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Mod Corr Jumbo Product Suite

Version 5/21/14 REV (12/7/15) Posted – 12/7/15 Page 603-i

603 - Table of Contents

603 - JUMBO PRODUCTS ............................................................................................. 603-1

PRODUCT DESCRIPTION AND PRODUCT CODES ............................................................................... 603-1 Overview .................................................................................................................... 603-1 Wholesale Transaction .................................................................................................. 603-1 Seller Responsibility ..................................................................................................... 603-1 FRM Product Description ............................................................................................... 603-1

Jumbo Fixed Rate Mortgage ....................................................................................... 603-1 FRM Product Codes ...................................................................................................... 603-2 ARM Product Codes ...................................................................................................... 603-2

Jumbo Adjustable Rate Mortgage ................................................................................ 603-2 ARM Summary ............................................................................................................ 603-3 ARM Product Disclosures ............................................................................................... 603-3

LOAN DETAILS ................................................................................................................... 603-4 Overview .................................................................................................................... 603-4 Loan Product Parameters – FRM/ARM Loan Parameters .................................................... 603-4 Primary Residence: Purchase and Rate/Term Refinance ................................................... 603-4 Second Home: Purchase and Rate/Term Refinance ......................................................... 603-5 Primary Residence: Cash-Out Refinance (3) ................................................................... 603-6 Second Home: Cash-Out Refinance (3) .......................................................................... 603-6 Investment Property: Purchase; Rate/Term (3) .............................................................. 603-7 Escrow/ Impound Waiver .............................................................................................. 603-8 Price Adjustments ........................................................................................................ 603-8 Loan Limits ................................................................................................................. 603-8 LTV/(H)CLTV ............................................................................................................... 603-8 Mortgage Credit Certificate (MCC) .................................................................................. 603-8 Negative Amortization .................................................................................................. 603-9 Occupancy .................................................................................................................. 603-9 Prepayment Penalty ..................................................................................................... 603-9 Eligible States ............................................................................................................. 603-9 State Restrictions ...................................................................................................... 603-10

MSI State-Specific Guidelines ................................................................................... 603-10 DOCUMENTATION REQUIREMENTS ........................................................................................... 603-11

Documentation Requirements ...................................................................................... 603-11 Age of Documents .................................................................................................. 603-11

4506-T ..................................................................................................................... 603-11 Verbal Verification of Employment ............................................................................... 603-11

GENERAL UNDERWRITING GUIDELINES...................................................................................... 603-12 Overview .................................................................................................................. 603-12 Underwriting Method .................................................................................................. 603-12 Presentation .............................................................................................................. 603-12 Accessory Units ......................................................................................................... 603-12 Assets ...................................................................................................................... 603-13 Bank Deposits ........................................................................................................... 603-13 Business Accounts ..................................................................................................... 603-13

Continued on next page


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Table of Contents, Continued Cash Value of life insurance ........................................................................................ 603-14 Gift Funds ................................................................................................................. 603-14 Loans secured by borrower’s assets ............................................................................. 603-15 Marketable Securities ................................................................................................. 603-15 Retirement Accounts .................................................................................................. 603-16 Sale of Real Property .................................................................................................. 603-16 Trust Funds ............................................................................................................... 603-16 United States Saving Bonds ........................................................................................ 603-16 Ineligible Sources of Funds (Assets) ............................................................................. 603-17 Verification of Foreign Assets....................................................................................... 603-17 Required Reserve Amounts (PITIA) .............................................................................. 603-18 Appraisal Requirements .............................................................................................. 603-19 Specific Requirements based on Loan Amount and Median Home Price Multiples ................ 603-20 High Dollar Appraisal Addendum .................................................................................. 603-21 Appraisal Transfers .................................................................................................... 603-21 Appraisal Transparency Report .................................................................................... 603-22 Borrowers ................................................................................................................. 603-22 Chain of Title ............................................................................................................. 603-23 Condominiums .......................................................................................................... 603-23 Construction to Perm .................................................................................................. 603-24 Borrower in Construction Industry ............................................................................... 603-25 Credit Considerations ................................................................................................. 603-26 Authorized User Accounts ........................................................................................... 603-26 Bankruptcy, Foreclosure/Short Sale or Modification ........................................................ 603-26 Charge-offs, Collections, Judgments, Public Records....................................................... 603-27 Credit History ............................................................................................................ 603-27 Credit Report Inquiries ............................................................................................... 603-27 Disputed Trade lines................................................................................................... 603-28 Mortgage/Rental History ............................................................................................. 603-28 Deed Restrictions ....................................................................................................... 603-29 Delayed Financing ...................................................................................................... 603-29 Conversion or Sale of Principal Residence ..................................................................... 603-29 Disaster Policy ........................................................................................................... 603-31 FICO (Credit) Scores .................................................................................................. 603-31 Financial Reform – ATR/QM – Max DTI ......................................................................... 603-31 Income and Employment ............................................................................................ 603-32 Automobile Allowance ................................................................................................ 603-33 Borrower employed by a family member or party to the transaction ................................. 603-33 Capital Gains Income ................................................................................................. 603-33 Child Support, Alimony, Separate Maintenance .............................................................. 603-33 Commission Income ................................................................................................... 603-34 Employment Offers or Contracts .................................................................................. 603-34 Foreign Income ......................................................................................................... 603-34 Long-term Disability ................................................................................................... 603-34 Rental Income – Property Other than Subject ................................................................ 603-35 Retirement, Social Security and Pension Income ............................................................ 603-35 Salaried Borrowers ..................................................................................................... 603-36 Secondary Employment .............................................................................................. 603-36



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Table of Contents, Continued Self-Employed Borrowers ............................................................................................ 603-37 Rental Income-Requirements for Investment Property .................................................... 603-38 Rental Income – Qualifying ......................................................................................... 603-39

Cash Flow Method: ................................................................................................. 603-40 Baseline Method: .................................................................................................... 603-41 Lease Agreements .................................................................................................. 603-41

Inspections and Certifications ...................................................................................... 603-41 Interested Party Contributions ..................................................................................... 603-42 Large Deposits .......................................................................................................... 603-42 Liabilities .................................................................................................................. 603-43 Alimony, Child Support or Separate Maintenance ........................................................... 603-43 Business Debt in Borrower’s Name ............................................................................... 603-43 Court-Ordered Assignment of Debt .............................................................................. 603-43 Co-Signed Loans ........................................................................................................ 603-44 Debts Secured by Financial Assets ............................................................................... 603-44 Deferred Payments – Including Student Loans ............................................................... 603-44 HELOC ...................................................................................................................... 603-44 Mortgage Assumptions ............................................................................................... 603-45 Open-End (30-day) Accounts ...................................................................................... 603-45 Payoff VS Paydown .................................................................................................... 603-45 Multiple Mortgages to the Same Borrower ..................................................................... 603-46 Net Tangible Benefit ................................................................................................... 603-46 Non-ARMS Length Transactions ................................................................................... 603-46 Non-Occupant Co-Borrower ......................................................................................... 603-46 Property Located in a Newly Constructed Subdivision ..................................................... 603-46 Qualifying Rate .......................................................................................................... 603-46 Property-General Requirements ................................................................................... 603-47 Property Types .......................................................................................................... 603-48 Property Flipping ....................................................................................................... 603-49 PUD Requirements ..................................................................................................... 603-49 Qualifying Payment .................................................................................................... 603-49 Refinance Transactions ............................................................................................... 603-50 Subordinate (Secondary) Financing .............................................................................. 603-52 Shared Private Amenities ............................................................................................ 603-53 Temporary Buy Down ................................................................................................. 603-53 Trailing Co-Borrower .................................................................................................. 603-53 Water Supply ............................................................................................................ 603-53 Work Completion Escrows ........................................................................................... 603-53

RESTRICTIONS ................................................................................................................. 603-54 Introduction .............................................................................................................. 603-54 Borrower Paid Fees .................................................................................................... 603-54 High Cost and Higher Priced Mortgage Loans ................................................................. 603-54

CLOSING DOCUMENTATION ................................................................................................... 603-55 Description ............................................................................................................... 603-55 Late Charges ............................................................................................................. 603-55 State Specific Documents ........................................................................................... 603-55 MERS ....................................................................................................................... 603-55


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603 - Jumbo Products

Product Description and Product Codes REV (06/02/15) –

Overview

This product summary provides specific product-related criteria which are in addition to those guidelines provided in the Underwriting chapter of this Seller Guide. Should there be a conflict between the requirements contained in this

product suite versus the guidelines contained in the Underwriting Chapter, the Seller should follow the criteria set forth in this product summary.

Sellers should reference the MSI Underwriting Chapter or Fannie Mae/Freddie Mac Seller Guide for guidelines not specifically addressed in this Product Suite (or the Underwriting Chapter).

The guidelines for this product are based on Fannie Mae Guidelines. • The loans are manually underwritten and are not to be submitted

to DU or LP.

Wholesale Transaction

The MSI Mod Corr Jumbo Product must be: • Closed in the name of MSI; Jumbo loans may not be closed

in the Seller’s name. o Note that the loan must be disclosed as a “Table Funding

Wholesale Product” and the Yield Spread Premium must be properly disclosed.

• The loan must be submitted to MSI for a cursory review; the loan is then submitted for underwriting by a 3rd party underwriter. That Underwriter’s decision is final.

Seller Responsibility

All loans sold to MSI must meet the product parameters in effect at the time the loan is locked. Loans that do not meet the specific product descriptions outlined in this product summary are not eligible for purchase.

FRM Product Description

Jumbo Fixed Rate Mortgage The Jumbo fixed rate mortgage (FRM) product has the option of a 10,

20, 15 or 30-year amortization term. Continued on next page



Product Description and Product Codes, Continued

FRM Product Codes CLAR (02/03/15)

The following matrix outlines the applicable product codes for the Jumbo FRM product suite:

Product Product Code Loan Term Jumbo Fixed Rate Mortgage – Fully Amortizing 30-Year FRM 300438 30-Years 20-Year FRM 200438 20-Years 15-Year FRM 150438 15-Years 10-Year FRM 100438 10-Years Notes: See the Modified Correspondent Rate Sheet for pricing adjustments for loan terms. Assumable: FRM are not assumable. Important Note: The loan file must be uploaded to the MSI system using a Fannie Mae 3.2 file form prior to lock. Loans

that are not uploaded are not able to be locked.

