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FHA Correspondent Manual

Revision 1.0 Effective 12-01-2013

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CORRESPONDENT LENDING

Table of Contents

4506-T ........................................................................................................................................... 12

APPRAISAL ..................................................................................................................................... 12

ACREAGE ................................................................................................................................................ 12

AGE AND DATE OF APPRAISAL ............................................................................................................... 12

APPRAISAL MANAGEMENT COMPANIES – LENDERLIVE LOANS ............................................................ 13

LenderLive’s approved Appraisal Management companies: ............................................................. 13

DECLINING MARKETS ......................................................................................................................... 13

FORM REQUIREMENTS ...................................................................................................................... 13

PHOTOGRAPHS .................................................................................................................................. 14

PORTABILITY ........................................................................................................................................... 15

TRANSFER OF APPRAISAL FROM ANOTHER LENDER TO LENDERLIVE ............................................... 15

TRANSFER OF APPRAISAL FROM LENDERLIVE TO ANOTHER LENDER ............................................... 15

ASSETS ........................................................................................................................................... 17

AGE OF ASSET STATEMENTS .................................................................................................................. 17

CASH SAVED AT HOME .......................................................................................................................... 17

CHECKING AND SAVINGS ACCOUNTS .................................................................................................... 18

EARNEST MONEY DEPOSITS ................................................................................................................... 18

LOAN FROM A FAMILY MEMBER ........................................................................................................... 19

PRIVATE SAVINGS CLUB ......................................................................................................................... 19

PROCEEDS FROM THE SALE OF A PERSONAL ASSET .............................................................................. 20

PROCEEDS FROM THE ARMS LENGTH SALE OF REAL ESTATE ................................................................ 20

REAL ESTATE COMMISSION FROM SUBJECT PROPERTY ........................................................................ 20

RENT CREDIT .......................................................................................................................................... 20

RETIREMENT SAVINGS ........................................................................................................................... 21

SAVINGS BONDS ..................................................................................................................................... 21

SECURED LOANS .................................................................................................................................... 21

STOCKS AND/OR BONDS ........................................................................................................................ 21

LenderLive Network, Inc. Proprietary and Confidential Doc. 1001

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SWEAT EQUITY ....................................................................................................................................... 22

TRADE EQUITY ........................................................................................................................................ 22

AUS – TOTAL SCORECARD SYSTEM ............................................................................................... 22

MANUAL DOWNGRADES ....................................................................................................................... 22

BORROWERS – ELIGIBLE AND INELIGIBLE ..................................................................................... 24

ELIGIBLE BORROWERS ........................................................................................................................... 24

INELIGIBLE BORROWERS ........................................................................................................................ 25

NON-PURCHASING SPOUSES ................................................................................................................. 25

BUY-DOWNS.................................................................................................................................. 25

CASE NUMBER ASSIGNMENT/TRANSFER ..................................................................................... 25

BORROWERS .......................................................................................................................................... 25

PROPERTY ADDRESSES ........................................................................................................................... 26

ORDERING CASE NUMBERS ................................................................................................................... 26

OBTAINING A CASE NUMBER – DE DELEGATED AND UNCONDITIONALLY APPROVED AUTHORIZED AGENT CORRESPONDENTS ................................................................................................................ 27

CASE NUMBER EXPIRATION/CANCELLATION ........................................................................................ 28

CASE NUMBER TRANSFERS .................................................................................................................... 29

CASH RESERVES ............................................................................................................................. 30

DEPARTURE OF CURRENT RESIDENCE ................................................................................................... 30

3 TO 4-UNIT PROPERTIES ....................................................................................................................... 30

CLOSING COSTS ............................................................................................................................. 30

ALLOWABLE/NON-ALLOWABLE CLOSING COSTS .................................................................................. 30

CLOSING REQUIREMENTS ............................................................................................................. 31

PROPERTY ADDRESSES ........................................................................................................................... 31

CLOSING REQUIREMENTS ...................................................................................................................... 31

POC ITEMS REIMBURSED BY THE SELLER ............................................................................................... 34

