue such as health and safety.

Under no circumstances may a loan be closed if the uncompleted items affect livability or the integrity of the structure (i.e., lack of gas, electricity, or plumbing, HVAC or foundation defects).

Note: Inaccessible properties require an inspection prior to withhold approval.

8.10. Solar Equipment Restrictions As solar equipment is becoming more prevalent, the underwriter should analyze the Prelim for and of the following solar restrictions:

UCC-1 or Financing Statement, and / or

Notice of Independent Solar Energy Producer Contract.

Definition of a UCC-1 Financing Statement: The UCC-1 Financing Statement is a legal form that a creditor files to give notice that it has or may have an interest in the personal property of a debtor.

8.10.1. UCC-1

The Underwriter must condition for the UCC-1 to be terminated.

The Processor will be responsible to contact the title company and advise title that the UCC-1 must be terminated by the secured party.

Note: If a contract exists it can remain on title. The underwriter will condition for a letter from the Solar Company that indicates that it is not a lien on the property.

If the Prelim reflects the UCC-1 and/or the Notice of Independent Solar Energy produces a contract, it is important to request the copy of the lease agreement from the borrower.

In order for the title company to remove the note, they will require a separate termination of contract to be executed by the solar company.

Refer to the Solar Equipment Restrictions Policy and Procedures for additional information.

8.10.2. Solar Payments

There are two types of leases for Solar equipment, those with payments and those without payments.

If the lease has payments, the payments must be calculated into the borrower’s DTI.





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Transaction Type Termite Required

Purchase Full Qualifying Refinance

IRRRL

Yes Yes No

9. Specific Property Types - Eligible Products

9.1. Deed Restrictions All Deed Restrictions must be submitted to Underwriting for approval and adhere to agency guidelines.

9.2. Properties Subject to Age Restrictions If a housing development has an age restriction, it must comply with one of the following Fair Housing Act exemptions:

9.2.1. Age Restrictions - Any Age Restriction

The prohibitions against discrimination on the basis of age or familial status do not apply with respect to dwellings intended and operated for occupancy by persons 55 years of age or older provided that all of the following apply:

At least 80% of the occupied units are occupied by persons 55 years of age or older; and

The housing facility or community publishes and adheres to policies and procedures that demonstrate the intent to provide housing to persons 55 years of age or older; and

The housing facility or community can provide documentation for verification of occupancy, by means of:

o Reliable surveys and affidavits;

o Examples of published written policies and procedures for determination of compliance with the Fair Housing Act.

9.2.2. Required Documents for Age Restricted Properties

When it is determined that a housing development is subject to age restrictions, the Homeowners Association must complete and sign the form Housing Developments Subject to Age Restrictions. By signing this form the association certifies that the housing development is in compliance with the Fair Housing Act.

The fully executed form must be included in the underwriting package.

9.3. Manufactured Home Transactions


Code Description

VF30D 30 Year Fixed





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9.3.2. Loan Term

30-year mortgage only.

Fully amortizing fixed-rate mortgages

Principal residences

9.3.3. LTV/CLTV

See Product Matrix

9.3.4. Maximum Acreage

Limited to 10 Acres

9.3.5. Ineligible Manufactured Housing Terms/Products

The following loan terms/occupancy/land ownership types are ineligible for mortgage loans secured by manufactured homes:

Acreage > 10 Acres

Temporary buydowns

Single-wide manufactured homes

Homes located on leasehold estates

VA High Balance loans

9.3.6. Credit Score

See Minimum Credit Scores section.

9.3.7. Ratios

Ratios determined by AUS. All transactions must receive an AUS approval. No manual underwrites.

9.3.8. Appraisal

Manufactured Home Appraisal Report—Fannie Mae Form 1004C for an appraisal of a one-unit manufactured home based upon an interior and exterior inspection. A minimum of 2 manufactured home comparables are required.

9.3.9. Pricing

Contact the Capital Markets Department for current pricing for this product.