ARM Product Codes

Jumbo Adjustable Rate Mortgage The Jumbo adjustable rate mortgage (ARM) product has only a 30-

Year amortization but offers the following options: • 5/1, 7/1, and 10/1 LIBOR ARM.

Product Product Code Loan Term Jumbo Adjustable Rate Mortgage (ARM)-Fully Amortizing 5/1 LIBOR– 2/2/5 Caps 510438 30 Year 7/1 LIBOR- 2/2/5 Caps 710438 10/1 LIBOR -2/2/5 Caps 910438 Notes: See the Modified Correspondent Rate Sheet for pricing adjustments. Assumable: May be subject to credit approval. Convertible: No See ARM Summary. Important Note: The loan file must be uploaded to the MSI system using a Fannie Mae 3.2 file form prior to lock. Loans

that are not uploaded are not able to be locked.



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Product Description and Product Codes, Continued

ARM Summary

The following products are adjustable rate mortgages (ARM) that allow for a changing rate/payment over the life of the mortgage. Products included herein are:

Fully Amortizing Jumbo ARM Products Product Margin Adjustment Caps Rate Fixed for

(1) Conversion

To FRM? Assumable

1st Annual Lifetime 5/1 2.25% 2 % 2 % 5 % 60 Months No (2) 7/1 2.25% 2 % 2 % 5 % 84 Months No (2)

10/1 2.25% 2 % 2 % 5 % 120 Months No (2) Notes: Index - 1 Year LIBOR. The index is the average of interbank offered rates for one-year U.S. dollar denominated deposits in the London market (“LIBOR”), as published in the Wall Street Journal. The index figure is the most recent index figure from the Wall Street Journal that is available on the day that is 45 days before the interest rate change date. Floor: Margin (1.) Interest rate is fixed at close for the period noted, at the end of which time the rate changes annually thereafter. First interest

rate change date is (for 5/1, 59 ; for 7/1, 83; and for 10/1, 119) months from first payment due date. Subsequent interest rate change dates are once every 12 months after the first interest rate change date.

(2.) Assumable during the adjustable rate period by qualified Borrowers who meet investor guidelines. Fees are 1% of the outstanding principal balance plus any actual costs (e.g. credit report, mortgage insurance, appraisal fees) which are subject to change.

ARM Product Disclosures

ARM Disclosures are required in accordance with any federal, state, jurisdictional or regulatory requirements.



Loan Details

Overview Unless otherwise noted herein, the loan details noted herein apply to all loans in this product suite.

Loan Product Parameters – FRM/ARM Loan Parameters

REV (8/21/15)

FRM and ARM Loan Parameters Primary Residence: Purchase and Rate/Term Refinance

Minimum FICO = FRM 700; ARM 720 Max (combined) Loan Amount (1)

Market Class (4) Maximum LTV/CLTV-(H)CLTV Single Family (2) Attached Condo

FICO < 720 2-Unit 3-4 Unit

$750,000

1 75%/85% 80%/80%

75%/75% 75%/75% 70%/70%

2 80%/80% 75%/75% 75%/75% 70%/70% 3 80%/80% 75%/75% 75%/75% 70%/70% 4 75%/75% 70%/70% 70%/70% 65%/65%

10 X MHP 70%/70% (5) 70%/70% (5) 70%/70% (5) 70%/70% (5) $750,001

To $2 Million

1 80%/80% 75%/75% 75%/75% 70%/70% 2 80%/80% 75%/75% 75%/75% 70%/70% 3 80%/80% 75%/75% 75%/75% 70%/70% 4 75%/75% 70%/70% 70%/70% 65%/65%

10 X MHP 70%/70% (5) 70%/70% (5) 70%/70% (5) 70%/70% (5) > $2 Million

To $2.5 Million

1 75%/75% 70%/70% Not Permitted

2 75%/75% 70%/70% 3 75%/75% 70%/70% 4 70%/70% 65%/65%

10 X MHP 70%/70% (5) 70%/70% (5) > $2.5 Million

To $3 Million

1 70%/70% 65%/65% 2 70%/70% 65%/65% 3 70%/70% 65%/65% 4 65%/65% 60%/60%

10 X MHP 70%/70% (5) 65%/65% (5) (1.) Maximum combined loan amount applies when secondary financing exists (total of all loan/lines against subject property).

Minimum loan amount is $1 over current Fannie/Freddie conforming limits. (2.) Detached/Attached, PUD, Detached Condo and Attached Condo with FICO ≥ 720 (3.) MHP = Median Home Price – Located on the MSI Median Home Price matrix. Use the MHP LTV ratios when the combined

loan amount exceeds 10 times the subject property’s county-level MHP. See the MHP matrix at this link: MSI Jumbo Median Home Prices.

(4.) See the Market Class Classification Matrix at this link: MSI Jumbo Market Classification (5.) Max LTV/CLTV is lesser of 10 times MHP or LTV/CLTV based on Market Classification.


http://www.msiloans.biz/Seller%20Guide/JUMBO/MSI_Jumbo_Median_Home_Prices.pdf


http://www.msiloans.biz/Seller%20Guide/JUMBO/MSI_Jumbo_Market_Classification.pdf



Loan Details, Continued

Loan Product Parameters , Continued

FRM and ARM Loan Parameters Second Home: Purchase and Rate/Term Refinance

Minimum FICO = FRM 700; ARM 720 Max (combined) Loan Amount (1)

Market Class (4) Maximum LTV/CLTV-(H)CLTV Single Family (2) Attached Condo

FICO < 720 2-Unit 3-4 Unit

$650,000

1 80%/80% 75%/75%

Not Permitted 2 80%/80% 75%/75% 3 80%/80% 75%/75% 4 75%/75% 70%/70%

10 X MHP 65%/65% (5) 65%/65% (5) > $650,000

To $1.5 Million

1 75%/75% 70%/70% 2 75%/75% 70%/70% 3 75%/75% 70%/70% 4 70%/70% 65%/65%

10 X MHP 65%/65% (5) 65%/65% (5) > $1.5 Million

To $2 Million

1 70%/70% 65%/65% 2 70%/70% 65%/65% 3 70%/70% 65%/65% 4 65%/65% 65%/65%

10 X MHP 65%/65% (5) 65%/65% (5) (1.) Maximum combined loan amount applies when secondary financing exists (total of all loan/lines against subject property).

Minimum loan amount is $1 over current Fannie/Freddie conforming limits. (2.) Detached/Attached, PUD, Detached Condo and Attached Condo with FICO ≥ 720 (3.) MHP = Median Home Price – Located on the MSI Median Home Price matrix. Use the MHP LTV ratios when the combined

loan amount exceeds 10 times the subject property’s county-level MHP. See the MHP matrix at this link: MSI Jumbo Median Home Prices.

(4.) See the Market Class Classification Matrix at this link: MSI Jumbo Market Classification (6.) Max LTV/CLTV is lesser of 10 times MHP or LTV/CLTV based on Market Classification.








Loan Product Parameters , Continued

FRM and ARM Loan Parameters Primary Residence: Cash-Out Refinance (3)

Minimum FICO = FRM/ARM 720 Max (combined) Loan Amount (1)

Market Class (2) Maximum LTV/CLTV-(H)CLTV Single Family Attached/Detached

Condo 2-Unit 3-4 Unit

$750,000

To $1.5 Million

1 70%/70% 70%/70% Not Permitted

2 70%/70% 70%/70% 3 70%/70% 70%/70% 4 65%/65% 65%/65%

$1.5 Million To

$2 Million

1 65%/65% 65%/65% 2 65%/65% 65%/65% 3 65%/65% 65%/65% 4 60%/60% 60%/60%

(1.) Maximum combined loan amount applies when secondary financing exists (total of all loan/lines against subject property). Minimum loan amount is $1 over current Fannie/Freddie conforming limits.

(2.) See the Market Class Classification Matrix at this link: MSI Jumbo Market Classification (3.) Max Primary Cash Out = LTV/CLTV/HCLTV > 65% = $400,000; ≤ 65% = $500,000.

Max Second Home Cash Out = $350.000 (4.) See Reserves Requirements at this link: Required Reserve Amounts (PITIA)

FRM and ARM Loan Parameters Second Home: Cash-Out Refinance (3)




$650,000 1 70%/70% 70%/70% Not Permitted

2 70%/70% 70%/70% 3 70%/70% 70%/70% 4 65%/65% 65%/65%

> $650,000 To

$1.5 Million

1 65%/65% 65%/65% 2 65%/65% 65%/65% 3 65%/65% 65%/65% 4 60%/60% 60%/60%

> $ 1.5 Million To

$2 Million

1 60%/60% 60%/60% 2 60%/60% 60%/60% 3 60%/60% 60%/60% 4 55%/55% 55%/55%






Loan Product Parameters, Continued

FRM and ARM Loan Parameters Investment Property: Purchase; Rate/Term (3)




$2 Million

1 60%/60% 60%/60% Not Permitted

2 60%/60% 60%/60%

(1.) Maximum combined loan amount applies when secondary financing exists (total of all loan/lines against subject property). Minimum loan amount is $1 over current Fannie/Freddie conforming limits.

(2.) See the Market Class Classification Matrix at this link: MSI Jumbo Market Classification (3.) See Reserves Requirements at this link: Required Reserve Amounts (PITIA)






Escrow/ Impound Waiver

MSI may permit escrow/impound waivers under the following guidelines: LTV ≤ 80.00% are eligible for escrow/impound waivers to MSI

guidelines. • Both taxes and insurance must be waived, no “split” waivers

permitted. MI premiums must always be included in the escrow account, unless a

single premium paid in full at closing. If an escrow account is established, any applicable flood insurance

must always be escrowed. The “tax payment rule” applies in all cases, regardless of waiver of

escrow. Note: Escrow waivers must be locked as “escrow waivers” and a price

adjustment will apply.

Price Adjustments

Price Adjustments may be applied against jumbo loans. All price adjustments are cumulative. See the Current Rates on www.msiloans.biz for details.

Loan Limits Maximum = See specific product matrices for loan amount maximums. Minimum = One dollar ($1.00) greater than the current Fannie Mae/Freddie Mac loan limits.

LTV/(H)CLTV LTV = Loan to Value. The loan amount divided by the lesser of the appraised value or the purchase price.