ESCROW STATES .................................................................................................................................... 35

CO-BORROWERS ........................................................................................................................... 35


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CO-BORROWER RESOURCES .................................................................................................................. 35

CONDOMINIUMS .......................................................................................................................... 37

SITE CONDOMIUMS ............................................................................................................................... 40

CONDOMINIUM RESOURCES ................................................................................................................. 41

CONFLICT OF INTEREST ................................................................................................................. 41

CREDIT HISTORY ............................................................................................................................ 41

CREDIT INQUIRIES .................................................................................................................................. 41

DEROGATORY CREDIT EXPLANATIONS .............................................................................................. 41

NON-TRADITIONAL CREDIT REQUIREMENTS ......................................................................................... 42

BORROWERS HAVE CREDIT SCORES .................................................................................................. 42

OCCUPANT BORROWERS DO NOT HAVE CREDIT SCORES ................................................................. 42

FORECLOSURES ...................................................................................................................................... 42

CHAPTER 7 BANKRUPTCIES .................................................................................................................... 43

CHAPTER 13 BANKRUPTCIES .................................................................................................................. 44

CREDIT COUNSELING ............................................................................................................................. 44

COLLECTIONS, JUDGMENTS AND DISPUTED TRADE LINES .................................................................... 44

JUDGMENTS ........................................................................................................................................... 44

AUTHORIZED USER ACCOUNTS .............................................................................................................. 47

TAX LIENS ............................................................................................................................................... 47

MORTGAGE LATE PAYMENTS ................................................................................................................ 47

SHORT SALES .......................................................................................................................................... 49

SHORT REFINANCES ............................................................................................................................... 49

DEFAULTED CAIVR NUMBERS ................................................................................................................ 49

CREDIT HISTORY RESOURCES ................................................................................................................. 50

CREDIT REPORTS ........................................................................................................................... 50

AGE OF CREDIT REPORTS ....................................................................................................................... 50

OFAC SCREENING ................................................................................................................................... 51

CREDIT SCORES ............................................................................................................................. 51


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MEDIAN CREDIT SCORE (REPRESENTATIVE CREDIT SCORE ................................................................... 51

MINIMUM CREDIT SCORES .................................................................................................................... 51

DISCLOSURES/FORMS ................................................................................................................... 51

REQUIRED DISCLOSURES AND FORMS ................................................................................................... 51

DOWN PAYMENT REQUIREMENTS ............................................................................................... 53

PURCHASE TRANSACTIONS .................................................................................................................... 53

DOWN PAYMENT REQUIREMENT RESOURCES ...................................................................................... 53

DOWN PAYMENT ASSISTANCE ..................................................................................................... 54

ELECTRONIC SIGNATURES ............................................................................................................. 54

ELECTRONIC SIGNATURE RESOURCES ................................................................................................... 54

EMPLOYMENT HISTORY/VERIFICATION........................................................................................ 54

EMPLOYMENT HISTORY ......................................................................................................................... 54

EMPLOYMENT GAPS .............................................................................................................................. 55

MATERNITY LEAVE ................................................................................................................................. 55

EMPLOYMENT RESOURCES .................................................................................................................... 55

ENERGY EFFICIENT MORTGAGES .................................................................................................. 55

ESCROWS ...................................................................................................................................... 55

ESCROW HOLDBACKS ................................................................................................................... 56

FAMILY MEMBERS ........................................................................................................................ 56

GEOGRAPHIC RESTRICTIONS......................................................................................................... 56

ELIGIBLE LENDING AREAS ...................................................................................................................... 56

COMMUNITY PROPERTY STATES ........................................................................................................... 56

State Specific Requirements .................................................................................................................. 57

GIFT FUNDS ................................................................................................................................... 69

LENDERLIVE GIFT OVERLAYS .................................................................................................................. 69

GIFT DONORS ......................................................................................................................................... 69

GIFT OF EQUITY ...................................................................................................................................... 69

INELIGIBLE SOURCES FOR DOWN PAYMENT ......................................................................................... 70