9.3.10. Property Eligibility

Be constructed after June 15, 1976, in conformance with the Federal Manufactured Home Construction and Safety Standards, as evidenced by an affixed certification label in accordance with 24 CFR 3280.11 (manufactured homes produced prior to that date are ineligible for guaranteed financing);

Be classified as real estate;


http://www.mwfwholesale.com/wp-content/uploads/2018/07/Manufactured-Home-Product-Matrix-Wholesale.pdf




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The mortgage must cover both the manufactured unit and its site and shall have a term of not more than 30 years from the date amortization begins;

Built and remains on a permanent chassis;

Designed to be used as a dwelling with a permanent foundation that meets VA specifications; and

Manufactured home to be a double-wide or larger.

9.3.10.1. Foundation Systems

A recorded HCD Form 433(A) – “Notice of Manufactured Home (Mobile home) or Commercial Coach, Installation on a Foundation System” is required for all manufactured homes prior to loan funding.

9.3.10.2. Modifications to Property

Modifications to property are allowed. The addition needs to be completed in a workman like manner and meet all VA MPR's and an Engineering Certification must be provided.

9.3.10.3. New Construction

Additional requirements apply per agency guidelines.

9.3.11. State Specific Manufactured Home Requirements

9.3.11.1. California

The State of California requires the following documentation:

o 433a - Notice of manufactured home installation on a foundation system.

o Engineering Cert (if any modification to the home)

o Alta 7 Endorsement to title

9.3.11.2. Colorado

The State of Colorado requires the following documentation:

o Affidavit of Real Property for Manufactured Homes

o Certificate of Permanent Location for a Manufactured Home

o Request for Purging of a Manufactured Home

o Engineering Cert (if any modification to the home)

o Alta 7 Endorsement to title

9.3.11.3. Washington

The State of Washington requires the following documentation:

o Manufactured Home Application (Application & instructions)

9.4. Condominium Projects Must be VA approved.





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9.4.1. General Condo Eligibility Requirements

The following guidelines apply to all condominium projects. Project information may be reported by the appraiser, or obtained through review of the Homeowners Association Certificate as well as from other types of condominium documents.

9.4.2. Ineligible Projects

The following are characteristics within resort destination areas that should be utilized to identify projects that are ineligible:

Projects with HOA litigation (see section for “litigation”).

Voluntary or mandatory revenue sharing agreements.

Mandatory rental pool agreements.

Occupancy restrictions mandated by the zoning.

Timeshare, live/work or segmented ownership projects.

Transactions under which the borrower will own more than one unit in the project.

Units less than 600 sq. ft.

The project name includes “hotel”, “motel”, “inn”, “resort” or “lodge.”

The project shares facilities with a hotel or motel.

The project is in an area zoned primarily for transient accommodations.

The unit is in a building that functions like a traditional condominium, yet the project contains additional resort type amenities or other buildings with resort type amenities.

The unit is fully furnished.

The unit does not have a full kitchen.

The project provides any of the following services:

o Management Desk

o Bellman

o Daily Maid Service

o Food Service

o Telephone Service

o Centralized Utilities (e.g., central telephone or cable)

o Centralized Key System not in Negotiated Terms

9.4.3. Completion

All common areas and amenities within the project (or subject phase) must be complete. If completion is in question, obtain the Final Certification of Substantial Completion (FNMA 1081) or equivalent document (appraisal addendum, builder’s certification, etc.), which lists the common amenities and facilities that are incomplete.





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All condominium projects having incomplete items are not eligible for the HOA Certification.

9.4.4. Multiple Ownership

A maximum of 10% of the units may be sold to or owned by one party.

9.4.5. Commercial Use

Commercial use within the project may not exceed 20% of the total square footage for the project and should be compatible with residential use.

9.4.6. Right of Refusal

Any right of first refusal in the project’s constituent documents will not impair the rights of a first mortgagee to:

Foreclose or take title to a condominium unit pursuant to the remedies contained within the security instrument.

Accept a deed in lieu of foreclosure in the event of default by a mortgagor.

Sell or lease a unit acquired by the mortgagee.

9.4.7. Adverse Environmental Factors

Any adverse environmental factors affecting the condominium project must be addressed by the appraiser.

Any factors affecting safety, habitability or marketability of the unit or project will render the project ineligible.