CLTV = Combined Loan to Value. The combined loan amounts of any first and second liens divided by the lesser of the appraised value or purchase price.

(H)CLTV = If the subordinate financing is in the form of a Home Equity Line of Credit (HELOC), the full credit line must be used to determine the HCLTV.

Mortgage Credit Certificate (MCC)

Mortgage Credit Certificates are not permitted.


http://www.msicorr.com/




Negative Amortization

Not Applicable.

Occupancy Owner-occupied single family primary residence permitted.

• See Condominiums for details. Owner-occupied, primary residence 2-4 unit properties permitted, see

product matrices for details. Second Vacation single family unit permitted.

• See Condominiums for details. Investment (Non-Owner Occupied) property permitted.

Prepayment Penalty

Not Permitted

Eligible States See the state details in the matrix below. The Seller must be fully licensed or legally exempt to originate loans in the state.

States in which MSI is permitted to Lend Alabama Iowa New Mexico Texas (1) Arkansas Kansas North Carolina Utah

Arizona (1) Kentucky Nevada (1) Virginia California (1) Louisiana Ohio (1) Wisconsin

Colorado Michigan Oklahoma Wyoming Florida (1) Minnesota Oregon Georgia Mississippi Pennsylvania Idaho Missouri South Carolina Illinois Montana South Dakota Indiana Nebraska Tennessee

(1) See MSI State-Specific Guidelines for product /lending restrictions in these states.





State Restrictions

MSI purchases loans on properties located only in specifically approved states. See Eligible States for details. The matrix below outlines additional geographic restrictions applied by MSI.

State MSI State-Specific Guidelines All

MSI product or underwriting guidelines and/or restrictions do not supersede any more-restrictive

regulatory, state or local requirements. Seller is responsible to ensure that each loan originated, underwritten and closed is in full

compliance with all regulatory, state or local guidelines and/or restrictions. Florida No Condos Permitted.

New York Not Permitted. Nevada No loans on properties located in Clark County Nevada. Texas Home Equity Loans (Cash Out Refinance loans for primary (homestead) properties) are not

acceptable for purchase.



Documentation Requirements

Documentation Requirements

All loans must be fully documented for manual underwriting as required by Fannie Mae: • Income – 2 years income documentation with the expectation

that the income will continue for a minimum of 3 years. • Assets – Assets must be properly sourced. The source of

substantial increases in account balances or funds on deposit less than 90-days must be verified (and properly sourced).

Age of Documents: • Credit reports/documents must be dated within the prior 120

days from the Note Date. The Third Party Underwriter will pull an updated soft credit report within 10 days of the Note Date. Should the soft credit report reflect any derogatory credit or additional credit an updated report with a credit score is required.

• All income documentation must be dated within 30 days of the application date; all asset documentation must be dated within 45 days of the application date. o All income and asset documentation must be dated within 120

days of the Note Date. • Appraisal: Must be dated within 120-days prior to Note Date. If

outdated, a new appraisal must be ordered, recertification of value is not acceptable.

4506-T MSI IRS 4506-T Requirements A 4506-T, signed by each borrower at application and closing is

required. • The Third Party Underwriter will order tax return transcripts for all

borrowers (and businesses). Income reported on the transcript must support the income used to

underwrite the loan. Any major discrepancies between the income verified in the file and

the tax transcripts must be reasonable and supported by documentation in the loan file.

Verbal Verification of Employment

Verbal Verification of Employment required. • See Underwriting/ Verbal Verification of Employment for details.



General Underwriting Guidelines

Overview Throughout the product suite references to the Underwriting chapter are indicated in the following manner, MSI/Credit– this tells you to go to the MSI Underwriting chapter, Credit section. References in blue with an underline indicate a link within this chapter.

Guidelines that are not provided in this product suite or in the Underwriting chapter default to the applicable Fannie Mae guidelines. Please refer to the Fannie Mae Seller Guide for full details.

Underwriting Method

Jumbo Conventional All loans are “manually” underwritten and are not submitted to an

AUS. MSI requires the approval of a third party underwriter for all

Jumbo loans, the decision of the third party underwriter is final. • MSI will perform only a cursory review of the loan submission for

documentation completeness; MSI will not perform a preliminary underwriting review, the loan will be submitted to the third party underwriter for review.

• Due to the third party review, underwriting turn-time is greatly extended, please allow additional time.

Notes: The loan file must be uploaded (Fannie Mae 3.2 File Format) into the

MSI system prior to lock. If the loan does not pass the third party RESPA review, the loan is not

acceptable. All loans must meet the guidelines outlined in this General

Underwriting Guidelines section unless otherwise noted.

Presentation The guidelines in this section are presented in alphabetical order.

Accessory Units

Defined as/Examples of such properties include a house with a unit above a detached garage or a house with a guest apartment or basement unit.

A single-family property that includes an additional unit is acceptable provided it conforms to the subject neighborhood and to the market. • Comparables must include second units. • Second unit must be incidental to the overall value and to

appearance of the property. • No rental income may be used to qualify the borrower.




General Underwriting Guidelines, Continued

Assets

The borrower must have sufficient assets to cover the minimum down payment, closing costs, and any required reserves. Requirements for certain asset types are detailed below. The source of assets must be seasoned for a minimum of 90 days

prior to the date of loan application. Refer to the Fannie Mae Seller Guide(s) for additional information on

eligible sources of borrower funds not addressed in this section.

Acceptable Assets for Down Payment and Reserves

Requirements

Bank Deposits All deposits must be properly sourced. See Documentation Requirements. • Two months’ bank statements reflecting a beginning and

ending balance. Business Accounts May not be considered as funds for Reserves.

Permitted for down payment and closing costs only as follows: When a borrower has insufficient personal liquid assets to qualify

or close, but has sufficient verified funds in a 100% owned business, the business funds may represent an adequate source of down payment and reserves (post-liquidity) if both of the following conditions are met: • Business average annual cash flow is greater than the

amount to be withdrawn/reserves. • Cash on company year-end balance sheet for each of the

previous three years is greater than the amount to be withdrawn/reserves. This information is found on line 1 of the schedule L for the Partnership, S-Corporation and the Corporation. A three-year history of a balance greater than or equal to the amount being considered for reserves (post-closing liquidity) or down payment is required. Two years of the schedule L will show three years of cash on hand for the company.

Full analysis of the business must consider the effect of the withdrawal of the assets and how it will impact the strength and viability of the business in the future.

The following questions need to be considered: • What is the pattern of company cash flows? Do we have

declining gross or net income? • Do we have concerns about the type of business? Is the

business experiencing a downturn? Extreme care needs to be taken when considering business use

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





Assets, Continued


Requirements

Cash Value of life insurance May be considered as funds for Reserves.

Document by providing a copy of the check from the insurer or a copy of the payout statement issued by the insurer.

Gift Funds May not be considered as funds for Reserves.

Permitted on primary purchase transactions only. Borrower must contribute a minimum of 5% from own funds.

• If the LTV is less than 80%, the entire down payment may be from the gift.

Gift funds may not be used to meet reserve requirements. Donor must be an immediate family member, future spouse, or

domestic partner living with the borrower. An executed gift letter with the gift amount, donor’s name,

address, telephone number and relationship is required. Evidence that sufficient funds to cover the gift are either in the

donor’s account or have been transferred to the borrower’s account. Acceptable evidence is: • A copy of the donor’s check and the borrower’s deposit slip. • A copy of the donor’s withdrawal slip and the borrower’s

deposit slip. • A copy of the donor’s check to the closing agent, or • A settlement statement showing the receipt of the donor’s

check. When the funds are transferred at settlement, the loan file must include evidence that the donor gave the closing agent gift funds in the form of a cashier’s check or other official “good funds” check.

Gift of Equity is not permitted.





Assets, Continued


Requirements

Loans secured by borrower’s assets May not be considered as funds for Reserves.

Proceeds from a loan secured by financial assets such as automobiles, artwork, collectibles, real estate, or financial assets such as savings account, stocks, bonds, Certificates of Deposits, and 401(k) accounts may be used for down payment and closing costs.

When a loan is secured by the borrower’s financial assets, a monthly payment is not required to be considered in the DTI ratios.

The monthly payment for loans secured by non-financial assets must be included in DTI ratios. • If the loan does not require a monthly payment, an

equivalent payment must be calculated and considered as a recurring debt.

If the borrower is using the financial asset to satisfy reserve requirements, the asset must be reduced by the amount of the loan.

The following documentation is required: • The terms of the secured loan. • Evidence that the party providing the loan is not a party to

the transaction. • Evidence that the funds have been transferred to the

borrower. Marketable Securities May be considered as funds for Reserves.

For Down Payment: Documented evidence of liquidation of the policy and deposit into escrow or bank account.

For Reserves: 65% of investments in publicly traded stocks, bonds, mutual funds, certificates of deposit, money market funds,





Assets, Continued


Requirements

Retirement Accounts – Disbursement from and IRA/401(K) Only 50% of the disbursement amount may be

considered as funds for Reserves.

60% of vested funds from individual retirement accounts (IRA/SEP/Keogh accounts) and tax-deferred retirement savings accounts (401(k) accounts) are acceptable sources of funds for down payment, closing costs, and reserves.

The ownership of the accounts and the borrower's actual receipt of the funds realized from the liquidation of the assets must be verified if needed to complete the transaction.

When funds from retirement accounts are used for reserves, documentation of the withdrawal of the funds is not required. • 60% of IRA, SEP, Keogh and Annuity accounts. • 60% of the vested amount of 401k plans. The terms and

conditions under which funds may be withdrawn must be verified.

• In order to be used as reserves, retirement accounts must be vested and allow withdrawals regardless of the current employment status.

Sale of Real Property May be considered as funds for Reserves.

See Underwriting/Sale of Personal Assets for assets other than real estate.

Document sale of real estate with HUD-1/Closing Disclosure to document proceeds.

Trust Funds May be considered as funds for Reserves.

Funds disbursed from a borrower’s share of a trust account may be used for down payment, closing costs, and/or reserves provided the borrower has immediate access to the funds. The loan file must include the following: • Written documentation of the value of the trust account from

either the trust manager or the trustee. • The conditions under which the borrower has access to the

funds and the effect, if any, that the withdrawal of funds will have on trust income used in qualifying the borrower for the mortgage.

For Reserves: • 100% of borrower’s share of trust assets. Borrower must

have full access to the funds and a copy of the complete trust or trustee letter is required.