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GIFT DOCUMENTATION ......................................................................................................................... 70

HIGHER PRICED MORTGAGE LOANS (HPML) ......................................................................................... 70

INCOME ......................................................................................................................................... 71

ALIMONY AND CHILD SUPPORT ............................................................................................................. 71

AUTOMOBILE ALLOWANCES .................................................................................................................. 72

COMMISSION INCOME .......................................................................................................................... 72

DISABILITY INCOME................................................................................................................................ 72

DIVIDEND AND INTEREST INCOME ........................................................................................................ 73

EMPLOYER SUBSIDIZED MORTGAGE PAYMENTS (EMPLOYER DIFFERENTIAL PAYMENTS) ................... 74

BORROWERS EMPLOYED BY A FAMILY-OWNED BUSINESS ................................................................... 74

GOVERNMENT ASSISTANCE PROGRAMS ............................................................................................... 74

MILITARY INCOME ................................................................................................................................. 74

NOTES RECEIVABLE INCOME ................................................................................................................. 74

OVERTIME AND BONUS INCOME ........................................................................................................... 75

PART-TIME PRIMARY EMPLOYMENT ..................................................................................................... 75

PART-TIME INCOME FROM A SECOND JOB ........................................................................................... 75

PROJECTED/FUTURE INCOME ................................................................................................................ 75

RENTAL INCOME .................................................................................................................................... 76

CONVERTING EXISTING HOMES TO RENTALS .................................................................................... 76

2-UNIT SUBJECT PROPERTY – PURCHASE .......................................................................................... 76

3 TO 4-UNIT SUBJECT PROPERTY – PURCHASE .................................................................................. 76

2-UNIT SUBJECT PROPERTY – RATE AND TERM REFINANCE AND CASH-OUT REFINANCE ................ 76

3 TO 4-UNIT SUBJECT PROPERTY – RATE AND TERM REFINANCE ..................................................... 76

3 TO 4-UNIT SUBJECT PROPERTY – CASH-OUT REFINANCE ............................................................... 76

ADDITIONAL INVESTMENT PROPERTIES OWNED BY THE BORROWER – NOT THE SUBJECT PROPERTY ........................................................................................................................................................... 76

BOARDER INCOME ................................................................................................................................. 77

ROOMMATE INCOME ............................................................................................................................ 77

RETIREMENT INCOME ............................................................................................................................ 77


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SEASONAL INCOME (SEASONAL COACHING, HOLIDAY EMPLOYMENT, ETC.) ....................................... 77

SELF-EMPLOYED BORROWERS ............................................................................................................... 77

SOCIAL SECURITY INCOME ..................................................................................................................... 79

TRAILING SPOUSE INCOME .................................................................................................................... 79

TRUST INCOME ...................................................................................................................................... 79

UNEMPLOYMENT INCOME .................................................................................................................... 79

INCOME/EMPLOYMENT RESOURCES ..................................................................................................... 80

INDUCEMENTS TO PURCHASE ...................................................................................................... 80

INDUCEMENT TO PURCHASE RESOURCES ............................................................................................. 81

FLOOD INSURANCE ................................................................................................................................ 81

CONDOMINIUM FIDELITY/LIABILITY INSURANCE .................................................................................. 81

HO-6 POLICY ........................................................................................................................................... 81

LAND CONTRACTS ......................................................................................................................... 82

LAND CONTRACT RESOURCES ................................................................................................................ 83

LIABILITIES ..................................................................................................................................... 83

EXCLUDED LIABILITIES ............................................................................................................................ 83

LOAN TERMS ................................................................................................................................. 84

FIXED RATE MORTGAGES ....................................................................................................................... 84

ARMS ...................................................................................................................................................... 84

LTV/CLTV ....................................................................................................................................... 84

PURCHASES ............................................................................................................................................ 84

RATE AND TERM REFINANCE ................................................................................................................. 86

CASH-OUT REFINANCE ........................................................................................................................... 86

NON-OCCUPYING BORROWERS ............................................................................................................. 87

INCREASE IN FAMILY SIZE ...................................................................................................................... 87