9.4.8. Litigation

If the HOA is involved in any litigation, arbitration, mediation or other dispute resolution process, obtain the details from the HOA. This information should be verified with an attorney’s letter, insurance information, structural report, and/or other documentation.

The following types of litigation generally pose little or no risk to the project and are acceptable:

o HOA is suing individual owners for unpaid dues.

o HOA is being sued for a “slip and fall” liability issue and project has adequate liability insurance to cover the damages being sought by the plaintiff.

o Other suits filed by the HOA that do not impact the value or livability of the project.

The following types of litigation may impact the project's marketability and are generally not acceptable:

o Suits filed against the HOA in which the damages exceed or are not covered by the HOA's insurance.





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Projects involved in pending litigation (lawsuit has not yet been filed) may be approved when the risk to the project is assessed and it is determined that:

o HOA insurance will cover potential damages; or

o HOA is in a position to benefit from the lawsuit.

MWF to review all litigation prior to loan approval.

9.4.9. Delinquent HOA Dues

If more than 15% of the units are delinquent on their HOA dues, the project is ineligible for financing.

In the event the mortgagee acquires a unit through foreclosure or deed-in-lieu, the mortgagee may not be responsible for more than 6 months of delinquent HOA dues.

9.4.10. Insurance Requirements

A Master Policy as well as HO6 coverage.

9.4.11. Pooled Insurance

Any project identified with a pooled insurance policy is ineligible.

9.5. Detached (Site) Condominiums VA site condos require full VA approval and the project must be on VA’s approved condo list. All condo documentation must be sent into VA for approval, even if the project or site condo does not have a regular HOA.

9.6. Planned Unit Developments A Planned Unit Development (PUD) is a parcel of land that contains common elements and improvements that are owned and maintained by a homeowner's association, corporation or trust. The common elements are for the benefit and use of the individual homeowners within the PUD. The housing units may be attached or detached.

9.7. Accessory Units A one unit property that includes an accessory unit (sometimes referred to as a mother-in-law or granny unit) will be considered a one unit property with the following conditions:

Conforms to the subject neighborhood and to the market.

The property is appraised based upon its current use.

The borrower qualifies for the mortgage without considering any rental income from the unit.

The appraisal report must demonstrate that the improvements are typical for the market through an analysis of at least (2) comparable properties that have the same use.1

Hazard insurance must be able to be obtained.





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Zoning of subject property must be “legal” or “legal non-conforming.”

Rebuild letter from the city/county must be received if zoning is “legal non-conforming.”

Subject property must be “highest and best use.” 1If accessory unit is an illegal unit, then 3 comparable properties that have the same use are required.

9.8. Illegal Accessory Units An accessory dwelling unit (ADU) is defined as a habitable living unit added to, created within, or detached from a primary single-family dwelling and contained on one lot. ADU’s are commonly understood to be a separate additional living unit, including kitchen, sleeping, and bathroom facilities.

ADU’s are subordinate in size, location, and appearance to the primary home and may or may not have separate means of ingress or egress. An attached unit contained within a single-family home, also known as a "mother-in-law apartment," or a “garage apartment” that may or may not be attached to the primary residence are the most common types of accessory dwelling unit.

An illegal property that includes an ADU will be considered a one unit property with the following conditions:

The determination of whether or not an ADU is a second dwelling unit is to be made by the appraiser.

Use conforms to the subject neighborhood and to the market.

The borrower qualifies for the mortgage without considering any rental income from the unit.

The appraisal report must demonstrate that the improvements are typical for the market through an analysis of at least three comparable properties that have the same use.

The lender ensures that the existence of the illegal additional unit will not jeopardize any future hazard insurance claim that might need to be filed for the property.

No exceptions may be noted on insurance policy with respect to additional unit.

9.9. Non-Permitted Additions, Improvements or Conversions Non-Permitted Additions, Improvements or Conversions require:

The quality of the work to be described in the appraisal and deemed acceptable “Workmanlike Quality” by the appraiser.

The addition does not result in a change in the number of units comprising the subject property. (i.e. a 1 unit converted into a 2 unit).