United States Saving Bonds Vested amount may be considered as funds for

Reserves.

Bonds must be liquidated and evidence of deposit into either escrow or the borrower’s bank account.

For Reserves, the Bonds are not required to be liquidated.





Assets, Continued


Requirements

Ineligible Sources of Funds (Assets) Signature loan(s) Cash for which the source cannot be verified (cash on hand). Commission from sale of subject property. Salary advances Sweat equity (contribution to the construction or rehabilitation of

a property in the form of labor or services rather than cash). Unverified sources of funds Reverse mortgages 1031 Tax Deferred Exchange Unsecured loans, including credit card advances. Unsecured loans from an Employer assisted Homeownership

benefit. Sale of an asset other than real property or publically traded

securities. Deposits from an Individual Development Account (IDA) Funds on deposit in a Community Saving System.

Verification of Foreign Assets Funds that a non-U.S. Citizen with lawful residency recently deposited in a U.S. depository institution is acceptable subject to the following: • Evidence of funds transfer from the country from which the

borrower immigrated has been provided. • Documentation to evidence that the funds belonged to the

borrower before the date of the transfer is provided. • The source(s) of all funds used for closing can be verified

just as they would for a U.S. Citizen. • Any required documentation that is in a foreign language

must be translated to English.





Assets, Continued


Requirements

Required Reserve Amounts (PITIA) Primary Residence Max Loan Amt. Single Family 2-Unit 3-4 Unit

$ 1 Million 12 Months 12 Months 36 Months > $1 Million to

$2 Million 12 Months 18 Months

> $2 Million 24 Months

N/A

Second Home $ 1 Million 18 Months > $1 Million to

$2 Million 24 Months

> $2 Million 36 Months Investment $ 1 Million 24 Months

> $1 Million to $2 Million

30 Months

Notes: Loan Amount = the combined loan amount of all loans/liens against the subject property. PITIA = Principal/Interest/Taxes/Insurance/Association Dues Multiple Financed Properties: If a borrower has multiple financed properties, an additional 6 months of reserves (PITIA)

for each additional financed property is required. (See Multiple Mortgages to the Same Borrower) If review of the credit report or other information indicates that the borrower has a balloon payment due within the next 12

months, available assets must be reduced by the amount of the payment. Assets not considered for Reserves:

• Cash Out proceeds from the subject loan • Funds in which the borrower is not vested • Funds that cannot be withdrawn under circumstances other that the account holder’s retirement, employment

termination, or death. • Gift Funds • Non-financial assets such as collectibles, coins, stamps, art work that would require appraisal and/or liquidation • Business accounts/assets • Stocks/notes/loans receivable from a privately held company • Stock options and non-vested restricted stock • Personal unsecured loans • Interested Party Contributions.





Appraisal Requirements Rev 12/2015

General Requirements (see also Underwriting/Appraisal) Full appraisal on the applicable Fannie Mae/Freddie Mac URAR

(Uniform Residential Appraisal Report) are required on all loans. • All condo units must be on a condominium appraisal report (Fannie

Mae Form 1073). The land value may not exceed 40% of the total value and must be

consistent with other comparable homes in the area as supported by the comparables.

The appraisal must include clear interior photos of the kitchen, bathrooms, and living/family room(s).

All appraisals shall conform to the current Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal Foundation.

All appraisals must be ordered from RELS. Client has the responsibility of signing up with RELS, as this is the only approved vendor currently. https://www.relsvaluation.info/asp/home/clientsignup.asp

(877) 227-1600 is the direct contact phone number for RELS. Client has the responsibility for payment in full for any appraisal

ordered through RELS. . Schedules and addenda are mandatory if applicable. Request for additional comps may apply All Appraisals may be subject to an additional Desk Review; the

qualifying property value will be the lesser of the appraised value or the desk review. (Desk Reviews will not be requested until the loan is locked; the Desk Review fee is included in the Underwriting Fee.)


https://www.relsvaluation.info/asp/home/clientsignup.asp




Specific Requirements based on Loan Amount and Median Home Price Multiples REV (7/09/15)

Combined Loan Amount CLTV Median Home Price Multiple ≤ 4 X MHP >4 ≤ 10 X MHP > 10 X MHP

≤ $1 Million All 1 full certified Appraisal

1 full certified Appraisal

1 full certified Appraisal and a

Residential Valuation Services Desk Review

>$ 1Million ≤ $1.5 Million ≤ 80% 1 full certified Appraisal





1 full certified

Appraisal and a Residential Valuation

Services Desk Review

>$ 1.5 Million ≤ $2 Million ≤ 80% 1 full certified Appraisal and a

Residential Valuation Services (RVS) Field

Review >$ 2 Million ≤ 75%

> 75% Ineligible Ineligible Ineligible Notes: A full certified Appraisal is one prepared on form 1004/70, 2090, or 1073 (as applicable). No other forms of appraisal are

permitted. • Seller must notify the AMC that the appraisal must be completed by a certified appraiser and must confirm such upon

receipt of the appraisal. The Residential Valuation Services Desk Review or Field Review will be ordered by the Third Party Underwriter. See Median Home Prices at this link: MSI Jumbo Median Home Prices.






High Dollar Appraisal Addendum

A high dollar appraisal addendum is required when the total loan amount is greater than $2 Million and the property value is greater than $2.5 Million as evidenced by the purchase price or the owner’s estimate of value stated on the application. The high dollar appraisal requirement is not based on the appraised value.

The High Dollar Appraisal Addendum must include all of the following: A summary of sales located in the subject’s immediate neighborhood

even if the sales are not considered comparable by the appraiser and even if they are not used in estimating the subject’s market value.

Days on market (DOM) for each comparable sale. Marketing time required to realize the market value estimated for the subject

property. Include a market analysis for all properties priced within 25% of the

subject’s estimated value that addresses each of the following three factors: • In the selected price range, how many sales have occurred in the

last 12 months? • In the selected price range, how many properties are currently

listed for sale? • In the selected price range, how many properties have had listings

expire or be withdrawn in the last 12 months? For purchase transactions, also include:

• Names and phone numbers of the listing and selling agents. • Total listing period for the subject property (include list price

decreases, if any).

Appraisal Transfers

Not permitted.





Appraisal Transparency Report

MSI requires a copy of the Appraisal Transparency Report from the AMC in the loan file at time of delivery for underwriting.

Borrowers The following matrix outlines the applicable borrower types:

Eligible Borrowers Ineligible Borrowers Loans are granted only to natural persons. Title must be held in individual names only. The following are permitted to the applicable MSI/agency underwriting guidelines: U.S. Citizens Permanent Resident Aliens & Non-Permanent Resident

Aliens: • Underwritten as U.S. Citizen – must have a

minimum of 2 year employment history in the US. • Eligible for single family detached primary residence

only.

Possession by corporations or partnerships is not acceptable, including, but not limited to, the following: Co-Signer Non-Resident Alien Inter Vivos Revocable Trust Borrowers with diplomatic immunity S Corporations Life Estates Real Estate Syndication General Partnerships Foreign Nationals Non-profit organizations Non-Occupant Co-Mortgagors Land Trusts, including Illinois

Notes: Each borrower must have a valid U.S. Social Security Card; a tax I.D. number is not acceptable. See the Underwriting Chapter for full details/requirements for:

• Permanent and Non-Permanent Resident Aliens o Jumbo loans permit also Visa status: O-1A; 0-1B; 0-2

• Non-Purchasing Spouse Separated Borrowers: If the Borrower is legally separated, a copy of the recorded separation agreement detailing division

of assets, liabilities and potential obligations is required. If there is no legal separation, a letter from the attorneys of both parties specifying the proposed settlement terms must be provided. If no documentation can be obtained to verify the division of assets and liabilities, the loan will generally be considered an unacceptable credit risk. • If the Borrower states there are no plans for legal separation, no further documentation is necessary; he/she is legally

married and qualified accordingly.





Chain of Title MSI requires a 24-month chain of title on all properties. The title commitment must document 24 months of property

ownership. See Property Flipping.

Condominiums The project will be reviewed by the 3rd party underwriter. • Include a copy of the CC&R’s and Bylaws for the condo project in

the underwriting submission package. • Include the appropriate fully completed HOA Certification: Condo

HOA Certification; Jumbo 2-4 Unit Condo HOA Cert • The 3rd party underwriter will determine the additional

documentation required. Florida condos are not permitted.


http://www.msiloans.biz/Seller%20Guide/JUMBO/MSI_Jumbo_HOA_Cert.pdf

http://www.msiloans.biz/Seller%20Guide/JUMBO/MSI_Jumbo_HOA_Cert.pdf

http://www.msiloans.biz/Seller%20Guide/JUMBO/MSI_Jumbo_2_to_4_Unit_HOA_Cert.pdf




Construction to Perm

REV (8/21/15)

General Guidelines: Permitted as a rate/term refinance when permanent financing pays off

the construction financing within 180 days after property completion. • The borrower must hold legal title to the lot and be named as the

borrower on the construction loan. • The property must be fully constructed and habitable at the time

of loan closing. • A certificate of occupancy from the applicable government

authority is required. If the government authority does not require a certificate of occupancy, the loan file must include evidence that the certificate if not required.

• MSI does not permit Single Close Construction. The following specific requirements apply:

Construction to Permanent Policy The LTV/TLTV/CLTV must be within the rate/term guidelines for the product. There is no requirement for the length of time the lot must be owned prior to the permanent financing. The LTV/TLTV/CLTV is determined by dividing the unpaid principal balance of the construction-to-permanent mortgage by

the lesser of: • The current appraised value for the property (both the lot and the improvements) or • The total acquisition costs (which are the sum of the documented costs of the construction and the sales price of the

lot). Acquisition cost must be documented. Closing costs and prepaids may be included in the Loan amount (subject to LTV/TLTV/CLTV limitations). The borrower may be reimbursed for actual cash investment into the property. Acquisition Cost Documentation: To document acquisition cost, the borrower must provide a purchase contract or construction cost statement (cost breakdown), signed by the builder and the borrower.





Borrower in Construction Industry

If the borrower is acting as his/her own builder (general contractor or sub-contractor) and his/her primary occupation is in the construction industry, the following must be met: Acquisition Cost Documented

• Acquisition cost must be fully documented, regardless of LTV/TLTV/CLTV.