IDENTITY OF INTEREST TRANSACTIONS ................................................................................................. 87

MAXIMUM/MINIMUM LOAN AMOUNTS ..................................................................................... 88

LENDERLIVE’S MAXIMUM LOAN AMOUNTS .......................................................................................... 88


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MILITARY IMPACT ZONES ............................................................................................................. 88

MORTGAGE INSURANCE ............................................................................................................... 89

UP-FRONT MORTGAGE INSURANCE ...................................................................................................... 89

ANNUAL MORTGAGE INSURANCE ......................................................................................................... 89

CASE NUMBERS ASSIGNED ON OR AFTER JUNE 3, 2013 ....................................................................... 89

UP-FRONT MORTGAGE INSURANCE PREMIUM REFUNDS ................................................................ 90

MULTIPLE FHA LOANS ................................................................................................................... 90

MULTIPLE FHA LOAN RESOURCES ......................................................................................................... 91

MULTIPLE PROPERTIES ................................................................................................................. 91

MAXIMUM NUMBER OF LENDERLIVE LOANS ........................................................................................ 91

NET TANGIBLE BENEFIT ................................................................................................................. 92

RATE AND TERM REFINANCE TRANSACTIONS ....................................................................................... 92

NET TANGIBLE BENEFIT CALCULATION WORKSHEETS........................................................................... 93

NEW CONSTRUCTION ................................................................................................................... 93

BUILDING ON OWN LAND ...................................................................................................................... 94

PROPERTY TAXES.................................................................................................................................... 95

EARTH FILL.............................................................................................................................................. 95

NEW CONSTRUCTION RESOURCES ........................................................................................................ 95

NON-OCCUPANT CO-BORROWERS ............................................................................................... 95

OCCUPANCY .................................................................................................................................. 96

POWER OF ATTORNEY .................................................................................................................. 96

PRIVATE ROADS ............................................................................................................................ 97

PRODUCTS AND SPECIAL FEATURES ............................................................................................. 97

DISASTER VICTIMS MORTGAGE ............................................................................................................. 97

ENERGY EFFICIENT MORTGAGES ........................................................................................................... 97

NEGATIVE EQUITY REFINANCE PROGRAM (ADP CODES 821, 822, 831 AND 832) ................................ 97

$100 HUD REO ....................................................................................................................................... 98

SECTION 8 HOUSING VOUCHERS ........................................................................................................... 98


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MCC CREDITS ......................................................................................................................................... 98

INELIGIBLE PROGRAMS .......................................................................................................................... 98

PROPERTY ELIGIBILITY ................................................................................................................... 98

ELIGIBLE ................................................................................................................................................. 98

INELIGIBLE .............................................................................................................................................. 99

PROPERTY FLIPPING/SELLER SEASONING .................................................................................. 101

PROPERTY INSPECTIONS ............................................................................................................ 101

INSPECTION REQUIREMENTS FOR REQUIRED REPAIRS ....................................................................... 101

TERMITE, WELL AND SEPTIC INSPECTIONS .......................................................................................... 102

TERMITE INSPECTIONS ..................................................................................................................... 102

WELL INSPECTIONS .......................................................................................................................... 102

SEPTIC INSPECTIONS ........................................................................................................................ 103

STATE AND LOCAL REQUIREMENTS ................................................................................................. 103

SNOW CLAD ROOF INSPECTIONS ......................................................................................................... 103

CHINESE DRYWALL ............................................................................................................................... 103

FEMA-DECLARED DISASTER AREAS ...................................................................................................... 104

METHAMPHETAMINE CONTAMINATION ............................................................................................ 105

PROPERTY INSPECTION RESOURCES .................................................................................................... 106

PURCHASES/PURCHASE AGREEMENTS...................................................................................... 106

DEPARTURE OF CURRENT RESIDENCE ................................................................................................. 106

PURCHASES OF SHORT SALES .............................................................................................................. 107

PURCHASE/CONSTRUCTION AGREEMENTS ......................................................................................... 107