The appraiser must be able to demonstrate market acceptance by the use of at least one comparable sales with similar addition footage as the subject property.





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Non-permitted additions are typical for the market area and a typical buyer would consider the “unpermitted” additional square footage to be part of the overall square footage of the property.

9.10. Multiple Parcels MWF will lend on properties with multiple parcels that meet ALL of the following:

Each parcel must be conveyed in its entirety.

Parcels must be adjoining.

Each parcel must be zoned as residential.

Only one parcel may have a dwelling unit (limited nonresidential improvements such as a garage are acceptable).

The new mortgage must reflect as a first lien associated with each parcel (all parcels encumbered by the new mortgage).

In addition, the property MUST meet at least one of the criteria below:

The subject property improvements are built across the lot/APN line (part of improvements must be located on both).

One parcel is necessary for the utility of the other (i.e., the house is located on one parcel and well/septic is located on another).

One parcel is necessary for ingress/egress to the parcel with improvements.

Parcel(s) without improvements are not buildable.

The amenities of the improved property either encroach onto the adjoining parcel(s) or create a potential setback issue.

9.11. VA EEM


Code Description

VF30EEM VF15EEM

30 Year Fixed VA with EEM 15 Year Fixed VA with EEM

Note: EEM only eligible in California

Link to EEM Guidelines


https://mwfwholesale.com/wp-content/uploads/2018/07/EEM-UW-Manual-Wholesale.pdf




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10. Appendix

10.1. MWF Inter Vivos Revocable Trust Lending California

10.1.1. Definition

An Inter Vivos Revocable Trust (also known as a Family Trust or Inter Vivos Trust) is a Trust whose terms become effective while the person who creates the Trust (also called the Settlor, Grantor or Trustor) is still alive and because it is revocable in the sense that the Trust can be changed or cancelled at any time for any reason during the Settlor’s lifetime. The Trust becomes the legal owner of property, investments, and assets in a process called funding. Those assets are used for the benefit of another person, called a Beneficiary. A Trustee manages the Trust and has legal capacity to act on the Trust’s behalf according to the terms of the Trust.

10.1.2. Key Compliance Components

Must be an Inter Vivos Revocable Trust

One borrower (credit applicant) must be a Settlor, Trustee & Beneficiary

Title to the property must be vested solely in the Trust or in the trust and an individual not a party to the Trust

Trustees must have the authority under the Trust documents to mortgage the real property securing the loan

All Trustees must sign the Notice of Right to Cancel, initial TIL and final TIL

MWF California Certification of Trust (notarized and signed by all Trustees) or acceptable Attorney’s Opinion Letter is required

Property and Trust must be in California

10.1.3. Trust Requirements

Inter Vivos Revocable Trusts are the only types of Trusts that are acceptable under MWF guidelines. Other types of Trusts such as Nominee, Irrevocable or Testamentary Trusts are not eligible.

A loan transaction where title to the real property is vested in an Inter Vivos Revocable Trust is eligible for financing under MWF policy as long as the Trust has been established in the State of California, has complied with local and state regulations and the transaction meets the following criteria:

There must be a borrower (credit applicant) and a validly existing Trust

At least one borrower (credit applicant) must be a Settlor, Trustee & Beneficiary. This person is considered the Primary Borrower. In the case of an owner-occupied property, this Primary Borrower must occupy the mortgaged property, become personally liable on the Note and acknowledge the security instrument as Settlor

All Settlors are required to sign the Inter Vivos Revocable Trust as Borrower Acknowledgement to the security instrument





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All parties whose income or assets will be used to qualify for the mortgage loan must sign the Note

If the Trust is established jointly, there may be more than one Primary Beneficiary as long as the income or assets of at least one of the individuals establishing the Trust will be used to qualify for the mortgage loan

The Trustee(s) must have the power under the terms of the Trust to mortgage the real property that will secure the mortgage loan

10.1.4. Eligible Property and Occupancy Types include

1-4 Unit Dwelling (Owner Occupied or Non Owner Occupied)