• To document acquisition cost, the borrower must provide copies of receipts, bills, lien waivers, lot purchase agreement, etc., in addition to an itemized cost breakdown.

• The LTV/TLTV/CLTV will be based on the lesser of the documented acquisition cost or appraised value.

The subject property must be an owner occupied primary residence. The borrower cannot receive cash back at closing that is not a direct

verifiable reimbursement of expenses.





Credit Considerations

The matrix below outlines guidelines for certain credit considerations when underwriting the loan. Credit Report Requirements:

• The Credit Report must be obtained from either CoreLogic®; Credco®; or Equifax®.

• If the Credit Report is not from one of these companies, the Third Party Underwriter will order a new credit report using one of the 3 companies and charge the Seller; pricing will be affected.

Topic Requirements Authorized User Accounts Installment and Revolving credit: if the Borrower is an authorized user on the account,

the debt must be considered in qualifying. Bankruptcy, Foreclosure/Short Sale or Modification

Important Note: If LTV/CLTV is > 70%, loan is ineligible.

Bankruptcy: • Chapter 7: 7 years seasoning from discharge date. • Chapter 13 – discharged: 7 years seasoning from discharge date. • Chapter 13 – dismissed: 7 years seasoning from dismissal date.

Foreclosure: No foreclosure/deed in lieu of foreclosure within the last 7 years. Short sale: No short sale within the last 7 years. Modification: Not permitted. The borrower must have reestablished a satisfactory credit history with a minimum of

three trade lines and must show the ability to manage his/her financial affairs since the bankruptcy was completed, timed to the disbursement date of the new loan.

No late payments of any kind during the 12 months prior to loan application. All major derogatory credit requires a letter of explanation from the borrower,

indicating that the negative credit was due to unavoidable hardship.





Credit Considerations, Continued

Topic Requirements Charge-offs, Collections, Judgments, Public Records

The Borrower must provide satisfactory explanation of any delinquent credit. • The third party underwriter retains the right to refuse a loan based on review of

derogatory credit. All of the following must be paid in full by or at closing:

• Judgments • Charge-offs and/or collection accounts ≥ $500 • Garnishments • Liens

Charge-offs and/or collection accounts < $500 are not required to be paid; however, the borrowers must provide a satisfactory explanation letter.

Borrowers with garnishments must provide evidence that the garnishment has been released and there is no additional payment due.

Borrowers with liens must provide evidence that the lien has been paid in full. Borrowers with current or previous past due child support must provide evidence that all

past due payments are current unless the borrower is making the payments according to a court approved plan. In this case, the borrower must demonstrate that payments are current according to the plan.

Credit History Minimum Trade lines: 3 active trade lines.

• 2 trade lines must be reported for a minimum of 24 months and one trade line must be reported for a minimum of 36 months.

24 months reported for all three trade lines is acceptable if none of the following has occurred: • Bankruptcy Chapter 7, 11 or 13 • Foreclosure • Short sale or deed-in-lieu of foreclosure • Loan Modification, unless the modification was lender initiated and the loan file

includes evidence that the modification was not a result of a distressed situation. No major adverse credit reported in the last 24 months on any revolving or installment

accounts. Major adverse credit is defined as 60 or more days past due. No public records within the last 24 months. Borrowers with a history of consumer credit counseling are not eligible.

Credit Report Inquiries All credit inquiries reported within the prior 120 days must be investigated. • The borrower must provide a written explanation for the inquiries that includes a

statement that no additional debt was obtained as a result of those inquires.






Topic Requirements Disputed Trade lines If a borrower indicates that any significant information in the credit file is inaccurate—such

as reported accounts that do not belong to the borrower or derogatory information that is reported in error—the credit information should be reviewed with the borrower, and the credit reporting agency should be provided with the information to confirm its accuracy.

If the credit reporting agency confirms that the disputed information is incorrect and underwriting of the application needs to be completed before the credit files can be corrected, the credit score cannot be used in the underwriting of the application. • The credit risk assessment must be based on a review of the borrower’s traditional

credit history. If there are multiple disputed trade lines or a dispute on a mortgage trade line, the

borrower must provide a written explanation of the reason for the dispute. • The aspect of the trade line—such as balance, payment history, etc.—that is being

disputed is of particular concern when considering the impact to the borrower’s overall credit profile.

The third party underwriter is responsible for determining whether the borrower’s explanation is reasonable and/or whether additional documentation is necessary to disprove the adverse information (e.g., canceled checks).

Mortgage/Rental History 0 X 30 for the most recent consecutive 12 months – for mortgage or rental. Mortgage History: In case of a recent refinance or account transfer, a combination of payment performance

from multiple lenders for the same collateral may be used to complete the 12 month history requirement.

For a recent purchase, a combination of payment performance from a prior property or rental payments may be used to complete the 12 month history.

A gap in mortgage/rental payment history of up to six months is allowed by obtaining the most recent 18 month history and providing written documentation explaining the reason for the gap.

Mortgage/rental history must be verified by the mortgage holder/servicer or credit bureau, or: • Copies (front and back) of 12 months consecutive (one payment per month)

mortgage payment cancelled checks. • Bank statements or direct payment records showing one payment per month.

Mortgage loan must be current at the time of closing.






Topic Requirements Mortgage/Rental History, Continued

Rental History: If the landlord is a management company, the management company must be listed in the

local telephone directory and the file must contain a copy of the listing. If the listing is not available, 12 months of cancelled checks must be provided.

If the landlord is a non-related individual, a direct verification is allowed provided proof of landlord ownership is established.

All direct verifications must include the rental amount, payment history and length of payment history.

If the landlord is related to the borrower, 12 months of cancelled checks must be provided. If cancelled checks are used, copies (front and back) of 12 months consecutive (one

payment per month) rental payment cancelled checks are required.

Deed Restrictions

Not Permitted.

Delayed Financing

Not Permitted

Conversion or Sale of Principal Residence

If the current principal residence is pending sale but will not be sold (closed) prior to the closing of the subject property:

Borrower’s primary residence pending sale: Borrower must qualify with both current and proposed PITIA, and Reserve requirements are the greater of 6 month PITIA or the

standard post-close reserves, for each property. See Required Reserve Amounts/ Multiple Properties.

If the current property will not be sold, and is in a negative equity position, the following may be required to reduce the overall risk: • Additional cash reserves to cover the negative equity of the

departure residence, OR • Pay down the lien on the departure residence to eliminate the

negative equity.

Borrower converting primary residence to a second home: Borrower must qualify with both current and proposed PITIA, and Reserve requirements are the greater of 6 month PITIA or the

standard post-close reserves, for each property. See Required Reserve Amounts/ Multiple Properties.





Conversion of a Principal Residence, Continued

Borrower converting primary residence to an investment property: If the Borrower does not have sufficient equity(minimum 30%) in the departure residence or if the Borrower does not have a minimum 2 year’s history of managing investment property: Borrower must qualify with both current and proposed PITIA, and Reserve requirements are the greater of 6 month PITIA or the standard post-close reserves, for each property. See Required Reserve Amounts/ Multiple Properties.

Borrower converting primary residence to an investment property, sufficient equity in the departure residence: If there is documented equity of at least 30 percent in the departure

property, 75 percent of rental income may be used to offset the mortgage PITI payment in qualifying when: • Reserve requirements are the greater of six months PITI for both

properties or the standard post-close liquidity, and • Rental income is documented with a fully executed lease

agreement when the borrower’s tax returns reflect a 2-year history of managing investment properties, as evidenced by the most current two years filed and signed Federal IRS 1040 tax returns, and

• Proof is provided that a security deposit was received from the tenant and deposited into the borrower’s account.

Documented equity in the property is determined by: • A full residential appraisal from an AMC that is no more than 120

days old from the date printed on the Note for the subject property.

See Required Reserve Amounts/ Multiple Properties





Disaster Policy MSI requires Jumbo loans to meet our current Disaster Policy (see the

Underwriting Chapter) if the area is declared for individual or public assistance. • Any time a Jumbo loan is in a declared area, MSI requires that the

Disaster Policy requirements for appraisal and inspection are met. • Additionally: The borrower must inspect the property after the

dates of the end of the disaster and provide the following certification at closing:

I have inspected the property located at ______________ on ________________ and find its condition now to be acceptable and will hold the Lender harmless for any damages.

FICO (Credit) Scores

See specific loan parameter matrices for minimum FICO requirements. Loan Score Selection: Use the FICO (loan score) of the Borrower with the highest income

and valid credit score as the Loan Score. When there is a non-occupant Co-Borrower, use the FICO of the

occupying Borrower with the highest income and valid credit score as the Loan Score.

In the event that both Borrowers have equal income, use the lower FICO (between the Borrowers) as the Loan Score.

Financial Reform – ATR/QM – Max DTI

MSI will purchase/fund only those loans that meet the Consumer Protection Financial Board Qualified Mortgages/Ability to Repay (QM/ATR) guidelines published in the final rule. All Jumbo loans may not exceed 43% maximum DTI. No Exceptions.

• Investment Properties may not exceed a maximum DTI of 38%. Jumbo loans must be in full compliance with Appendix Q of the

ATR/QM rule. If Appendix Q is silent, the loans must meet the more restrictive of guidelines posted herein or Fannie Mae published guidelines.

See Underwriting/CFPB for full details.





Income and Employment

Unless referenced herein, please refer to the MSI Underwriting chapter or the Fannie Mae Seller Guide for information/requirements to document or validate stable monthly income. In general:

• Full documentation of income and employment is required. • Stable monthly income is the borrower’s verified gross monthly

income that can reasonably be expected to continue for at least the next three years. In most cases, a two year history of receiving income is required in order to use the income for qualifying.

When analyzing the probability of continued employment, the following criteria should be considered: • The borrower’s past employment history • The borrower’s qualifications for the current position • Previous training and education • The employer’s confirmation of probability of continued

employment Continuity of Income:

• If the income source does have a defined expiration date or is dependent on the depletion of an asset account or other limited benefit, documentation of the continuation of the income for at least 5 years is required.

• Note: If that income source (with a defined expiration date) is less than 25% of the qualifying income, the stability period may be reduced to 3 years.)

Significant increase or decrease in income level: • When a borrower has a significant increase or decrease income

(20% or more), analysis of the qualifying income is made at the underwriter’s discretion based on risk analysis.