ADDITIONAL PURCHASE RESOURCES ................................................................................................... 107

QUALIFYING RATES .................................................................................................................... 108

FIXED RATE MORTGAGES ..................................................................................................................... 108

RATIOS ........................................................................................................................................ 108

MAXIMUM RATIOS .............................................................................................................................. 108

HOUSING RATIO ................................................................................................................................... 108


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TOTAL DEBT RATIO ............................................................................................................................... 109

RECENTLY LISTED PROPERTIES ................................................................................................... 109

PURCHASES .......................................................................................................................................... 109

CASH-OUT REFINANCES ....................................................................................................................... 110

RATE AND TERM REFINANCES ............................................................................................................. 110

REFINANCE TRANSACTIONS ....................................................................................................... 110

BORROWER REQUIREMENTS ............................................................................................................... 110

PAYOFF LETTERS .................................................................................................................................. 110

SHORT REFINANCES ............................................................................................................................. 110

CASH-OUT REFINANCE TRANSACTIONS ............................................................................................... 110

RATE AND TERM REFINANCE TRANSACTIONS ..................................................................................... 112

HELPFUL LINKS - REFINANCE TRANSACTIONS...................................................................................... 114

REO PROPERTIES ........................................................................................................................ 114

UNEXPIRED RIGHTS OF REDEMPTION – ALL STATES EXCEPT ALABAMA ............................................. 115

SEASONING REQUIREMENTS ..................................................................................................... 115

PURCHASES .......................................................................................................................................... 115

CASH-OUT REFINANCES ....................................................................................................................... 115

RATE AND TERM REFINANCES ............................................................................................................. 116

SELLER CONTRIBUTIONS ............................................................................................................ 116

JOB LOSS INSURANCE .......................................................................................................................... 116

HOMEBUYER COUNSELING .................................................................................................................. 116

SELLER CONTRIBUTION RESOURCES .................................................................................................... 117

SOCIAL SECURITY VERIFICATION ................................................................................................ 117

SUBORDINATE FINANCING ........................................................................................................ 117

SUBORDINATE FINANCING RESOURCES .............................................................................................. 118

TITLE ........................................................................................................................................... 118

SPECIAL ASSESSMENTS ........................................................................................................................ 119

ENERGY LOAN TAX ASSESSMENT PROGRAM (ELTAP) LIENS ............................................................... 119


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PROPERTY ASSESSED CLEAN ENERGY (PACE) LIENS ............................................................................ 119

MINERAL RIGHTS – EXCEPTIONS TO TITLE ........................................................................................... 119

EXCEPTIONS TO TITLE .......................................................................................................................... 119

DEED RESTRICTIONS ............................................................................................................................. 119

PROPERTY ADDRESS CHANGES ............................................................................................................ 121

MANUAL UNDERWRITING ................................................................................................................... 121

MANUAL DOWNGRADES ..................................................................................................................... 121

MORTGAGE CREDIT REJECTS ............................................................................................................... 122

DE DELEGATED CORRESPONDENTS ..................................................................................................... 123

UNDERWRITING RESOURCES ............................................................................................................... 123

UTILITIES ..................................................................................................................................... 123

WATER SYSTEMS/WELLS/SEPTIC SYSTEMS ............................................................................... 123

CISTERNS .............................................................................................................................................. 124

COMMUNITY WATER SYSTEMS ........................................................................................................... 125

SHARED WELLS ..................................................................................................................................... 125


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

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

• Proof of identification theft as evidenced by one of the following: o Proof ID theft was reported to and received by the IRS (IRS form 14039) OR o Copy of notification from the IRS alerting the taxpayer to possible identification theft

• In addition to one of the documents above, all applicable documents below must be provided: o W2 or 1099 transcripts which match the W2 or 1099 income shown on the 1040s o 1099 mortgage interest must match the reported interest on Schedule A or Schedule E o 1099G unemployment must match the reported amount of unemployment o 1099 dividend and interest income must match the reported dividend and interest o Validation of prior tax year’s income (income for current year must be in line with prior

years)

APPRAISAL ACREAGE The following property requirements must be met:

• 20 acres or less • Acreage size must be typical for the area • The property must be non-income producing • The property must be residential in nature

A full appraisal is required. LenderLive typically will require comparables to be no more than ten (10) miles apart.