1 Unit Second Home

10.1.5. Eligible Programs

o Conventional

FHA

USDA

VA

10.1.6. Documentation Requirements

Copy of Trust document

MWF California Certification of Trust executed by the Trustee or an acceptable attorney opinion letter. If using an attorney opinion letter, it must verify at a minimum the following:

o The Trust was validly created and is duly existing under applicable law

o The Trust is revocable

o The borrower (credit applicant) is the Settlor of the Trust and the Beneficiary of the Trust

o The Trust assets may be used as collateral for a loan

o The Trustee is:

– Duly qualified under applicable law to serve as Trustee, – Is the borrower, – Is the Settlor, – Is fully authorized under the Trust documents and applicable law

to pledge or otherwise encumber the Trust assets

10.1.7. Signature Requirements

The examples of signatures shown below are appropriate for California transactions only. Under California law, the term “Settlor” refers to the individual(s) establishing the Trust; therefore MWF uses this terminology in the signature examples. MWF has also used the term “credit applicant” to refer to an individual whose income and assets are used to qualify for the transaction.





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All borrowers (credit applicants) must execute the Note individually (if there are any co-signers, each co-signer must also execute the Note as an individual)

All borrowers who are named as Trustee must execute the Note as Trustee

The full title of the Trust including the date the Trust was established must appear below the signature line for every Trustee

Example Trust Signature Information: For this example, assume Sally Smith is the Trustor, Trustee and the Settlor of the Sally Smith Family Trust, Dated January 1, 2000. Sally will be using her income and assets to qualify. Title is vested 100% in the Trust.

Also assume Joe Smith is a Trustee, but not a Settlor and will not be a borrower (credit applicant) on the loan transaction.

Note Agreement (aka Note) Signatures: The Note must be signed individually by the borrower(s) (credit applicant(s)) whose income and assets were used to qualify for the loan and by all Trustees.

Signature example on the Note for Joe Smith, a Trustee who is not a Settlor and is not a Credit Applicant:

Joe Smith 1/1/2013

Joe Smith, as Trustee of the Sally Smith Family Trust under the Trust Instrument Dated January 1, 2000 for the Benefit of Sally Smith

Note: Joe Smith is signing his / her name as Joe Smith and it is dated as of the date the loan documents are signed. Nothing else should be added to his signature. For example, the signature should not be Joe Smith Trustee or anything similar – just have Joe sign his name.

Typed below the signature line is Joe Smith’s name and the Trust information.

Signature example on the Note for Sally Smith, who is a Trustee, Settlor and a borrower (credit applicant):

Sally Smith 1/1/2013

Sally Smith, Individually and as Trustee of the Sally Smith Family Trust under Trust Instrument Dated January 1, 2000 for the Benefit of Sally Smith

Note: Sally Smith is signing her name individually as the borrower (credit applicant) and on behalf of the Trust as Trustee at the same time.

Addendum to Note - Inter Vivos Trust (aka Trust Addendum) Signatures: The Trust Addendum to the Note is signed by Sally Smith individually and as Trustee on one line and on a separate line as a Settlor. Joe Smith signs as Trustee. See the formats for these signatures below.





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Sally Smith, Individually and as Trustee of the Sally Smith Family Trust under Trust Instrument Dated January 1, 2000 for the Benefit of Sally Smith


Revocable Trust Settlor –Sally Smith

Joe Smith 1/1/2013


Deed of Trust and PUD, 1-4, Condo Riders Signatures: The Deed of Trust, PUD, Condo and 1-4 Family Riders are signed by Sally Smith as Trustee and Joe Smith as Trustee in the formats shown below. Remember, title is fully vested solely in the Trust for this example.


Sally Smith, as Trustee of the Sally Smith Family Trust under Trust Instrument Dated January 1, 2000 for the Benefit of Sally Smith

Joe Smith 1/1/2013


Inter Vivos Revocable Trust as Borrower Acknowledgement to the Deed of Trust: This document is signed by Sally Smith as Settlor. The format for this signature is as follows:


Revocable Trust Settlor -Sally Smith

Inter Vivos Revocable Trust Rider to Deed of Trust: This document is signed by Sally Smith as Settlor and Trustee. Joe Smith signs as Trustee. The formats for these signatures are as follows:



Joe Smith 1/1/2013



Revocable Trust Settlor -Sally Smith





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Federal Truth-in-Lending & Itemization of Amount Financed (Initial & Final): These documents are signed by Sally Smith as borrower (credit applicant) and Trustee. Joe Smith signs as Trustee.