Income and Employment, Continued

Topic Documentation Requirements/Guidelines Automobile Allowance An automobile allowance may not be used for qualifying and may not be used to

offset a car payment. Borrower employed by a family member or party to the transaction

If the borrower is employed by a relative, a closely held family business, the property seller, real estate agent, or any party to the real estate transaction, the following documentation must be obtained: Borrower’s signed and completed personal federal income tax returns for the most

recent two years. If business is a corporation, obtain either of the following:

• A signed copy of the corporate tax return showing ownership percentage. • A signed letter from the corporation accountant stating the borrower has no

ownership interest in the corporation. • Most recent two years’ W-2 forms. • Year-to-date pay stubs covering 30 days. • Verbal verification of employment (Exhibit 3) within 20 business days prior to the

date printed on the Note. Current income reported on the pay stub may be used if it is consistent with W-2

earnings reported on the tax returns. If the tax returns do not include W-2 earnings or income is substantially lower than the current pay stubs, further investigation is needed to determine whether income is stable.

Capital Gains Income Provide complete signed individual federal tax returns, including Schedule D, for the most recent two years reflecting capital gain income, and

Proof of sufficient assets to generate capital gains after closing for the qualifying income to be expected to continue for the next three years

Child Support, Alimony, Separate Maintenance

May be considered in qualifying income if the income has been received for the most recent 12 months and the payor is obligated to make the payment for at least the next 5 years.

The income may not be used for qualifying if: • Received for less than 12 months, or • Payments have not been received on a consistent basis, • Payments have been made in less than the full amount due.

The income stability may be reduced to 3 year if the income source contributes 25% or less of the borrower’s qualifying income and the history of payments meets the above requirements.

Provide documentation verifying any applicable state law that mandates alimony, child support, or separate maintenance payments, and specifying the conditions under which the payments must be made, and evidence payments have been received for at least 12 months.

If a borrower who is separated does not have a legal separation agreement or court order that specifies alimony or child support payments, the income may not be used in qualifying.






Topic Documentation Requirements/Guidelines Commission Income See Underwriting/Commission Income. Employment Offers or Contracts

Allowed for salaried professional / executive type positions only. 1 Unit Primary Residence, Purchase Transaction, Maximum 80% LTV.

• The borrower must start new position prior to closing as evidenced by a verbal verification of employment.

• A fully executed offer letter or contract for employment may be used to underwrite and close the loan.

• The time period between closing date & commencement of employment must not exceed 60 days.

• Borrower must have adequate cash reserves to cover PITIA during employment gap plus two additional months over and above any other reserve requirements that may apply.

• The borrower’s employment and income history must be documented. • The file must include a copy of the signed offer or contract for future employment

and must be fully guaranteed and non-revocable indicating salary and start date. Foreign Income Borrowers who are employed by a foreign corporation or foreign government and are

paid in foreign income or foreign currency are eligible subject to the following: • The file must include signed copies of the borrower’s U.S. federal tax returns for

the most recent two years and the foreign income must be reflected on the returns.

• Income must be documented per standard income documentation requirements. • All income must be translated into U.S. dollars.

Long-term Disability Permanent/Long-term disability benefits may be paid to the applicant by a Federal agency, such as the Social Security Administration or Veterans Administration, a State agency, a private insurance company, workers compensation insurance, an employer, or other disinterested third party. • Social Security disability (SSDI) does require evidence of continuance. • For all other types of long-term disability income, the income must be likely to

continue for the next 5 years. o If the documentation does not contain any indication that the income will

terminate within the next 5 years, assume the income will continue for the next 5 years.

o If the documentation indicates an expiration or modification date, the remaining term must be for at least 5 years.

o Note: If the documentation indicates the Borrower’s benefits are subject to periodic review/evaluation, this is not an indication that the income is unlikely to continue and does not require additional documentation for determining the likelihood of continuance.

Notes: MSI does not require any information pertaining to the borrower’s personal medical

history. If the disability income is less than 25% of the qualifying income, a 3 year continuance

is acceptable.






Topic Documentation Requirements/Guidelines Rental Income – Property Other than Subject

Analyzing the stability of rental income: The stability of the rental income must be documented through one of the following:

• A current lease; • An agreement to lease, or • A rental history over the previous 24 months. Gaps greater than 3 months require

an explanation from the borrower. Eligible Rental Income The following are acceptable sources of rental income:

• Rent received from investment properties or other units of an owner-occupied multifamily property may be considered stable income.

• Rents received from a live-in aide, generated from a disabled borrower’s 1 unit, primary residence may be used for qualifying purposes, in an amount up to 30% of the total gross income that is used to qualify the borrower for the mortgage. o Typically, a live-in aide will receive room and board payments through

Medicaid waiver funds from which the live-in-aide then makes rental payments to the borrower. This source of income is non-taxable and is not reported on the borrower’s personal tax returns.

• This income source may be considered stable monthly income, if both of the following are met: o The borrower has received rental payments from a live-in aide for the past 12

months on a regular basis. o The live-in aide plans to continue to reside with the borrower for the

foreseeable future. See: Rental Income-Requirements for Investment Property. Ineligible Rental Income The following are ineligible rental income types:

• Rent from boarders in a single-family property that is also the borrower’s primary residence. Income from a live-in aide may be allowed.

• Rent from a property that is the borrower’s second home.

Retirement, Social Security and Pension Income

Provide copy of the award letter, and; Most recent year’s 1099s, and; Two months bank statements showing receipt of the income. Non-taxable income may be grossed up 25% or an amount that is prudent based on

federal and state tax tables. See Non-Taxable income. Effective income for borrowers planning to retire within the first three years of the loan

must include the amount of: • Documented retirement benefits; • Social Security payments; or • Other payments expected to be received after retirement.






Topic Documentation Requirements/Guidelines Salaried Borrowers

The following documentation is required: Two year’s signed, personal tax returns, including all schedules. • W-2’s from all employers for the past two years. • Most recent paystub(s) covering a full 30 day period. This may require multiple

paystubs to ensure the full 30-day period; 1 paystub (with YTD) is not acceptable unless the borrower is paid monthly.

• A written verification of employment (VOE) is required if the paystub(s) do not reflect year to date income.

Secondary Employment Borrower must have a consecutive 2 year history of receiving uninterrupted income from a second or additional job.

The income trend from a second or additional job must be evaluated. Only income that is likely to continue for the next three years may be used for qualifying.

A 2 year history that includes multiple employers is acceptable provided the secondary income has been stable and uninterrupted.






Topic Documentation Requirements/Guidelines Self-Employed Borrowers

A borrower who owns 25% or more of a business is considered self-employed. • Income may be considered if the borrower has been self-employed in the same

business for two years or more. The following documentation is required: Tax return transcripts for the most recent two

years • Two years individual and all business tax returns, including all schedules. • For Corporations and “S” Corps: Current business credit report. • Year to date profit and loss statement. • Year to date Balance Sheet. • Verification of existence of the business through a third party source dated no more

than 30 days prior to the note date. • Form 1065 (K-1) is required for all partnerships from which income is being used to

qualify, regardless of percentage of ownership. • Fannie Mae Form 1084 (Cash Flow Analysis) should be completed for all self-

employed borrowers. • If a borrower provides quarterly tax returns, the income analysis may include

income through the period covered by the tax filings. • If the most recent tax return is older than 90 days, a signed and dated Profit and

Loss (P&L) statement covering the period between the end of the most recent tax return through present day is required.

• If the borrower is not subject to quarterly tax returns, or does not file them, the income shown on the P&L statement may be included in the analysis, provided the income stream based on the P&L is consistent with the previous years’ earnings.

• If the earnings trend for the previous two years is declining and the most recent tax return or P&L is less than the income from the previous year’s tax return, the borrower’s most recent year’s tax return or P&L must be used to calculate his/her income.

• If the P&L statement shows an income stream greater than what is supported by the tax returns, and the higher income is used in the income calculation, the P&L statement must be audited.


http://www.allregs.com/tpl/Viewform.aspx?formid=00001755&formtype=agency





Rental Income-Requirements for Investment Property

Documentation Requirements – Rental Income Used to Qualify – Subject Property is an Investment Property: The following documentation is required for all investment properties if

rental income is to be used: • The operating income statement (Fannie Mae 216 / Freddie Mac

998) is required for 2-4- unit primary or 1-unit investment properties. The Single-family Comparable Rent Schedule (Fannie Mae 1007 / Freddie Mac 1000) is required for 1-unit investment properties.

• Income used to qualify must be supported by Operating Income Statement / Comparable Rent Schedule

In addition, when the subject property has been owned for at least 12 months: • The borrower’s prior year complete and filed federal individual tax

return including Schedule E. • Rental income from commercial rental properties requires two

years’ complete and filed federal individual tax returns, including schedule E.

When property has been owned less than 12 months and is not reflected on the borrower's most recent, filed federal individual tax returns, the following is required: • Copies of the present, signed leases may be used only if the

borrower has a two-year history of property management experience as evidenced by the most current two years’ filed and signed federal IRS 1040 tax returns.

• Three months of canceled checks or bank statements verifying receipt of rental income.

Property Management Experience Required for 1 Unit Investment Property: • When the subject property is a 1-unit investment property and

rental income from the subject property is being used to qualify, two years’ property management experience must be documented with the most current two years’ filed and signed federal IRS 1040 tax returns.






Rental Income-Requirements for Investment Property, Continued

Rent Loss Insurance Required: • For 1-unit investment property where borrowers are relying on

rents from the units they will not be occupying. • If the income from those units is used to qualify the borrowers. • The insurance must provide coverage for an amount equal to a

minimum of six months of the rental income. Operating Income Statement: For 1-unit investment property, use

the net cash flow found on the operating income reconciliation section of the form unless income/loss used to qualify is supported by another acceptable source of documentation: • If net cash flow is a positive figure, it should be included in

qualifying income. • If net cash flow is a negative figure, it should be included with the

long-term debts. The monthly housing expense is already accounted for in the net cash

flow so it should not be added to the long-term debts. Investment income/loss on the subject property cannot be aggregated

or netted with other real estate owned.

Rental Income – Qualifying

When the rental income is derived from property other than the subject property, the qualifying rental income is the net cash flow. Net cash flow must be established by the following: Property owned for at least 10 months:

• The most recent complete personal tax return (1040) including Schedule E.