The two most recent years tax returns are required to validate property is non-income producing.

AGE AND DATE OF APPRAISAL The appraisal effective date must be after the case received date unless one of the following applies:

• Appraisal was originally ordered for a conventional loan or other government guaranteed loan such as a VA loan that subsequently converted to an FHA loan and documentation substantiating the original loan product is provided or

• Appraisal is for a HUD REO property


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Refinance transactions require a new appraisal, regardless of the age of the appraisal used for any recent purchase or refinance transaction.

All appraisals are valid for a period of 120 days.

• The appraisal must be ≤ 120 days old on the date the loan disburses

APPRAISAL MANAGEMENT COMPANIES – LENDERLIVE LOANS Appraisals must be ordered through a LenderLive approved appraisal management company.

Approved Appraisal Management Companies:

Streetlinks Lender Solutions www.streetlinks.com United Lender Servicers (ULS) www.ULSnow.com

LenderLive Inc. reserves the right to deny individual appraisers even when they are performing services for an approved AMC.

DECLINING MARKETS A property is located in a declining market if the “Neighborhood” section of the appraisal indicates the neighborhood is declining.

At least two comps must have closed within 90 days prior to the appraisal date (if recent comparable sales are not available, the appraiser must provide a detailed explanation).

• The comparable sales closed within 90 days prior to the appraisal date must be “as similar as possible to the subject property”

In addition to at least three sales comparables, two active listing or pending sale comparables are required in comp position 4-6 or higher.

• The listing and/or pending sale comparables must have typical marketing times for the area and must be similar to the subject property in size and sales price

• Listing comps must be adjusted to reflect list to sales price ratios for the market • Pending sale comps must be adjusted to reflect the contract purchase price – If the sales

price is not available, pending sale comps must be adjusted to reflect typical list to sales price ratios

FORM REQUIREMENTS • 1-unit residences require Fannie Mae Form 1004/Freddie Mac Form 70 • 2 to 4-unit residences require Fannie Mae Form 1025/Freddie Mac Form 72


http://www.streetlinks.com/

http://www.ulsnow.com/

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• Condos, including site condos require Fannie Mae Form 1073/Freddie Mac Form 465 • Market Conditions Addendum, Fannie Mae Form 1004MC/Freddie Mac Form 71 is required

for all appraisals

HUD-OWNED PROPERTIES • Maximum financing is calculated using the lower of the purchase price or appraised value

• If the purchase price is higher than the appraised value and the borrower wishes to continue with the transaction, in addition to any required down payment, closing costs and pre-paid expenses, he or she must pay the difference with acceptable verified assets

• Appraisals are obtained by the Management and Marketing (M & M) company contracted by HUD – To obtain the appraisal, contact the M & M company designated as the “asset manager” for the property – Asset manager contact information is located in the property listing on the HUD Homes Website.

• The original appraisal ordered by the company marketing the property is used at no cost to the borrower

• Underwriters are required to issue the Conditional Commitment (HUD form 92800.5B) after reviewing the appraisal to ensure the property meets FHA’s minimum property requirements and the value is supported

• Appraisals are valid for 120 days or 150 days if extended 30 days by the DE underwriter as described in Age and Date of Appraisal

• If the appraisal expires, a new appraisal is required. The new appraisal must be ordered after cancelling the prior case number to which the expired appraisal is associated and after receipt of the new case number. If the new appraised value is lower than M & M appraisal, borrowers may

proceed with the transaction with no adjustment to the sales price or may withdraw the offer to purchase and receive a full refund of earnest money deposit. Borrowers who choose to proceed with the purchase must pay the difference between the sales price and appraised value plus the minimum down payment and required closing costs and pre-paid expenses

If the new appraised value is higher than the M & M appraisal, the sales price will not be adjusted, and the LTV will be calculated using the lower of the original appraised value or sales price

PHOTOGRAPHS Photographs are required for all of the following rooms:

• Living rooms • Kitchens


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• Bathrooms

PORTABILITY

TRANSFER OF APPRAISAL FROM ANOTHER LENDER TO LENDERLIVE Transferring of an appraisal to LenderLive from another lender is subject to approval by LenderLive. Contact your Regional Account Manger to submit to LenderLive.