Borrower-Sally Smith



Joe Smith 1/1/2013


Notice of Right to Cancel (Refinance Transactions): The Notice of Right to Cancel is signed by Sally Smith as borrower (credit applicant) and Trustee. Joe Smith signs as Trustee.


Borrower-Sally Smith



Joe Smith 1/1/2013


10.1.8. Title and Title Insurance Requirements

The title to the property is vested solely in the Trust (or Trustee on behalf of the Trust) or in the Trust and an individual not a party to the Trust.

Title insurance may not contain any exceptions to coverage based on the mortgaged property being in the living Trust (note: the title insurance company will require their own separate certification of Trust from the Trustee).

10.1.9. Loan File Requirements

Prior to docs, the loan file must contain all of the following:

A completed Mountain West Financial Underwriting Trust Lending Checklist

A completed Mountain West Financial Doc Tech and Funder Lending Trust Checklist

A complete copy of the Trust instrument





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A complete copy of the Title Company Trust Certification executed and notarized and

The MWF California Certification of Trust notarized and signed by all Trustees or acceptable attorney’s opinion letter addressed to MWF

10.1.10. Power of Attorney

The Veteran must execute a general or specific POA which is valid and legally adequate.

The Veteran’s attorney in fact (as specified in the POA) must use this POA to apply for a Certificate of Eligibility (COE) and initiate processing of a loan on behalf of the Veteran.

A military POA is considered a general POA and is only valid during the Active Duty Service members (ADSM) period of deployment, not to exceed 1 year.

To complete the loan transaction using an attorney in fact, VA also requires the Veteran’s written consent to the specifics of the transaction either through a general POA or a specific POA.

General POA: The Veteran’s signature on both the sales contract and the Uniform Residential Loan Application, as long as the Veteran’s intention to obtain a VA loan on the particular property is expressed somewhere in those documents.

Specific POA: A specific power of attorney or other document(s) signed by the Veteran, which encompasses the elements below:

o Entitlement: A clear intention to use all or a specified amount of entitlement.

o Purpose: A clear intention to obtain a loan for purchase, construction, repair, alteration improvement, or refinance.

o Property Identification: Identification of the specific property.

o Price and Terms: The sales price, if applicable, and other relevant terms of the transaction.

o Occupancy: The Veteran’s intention to use the property as a home to be occupied by the Veteran (or other applicable VA occupancy retirement or spouse and/or guardian for dependent children).

Digital signatures can be accepted as an original signature or wet signature as defined by the Electronic Signatures in Global and National Commerce Act, commonly referred to as the E-sign Act.

VA may consider an exceptional case if serious hardship may result due to the time or other pertinent factors involved in obtaining the Veteran's consent to the specific transaction. Specific details need to be submitted to VA RLC where the property is located for approval.





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10.1.11. Live and Well Certificate

When a power of attorney (POA) is used, the lender must verify that the veteran is alive, and, if on active military duty, not missing in action. To do this, the lender must complete a POA certification. Use following text sample for an acceptable VA POA certification, only if provided on MWF Letterhead:

Certification When a Power of Attorney Is Used

“Mountain West Financial, Inc., certifies that written evidence in the form of

correspondence from the veteran or, if on active military duty, statement of his

or her commanding officer (including statement of person authorized to act for

said officer), affirmatively indicating that the veteran was alive and, if the veteran

is on active military duty, not missing in action status on [date], was examined

by [Name of Underwriter] and that the said date is subsequent to the date the

note and security instruments were executed on the veteran’s behalf by the

attorney-in-fact.”

10.2. Borrower Fees and Charges VA limits the fees that a veteran may pay when obtaining a VA-guaranteed home loan. Veterans may pay a maximum of a one percent origination fee charged by the lender (plus reasonable discount points) as well as reasonable and customary amounts for certain itemized fees. The following subparagraphs provide greater detail on allowable and unallowable fees.