Property owned less than 12 months and is not reflected on most current 1040: • Current lease agreements may be used only if the Borrower has a

2-year history of property management experience evidenced by the most current 2-year’s filed and signed federal 1040’s.






Rental Income – Qualifying, Continued

Using the 1040, including Schedule E to calculate income: There are two methods for calculating rental income from the Schedule E: Baseline method and Cash Flow method. Both methods must be calculated. Use the lesser of the two methods

to qualify the borrower.

Cash Flow Method: Make the following adjustments to the net income shown on Schedule E to determine the monthly operating income: Net Income PLUS Depreciation, Mortgage Interest, real estate taxes,

insurance and HOA fees (if any)/MINUS un-allowed losses, if any/PLUS Loss carry-over from previous years (if any) EQUAL: Annual Operating Income/DIVIDED BY 12 months EQUAL Monthly Operating Income. • Positive net rental income from Schedule E of the borrower’s tax

returns or positive net cash flow from Freddie Mac 998/Fannie Mae 216 or Freddie Mac 1000/Fannie Mae 1007 may be considered stable monthly income.

• Negative net rental income from Schedule E of the borrower’s tax returns or negative net cash flow from Form Freddie Mac 998/Fannie Mae 216 or Freddie Mac 1000/Fannie Mae 1007 must be considered a liability for qualification purposes.

When using rental income to qualify from a 2-4 unit primary residence that is not the subject property: • The current monthly principal, interest, taxes, insurance (PITI)

payment on the borrower’s primary residence must be included in the qualifying ratios.

• The monthly operating income should be included in qualifying income.

For an investment property, subtract the monthly housing expense from the monthly operating income to determine the net cash flow. • If net cash flow is positive, include it in qualifying the income. • If net cash flow is negative, include it with the long-term debts.

Aggregate net rental income may be counted as stable monthly income, provided the reliability of receipt is clearly supported by the documentation in the file.

Aggregate net rental loss from investment properties and 2-4 unit primary residences must be considered a liability for qualification purposes.

The monthly housing expense is already accounted for in the net cash flow so it should not be added to the long-term debts.






Rental Income – Qualifying, Continued

Baseline Method: Only Depreciation shown on Schedule E may be added back to the net

income or loss. Positive rental income is considered gross income for qualifying

purposes, while negative income must be treated as a recurring liability.

Lease Agreements Deduct a 25% maintenance expense/vacancy factor from the monthly

rent stated on the lease agreements to determine the monthly operating income.

When using rental income to qualify from a 2-4 unit primary residence that is not the subject property: • The current monthly PITI payment on the borrower’s primary

residence must be included in the qualifying ratios. • The monthly operating income should be included in qualifying

income. For 1-4 unit investment property, subtract the monthly housing

expense. From the monthly operating income to determine the net cash flow. • If the net cash flow is positive, include it in the qualifying income. • If net cash flow is negative, include it with the long-term debts.

The monthly housing expense is already accounted for in the net cash flow, so it should not be added to the debts.

Inspections and Certifications

A property inspection is generally not required for termite, private well, septic system, or roof unless required in the purchase agreement or when the appraiser recommends an inspection in the appraisal report. • May be required at underwriter’s discretion based on review of the

appraisal and sales contract.





Interested Party Contributions

Apply to the lesser of the sales price or appraised value: • Primary Residence & Second Home =LTV/(H)CLTV < 80% = Max

6% • Investment Property = Max 2%.

Maximum contributions must be based on the (H)CLTV if secondary financing is present.

Interested parties include, but are not limited to, the builder, developer, property seller, and real estate agent.

Interested party contributions may include either financing and/or sales concessions.

Financing concessions are funds that originate from an interested party to the transaction. These funds include, but are not limited to, contributions in any way related to the mortgaged financing costs, closing costs, and/or prepaid items.

Funds derived from Premium Pricing may be used by the lender to pay the borrower’s closing costs, financing costs, and prepaids/escrows. Funds from Premium Pricing are not included in the Seller/Interested Party limits.

The sales price may not be increased on a finalized purchase contract to cover closing costs. The LTV/(H)CLTV must be based on the lesser of the original sales price or appraised value if there is evidence in the loan file that the sales price was increased to include the borrower’s closing costs.

Large Deposits All deposits that are significantly higher than the verified average cash assets for the borrower(s) must be verified.





Liabilities All applicable liabilities must be considered in the DTI when qualifying a borrower.

For topics not addressed in the matrix or the MSI Underwriting Chapter, please see the Fannie Mae Seller Guide

Topic Requirements/Guidelines Alimony, Child Support or Separate Maintenance

When the borrower is required to pay alimony, child support, or maintenance payments under a divorce decree, separation agreement, or any other written legal agreement the payments must be considered as part of the borrower’s recurring monthly debt obligations.

Business Debt in Borrower’s Name

When a self-employed borrower indicates that a monthly obligation that appears on his or her personal credit report is being paid by the borrower’s business, verify that the obligation was actually paid out of company funds and that this was considered in its cash flow analysis of the borrower’s business.

The account payment does not need to be considered as part of the borrower’s individual recurring monthly debt obligations if: • The account in question does not have a history of delinquency, • The business provides acceptable evidence that the obligation was paid out of

company funds (such as 12 months of canceled company checks), and • The lender’s cash flow analysis of the business took payment of the obligation into

consideration. The account payment does need to be considered as part of the borrower’s individual

recurring monthly debt obligations in any of the following situations: • If the business does not provide sufficient evidence that the obligation was paid

out of company funds. • If the business provides acceptable evidence of its payment of the obligation, but

the lender’s cash flow analysis of the business does not reflect any business expense related to the obligation (such as an interest expense—and taxes and insurance, if applicable—equal to or greater than the amount of interest that one would reasonably expect to see given the amount of financing shown on the credit report and the age of the loan). It is reasonable to assume that the obligation has not been accounted for in the cash flow analysis.

• If the account in question has a history of delinquency. To ensure that the obligation is counted only once, the lender should adjust the net income of the business by the amount of interest, taxes, or insurance expense, if any, that relates to the account in question.

Court-Ordered Assignment of Debt

When a borrower has outstanding debt that was assigned to another party by court order (such as under a divorce decree or separation agreement) and the creditor does not release the borrower from liability, the borrower has a contingent liability.

The debt is required to be included as part of the borrower’s recurring monthly debt obligations.

Review of the payment history for the assigned debt after the effective date of the assignment is not required; however the borrower’s payment history for the debt before its assignment must be considered.





Liabilities, Continued

Topic Requirements/Guidelines Co-Signed Loans The liability does not need to be considered as part of the borrower’s recurring monthly

debt obligations if: • The file includes documentation of a 12 month history of payments on the co-

signed debt paid by the primary obligor and, • There is not a history of delinquent payments for that debt.

The liability does need to be considered as part of the borrower’s recurring monthly debt obligations if: • Payment by the primary obligor cannot be sufficiently documented, • A sufficient 12 month payment history has not been established for the debt, or • The primary obligor has a history of being delinquent in making payments on the

debt. Debts Secured by Financial Assets

Payments on loans secured by a borrower’s financial asset (such as, 401(k), SIP, IRAs, or stocks) are not included in long term debt because they are voluntary payments.

However, the underwriter must consider these payments in terms of their possible impact on cash flow and debt ratios. The borrower must indicate plans for debt repayment if the inclusion of a loan payment in the monthly debts results in a high total obligation to income ratio or negative cash flow.

Deferred Payments – Including Student Loans

Deferred installment debts, such as deferred student loans or balloon-payment notes must be included as part of the borrower’s recurring monthly debt obligations.

If the credit report does not indicate the monthly amount that will be payable at the end of the deferment period, obtain copies of the borrower’s payment letters or forbearance agreements to determine the monthly payment used in calculating the borrower’s total monthly obligations.

Exception: For a student loan, in lieu of obtaining copies of payment letters or forbearance agreements, calculate a monthly payment using no less than 2% of the outstanding balance.

HELOC Home equity line of credit (HELOC): When calculating the DTI, full principal and interest payments are used for all other mortgages, including home equity lines of credits (HELOCs) on other real estate held by the borrower. This is to account for loans that require less than a full principal and interest payment, including but not limited to Interest Only.

For new HELOC’s on the Subject Property OR Cash-out refinance first lien – all subordinated HELOCs on subject property. The underwriter will assess a payment for the HELOC based on the following

calculation: • The Borrower must provide a copy of the HELOC Note: • Full credit line limit • 20-year amortization term • Fully indexed rate (prime + margin) from the Note, PLUS • + 2.0 Third Party Underwriter economic adjuster





Liabilities, Continued

Topic Requirements/Guidelines Mortgage Assumptions Contingent liability must be considered when the borrower (borrower) remains obligated on

an outstanding mortgage (including conventional, FHA insured, VA guaranteed, or any other mortgage or line of credit) secured by property that:

• Has been sold or traded within the last 12 months without a release of liability; or • Is to be sold on assumption without a release of liability being obtained.

If a property has been sold on assumption, the following documents are required: • Copy of the documents transferring ownership of the property. • The assumption agreement executed by the transferee.

When a mortgage is assumed, the contingent liability may be excluded from the total monthly obligations, if: • A payment history from the servicer of the assumed loan is obtained showing that

the mortgage has been current during the previous 12 months; or • Value of the property, as established by an appraisal or the sales price on the

HUD-1/Closing Disclosure from the sale of the property, results in a LTV/CLTV ratio of 75% or less.

Open-End (30-day) Accounts Verify that the borrower has reserves to pay off the full balance. In addition, use the greater of 5% of the balance or $10 for a qualifying payment

If the borrower paid off the account balance prior to closing, provide proof of payoff in lieu of verifying funds to cover the account balance.

Payoff VS Paydown Accounts may not be “paid down” to less than 10 months to allow the borrower to qualify.

Installment or mortgage accounts must be paid in full. Payoff of revolving accounts in order to qualify the borrower is not allowed.





Multiple Mortgages to the Same Borrower

Maximum of 4 financed residential properties, including subject property.

When multiple loans to one borrower are closed under this product, if the aggregate total of all loans exceeds $3,000,000, including subject loan, one of the following must apply: • Minimum Reserves after closing is 36 months’ PITIA, or • Maximum 50% LTV/CLTV for the subject property.

Each loan must be an arms-length transaction. MSI reserves the right to limit the number of loans secured by

properties purchased within one building, within one neighborhood and/or to one borrower.