TRANSFER OF APPRAISAL FROM LENDERLIVE TO ANOTHER LENDER Transferring an appraisal is subject to approval by LenderLive and may result in fees to the seller. Contact your Regional Account Manager for approval and to determine fees associated with transferring to another lender.

PROPERTY ADDRESSES The property addresses on the appraisal, case number assignment, mortgage, and note must be identical, and must match the information in the LenderLive System. However, the abbreviation of “Street,” “Road,” etc. is acceptable, even if “Street” or “Road” is fully spelled in another document.

Use the standardized USPS address. Compare the USPS address to the legal description on the title commitment and use the city in the legal description if it differs from the USPS address.

SECOND APPRAISAL POLICY – DEFICIENT APPRAISALS Ordering, obtaining, using or paying for a second appraisal or subsequent AVM is prohibited unless there is a reasonable basis to believe the initial appraisal was flawed or tainted and the deficiencies are clearly noted in writing in the loan file.

• Under no circumstances, may a second appraisal be obtained solely due to the appraiser’s failure to obtain a desired value

• The DE underwriter determines whether a second appraisal is required or permissible • LenderLive DE underwriters adhere to the following policies and processes when determining

whether an appraisal is flawed, tainted or contains material deficiencies: o If, upon review of the appraisal, the underwriter determines there are flaws and/or

material deficiencies, the underwriter contacts the appraiser and requests necessary revisions, clarification, additional supporting documentation and/or missing data

o If the appraiser fails to provide the information or provides insufficient data and the appraisal still contains flaws or material deficiencies, the appraisal is forwarded to the Appraisal Review team for analysis

o A prior-to-close condition indicating the appraisal has been forwarded to Appraisal Review is added to the loan


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o Upon receipt of the Appraisal Review team member’s comments, the DE underwriter determines whether a new appraisal is warranted If not warranted, the conditional commitment is issued based on the original

appraisal If the original appraisal contains significant flaws, the DE Underwriter requests a

second Appraisal through the Appraisal Review team. Even if the originating lender has been approved for Appraiser Independence Compliance, second appraisals due to significant flaws may never be ordered by anyone other than the DE Underwriter

SECOND APPRAISAL REQUIREMENTS – SALES WITHIN 180 DAYS OF SELLER ACQUISITION A second appraisal is required for any sales within 180 days of seller acquisition.

• Second appraisal must be completed on the appropriate appraisal form • If the value indicated on the second appraisal is more than 5% lower than the value

indicated on the original appraisal, the lower value of the second appraisal must be used to calculate the maximum mortgage amounts and LTV/CLTV

• If the value indicated on the second appraisal is no more than 5% less than the value indicated on the original appraisal or the value indicated on the second appraisal exceeds the value on the original appraisal, the value of the original appraisal is used to calculate maximum loan amounts and LTV/CLTV

• For additional requirements and restrictions, refer to Property Flipping • Borrowers are not permitted to pay for the second appraisal

VALUE ADJUSTMENTS Revisions to the appraised value are permitted when justified and documented by the DE Underwriter who issues the Conditional Commitment. Underwriters who revise the appraised value must justify the revision and record the amended value in writing on HUD Form 54114 – Direct Endorsement Underwriter/HUD Reviewer Analysis of Appraisal Report

APPRAISAL RESOURCES • FHA Residential Appraisal Requirements – Appendix D, Attachment to FHA Mortgagee Letter