10.2.1. One Percent Origination Fee

Lenders may charge the veteran a flat fee up to one percent of the loan amount. The flat fee is intended to cover lender’s cost of services which are not reimbursable as “itemized fees.” Non-reimbursable fees that are not included in the flat fee are considered unallowable and may not be charged. For Interest Rate Reduction Refinancing Loans (IRRRLs), this fee may not exceed one percent of the existing VA loan balance of the loan being refinanced plus the cost of any energy efficient items less any cash payments from the veteran—see line 4 on VA Form 26-8923, IRRRL Worksheet.

10.2.2. Unallowable Itemized Fees

If the lender charges the full 1% loan origination fee, they cannot charge unallowable fees. Note: VA treats pest inspection fees the same as any other unallowable fee. However, if the origination fee charged is less than 1% as stated above, the lender may charge the veteran up to 1% for unallowable fees. In all cases, the aggregate of the loan origination fee and unallowable fees cannot exceed the 1% threshold.

Attorney’s services other than for title work

Amortization schedules, pass books, and membership or entrance fees





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Commitment fees or marketing fees of any secondary purchaser of the mortgage and preparation and recording of assignment of mortgage to such purchaser

Document preparation fees

Escrow fees or charges

Finder Fees (whether affiliated with the lender or not)

Home Warranty Fee

Interest rate lock-in fees

Lender’s appraisals

Lender’s inspections, except in construction loan cases

Loan application or processing fees

Loan Broker Fees

Loan closing or settlement fees

Notary fees

Photographs

Postage and other mailing charges, stationary, telephone calls, and other overhead

Preparing loan papers or conveyance fees

Tax service fees

Third Party Negotiator Fee

Trustee’s fees or charges

Truth in Lending Disclosure preparation Fee

Note: An exhaustive list of unallowable itemized fees cannot be provided because the types of fees vary widely by originator and areas. If an origination fee is not charged, the originator may assess other fees as long as the aggregate amount does not exceed one percent of the loan.

10.2.3. Reasonable and Customary Itemized Fees

Veterans may pay reasonable and customary amounts for the following services. Whenever these itemized fees relate to services performed by a third party, the veteran may only pay the actual amount charged by the third party. See reasonable and customary itemized fees below:

Appraisal and compliance inspections

Recording fees

Credit report

Prepaid items (taxes, assessments, and similar items)

Hazard insurance

Flood determination

Survey





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Title examination

Title insurance

Special mailing fees for refinancing loans

Mortgage Electronic Registration System (MERS) fee

10.2.4. Fees that Cannot be Financed in Loan Amount

Flat fees charged by second lien holders to subordinate existing secondary financing.

o Veteran must pay with own funds.

Processing type fees such as “subordination prep” charged by closing agents or other third parties to process subordination may not be charged to the Veteran.

10.2.5. Credit Report and AUS Fees

As stated in VA Circular 26-14-36 the policy for both credit report charges and AUS charges require substantiated evidence with corresponding invoices. The combined total for all credit reports cannot exceed $100. The combined total for AUS submissions cannot exceed $100. The only time where both a credit report and an AUS can be charged to the Veteran is on AUS “Refer” cases. A maximum total of $100 still applies for the combined total of the credit report and AUS charges.

Credit reports charged to Veterans are limited to the actual invoice price charged to the lender, not to exceed a maximum combined total of $100. The invoice must be presented at the time of VA file audit. If invoices cannot substantiate the charge to the Veteran on the HUD-1, a refund will be due to the Veteran.

10.3. Fees Q&A Can a veteran use premium pricing to pay for the 1% non-allowable in fees he/she is allowed to pay for when not charged an origination fee?

Answer: Yes.

Is it acceptable for the loan originator to use premium pricing from the interest rate (YSP) to pay the VA Funding Fee on behalf of the veteran?

Answer: This is acceptable.

Can the escrow/closing fee be paid with the rebate pricing?

Answer: Yes.

Can a loan broker charge an origination fee?

Answer: Yes.

Can a seller pay the penalty for veteran buyer having to break an apartment lease?

Answer: Yes.