The borrower must reflect the ability to manage the properties owned.

Net Tangible Benefit

All refinance transactions must provide a net tangible benefit (NTB) to the borrower.

Non-ARMS Length Transactions

Not Permitted. See Underwriting/Non-ARMs Length/Identity of Interest for details.

Non-Occupant Co-Borrower

Not Permitted.

Property Located in a Newly Constructed Subdivision

The project must be fully completed. • • The project must be at least 30% sold, with the 30% totaling no

less than 10 properties.

Qualifying Rate

The following matrix outlines the required qualifying rate.

Product Qualify at … FRM Fully amortizing Note Rate 5/1 Qualify at the greater of the Note Rate plus 2% or the fully indexed rate.

7/1 & 10/1 Qualify at the greater of the Note Rate or the fully indexed rate.





Property-General Requirements

The mortgaged property must (at the time of loan delivery for purchase/funding): Be residential based on the property characteristics, zoning and land

use. Be safe, sound, habitable and undamaged by fire or windstorms or

other perils. Meet all conditions of the appraisal if the appraisal was made subject

to conditions. Represent the highest and best use of the property as improved and

the use of the mortgages property must be a legal or legal non-conforming use.

Have legal access (ingress and egress). Have year around access. Have utilities that meet community standards. Have mechanical systems that meet community standards. Have property insurance coverage that meets MSI requirements and

coverage for any hazards specific to the location of the property. Not be subject to pending legal proceeding for condemnation in whole

or in part.





Property Types

The following matrix outlines the applicable property types:

Eligible Property Types Ineligible Property Types Unless otherwise specifically restricted or not permitted by the applicable loan parameters, the following property types are acceptable to MSI/Fannie Guidelines: 1 -4 Unit Primary Properties-see loan parameters for

availability (See Loan Product Parameters – FRM/ARM Loan Parameters )

Second Homes- see loan parameters for availability Investment Properties – Single Unit PUDs to Fannie Mae/Freddie Mac guidelines Condos- Fannie Mae/Freddie Mac warrantable Lot size must be typical for the neighborhood and must

be supported by comparable properties. Properties with agricultural use are not permitted.

Commercial operations or zoning Condo Conversions; Kiddie Condos Condotels Cooperative Projects Geodesic Domes Earth Homes Hobby Farms Houseboats Log Homes Leasehold Properties Mixed use properties Mobile (Manufactured) Homes, single- or double-wide Model Home Leaseback properties Modular/Factory Built Homes Multi-dwelling or Multi-Unit condominiums Non-Warrantable Condos Non-conforming zoning projects "Own-your-Own", Timeshare/segmented ownership Projects with pending litigation Properties purchased at auction Properties subject to Limited Domain Properties with deed restrictions that limit transferability

of title, or contain a "first right of refusal" provision or other resale restricted properties

Properties located outside the United States or District of Columbia

Properties with assignments of purchase (assigning the purchase contract to another party)

Property located on an Indian Reservation Rural Property Tax shelter syndications Timeshares Unimproved (Raw) Land Unique properties Working farms, ranches or orchards Any property type not permitted by MSI or Fannie Mae

Notes: See Underwriting/Property Types for additional details.





Property Flipping

Not Permitted.

PUD Requirements

If a property meets the current Fannie Mae/Freddie Mac definition for a PUD project the following apply: The appraisal/appraiser must identify as a PUD.

• The underwriter must review the appraisal carefully to confirm that the PUD demonstrates market acceptance.

The PUD project must have adequate insurance to cover any common areas. (Significant common areas may require blanket coverage.) See the Fannie Mae Seller Guide for full details.

The project must be fully completed. • The project must be 30% sold, with that 30% totaling no less than

10 properties.

Qualifying Payment

In all cases, the current housing payment used to qualify the borrower must be calculated using principal, interest, taxes, insurance(s) and any existing home owner’s (association) dues.





Refinance Transactions

Follow current applicable more restrictive of MSI/Jumbo requirements for refinance loans.

Topic Rate/Term (No Cash Out) Cash Out General See Net Tangible Benefit.

Must be new appraisal for the transaction, see Appraisal Requirements. Underwriting File must contain a copy of the current Payoff Letter(s) from the Servicer.

Transaction Limits

Payoff of the current mortgage (principal balance plus accrued interest, and any required prepayment penalty, only; other costs such as late fees and past-due amounts may not be paid with the new Loan) • If the first mortgage is a Home Equity Line of Credit

(HELOC) a copy of the HUD-1/ Closing Disclosure from the borrower's purchase of the subject property, or documentation of home improvements made to the property, must be provided evidencing the proceeds were used in their entirety to acquire or improve the subject property.

Payoff (as defined above) of any subordinate mortgage lien used in its entirety to acquire or improve* the subject property

Payoff (as defined above) any other mortgage lien against the subject, provided: • The lien has been open at least 12 months, and • Total draws in the past 12 months do not exceed 2%

of the new first mortgage amount.

Any refinance transaction not meeting the requirements for a rate/term refinance is a cash-out refinance.

The borrower must provide a written statement regarding the purpose of any cash out.

Payoff all outstanding liens against the subject and receive cash out to product maximum.

* Home improvement costs may include the following: Materials; Architectural fees; Supplies; Labor; Liability insurance on laborers; Installation costs (water, sewer, well, etc.); Permits; Non-recurring costs of obtaining financing, including origination fees, discount points, title searches, recording fees. Temporary buydowns are not allowed.





Refinance Transactions, Continued

Topic Rate/Term (No Cash Out) Cash Out Seasoning Refinance of loans with less than 1-Year Seasoning:

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

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

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

Notes: For the purpose of determining “age” limits, “application” or “application date” is defined as the earliest credit in the loan file. MSI will not refinance any property currently in foreclosure. Property Listed for Sale. MSI will not refinance a property that is currently listed for sale or listed for sale within the past

180-days. Calculate the timing using the verified date the subject was removed from the MLS to the actual date of loan application. Borrower must provide proof of cancelled or expired listing and an explanation as to why the property is being refinanced after listing it for sale.

Texas Home Equity is not permitted.





Subordinate (Secondary) Financing

There are two types of subordinate financing: • Home Equity Line of Credit (HELOC): a mortgage loan that allows

the borrower to obtain multiple advances from a line of credit at his/her discretion and that is typically in a subordinate position.

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

The following guidelines are required for both HELOC and Closed End Loans: • Must meet the product-specific loan parameter requirements. • Maximum total financing cannot exceed total loan amount or

(H)CLTV. • If there is/will be an outstanding balance at the time of closing, the

payment on the subordinate financing must be included in the calculation of the borrower's debt-to-income ratio(s).

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

• Equity share or shared appreciation is not allowed. • Subordinate financing from the borrower's employer may not

include a provision requiring repayment upon termination. • Secondary financing must be from an institutional lender (no seller

seconds or private parties). • Subordinate liens must be recorded and clearly subordinate to the

first mortgage lien. • Full disclosure must be made regarding the existence of

subordinate financing and the subordinate financing repayment terms.

Additionally, for Closed End Subordinate Financing: • Maturity date or amortization basis of the junior lien must not be

less than 5-years after the Note date of the first lien Mortgage, unless the junior lien is fully amortizing.

• The loan cannot have a balloon or call option within five years of the date of the Note. o The terms of a HELOC may provide for a balloon or call option

within the first five years after the Note date of the first Mortgage.





Shared Private Amenities

Roads, wells and septic systems that are not publicly governed and maintained must Have a recorded maintenance agreement or easement that runs with

the land (i.e., is expressly stated to belong to the successors or assigns of the owner), assures the mortgagor or owner and future owners of subject property the right to access and use of the road, well and/or septic system as long as the mortgagor or owner and future owners fulfill reasonable conditions.

This agreement must provide for mutual upkeep of the road, well or septic system.

Temporary Buy Down

Temporary Buy downs are not permitted by MSI.

Trailing Co-Borrower

Not permitted.

Water Supply Properties using alternative water supplies are acceptable provided the appraiser demonstrates that such water supply is typical and acceptable for the immediate area. • The appraiser must note any negative issues with the system. See

Inspections and Certifications.

Work Completion Escrows

Not permitted.



Restrictions

Introduction By sale of the loan to MSI, the Seller warrants that the loan meets these product guidelines and all other applicable requirements in this Seller Guide. The following specific restrictions apply for all loans sold to MSI.

Borrower Paid Fees

The borrower may never pay any fee on behalf of the seller. These types of fees include, but are not limited to: • Finder or consulting fees • Payoffs amounts for second lien holders • Agent commissions • Delinquent taxes or HOA dues • Moving expenses

High Cost and Higher Priced Mortgage Loans

MSI high cost policy will conform to all Federal, State, County, City, and Agency requirements, including consumer laws. No loan sold may violate high cost regulations as set forth by the above mentioned entities. By sale of a mortgage loan to MSI, the Seller warrants the following: No mortgage loan is subject to the provisions of the Home Ownership

and Equity Protection Act of 1994 as amended or is considered a "high cost", "covered" or "predatory" loan under any applicable state, federal, or local laws or ordinances.

Higher Priced Mortgage Loans, as defined by state or federal regulations are not permitted.



Closing Documentation

Description

All Jumbo loans must be closed in the Name of MSI. Order all closing documents from MSI. All Fixed Rate Mortgages must use the most current Fannie Mae/Freddie Mac uniform instrument for the fixed rate Note and for the Security Instrument. See the Pre-Purchase Delivery and Post-Purchase Requirements for details.

Late Charges 5% or the highest amount permitted by state law.

State Specific Documents

The Seller must use current state-specific documents as required for the jurisdiction in which the subject property is located.

Product Uniform Multi-State Document Disclosure Required

Document Rider FRM Note: Freddie 3200 N/A N/A

All LIBOR ARMS Note: Fannie 3528 or state specific version.

Fannie 3187 ARM Disclosure

All Products Security Instrument-Use Fannie/Freddie Mortgage/

Deed of Trust

See Below N/A

Rider to the Mortgage, as required by the property: PUD units only - FNMA/FHLMC 3150 Multistate Planned Unit Development Rider (VMP7R). Second Home Rider - FHLMC 3890 Second Home Rider for non-owner occupied properties (VMP365R).

MERS MSI will close all loans in MSI’s name on MOM documents.