2005-48 – Revisions to Appraisal Protocol • Appraiser Independence, FHA Mortgagee Letter 2009-28 • Appraisal Portability, FHA Mortgagee Letter 2009-29 • Appraisal Validity Periods, FHA Mortgagee Letter 2009-30 • Second Appraisal Reporting Requirements, FHA Mortgagee Letter 2009-48 • Appraisal Performance Standards and Sanctions, FHA Mortgagee Letter 2009-41 • Adoption of the Appraisal Update and/or Completion Report, FHA Mortgagee Letter 2009-51


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• LenderLive Eligible Appraisal Search – Flagstar indicates they have a Flagstar Bank’s Eligible Appraiser Search

ASSETS Acceptable sources of funds to close and documentation requirements, including LenderLive overlays, are described below. For TOTAL Scorecard Approve or Accept responses, refer to the findings for the number of required statements,

All assets required by the TOTAL Scorecard findings and/or required for closing and reserves must be verified.

AGE OF ASSET STATEMENTS All verifications of funds must be dated within 30 days of the loan application and within 120 days of loan disbursement.

LARGE DEPOSITS • Purchase Transactions: FHA requires verification of any one deposit or aggregate of deposits

(not including payroll direct deposits) that exceeds 2% of the sales price • Credit Qualifying Refinance Transactions: LenderLive requires verification of any one deposit

or aggregate of deposits (not including payroll direct deposits) that exceeds 25% of the total monthly gross income but not less than $1000 in one specific account

• Non-Credit Qualifying Streamline Refinance Transactions: Non-payroll deposits are evaluated on a case-by-case basis. Deposits that are unusual or high for the borrower’s employment are considered large. * Note LenderLive does not currently offer the FHA Streamline Refinance

CASH SAVED AT HOME Borrowers who do not have bank accounts may use cash saved at home.

• Allowable amount is determined on a case-by-case basis and decision is based on borrower’s overall income and obligations and the length of time it took the borrower to save the money

• Borrower must explain in writing the length of time over which the funds were saved and how the funds were accumulated o Budget Letter and Cash On Hand Letter fully completed and executed by borrower(s)

• Borrower must provide evidence the funds were deposited into a bank account prior to closing


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CHECKING AND SAVINGS ACCOUNTS All large deposits must be verified, regardless of whether the funds are required for closing.

• “Large deposits” are designated on a case-by-case basis and are non-payroll deposits that are unusual and high for the borrower’s income and obligations

All loans require one of the following:

• A VOD and most recent bank statement or • Two most recent months bank statements (if the bank statements do not show the previous

month’s ending balance, three bank statements are required)

When one or more of the bank account owners is not a borrower on the loan, the non-borrowing joint account owner(s) must provide a letter stating the borrower has access to the funds - this applies even when the account is joint with a non-borrowing spouse and there are no additional joint account owners.

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

• Written explanations are required

Overdraft protection withdrawals are generally considered a neutral factor and are not considered negatively.

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

If funds to close are from the borrower’s business account, provide a letter from the accountant stating withdrawal of funds will not adversely impact the business.

EARNEST MONEY DEPOSITS Verification of earnest money deposit (EMD) is required if either of the following applies:

• The amount of the EMD exceeds 2% of the sales price or appears excessive based on the borrower’s history of accumulating savings or

• The borrower receives cash back at closing resulting from a refund of all or part of the EMD

Acceptable verification of EMD must be one or more of the following:

• Copy of the borrower’s canceled check • A copy of the bank statement or internet printout showing the check cleared the borrower’s

bank account • Certification from the EMD holder and separate evidence of source of funds


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• If the EMD was a gift, it must be from an acceptable source and must be documented with both of the following: o A fully executed gift letter and o Evidence of the donor’s withdrawal of funds (Copy of the canceled check, bank

statement showing check cleared or bank-validated withdrawal slip)

LOAN FROM A FAMILY MEMBER A loan from a family member may be secured or unsecured.

• The maximum loan amount is 100% of homebuyer’s required investment (down payment, closing costs, pre-paid expenses and discount points)

The family member may borrow funds, provided the borrower is not a co-obligor on the note.

• The source from which the family member borrowed the funds must not have an interest in the transaction (seller, real estate agents, originators, etc.)

• If the loan is secured by the subject property, only the family member may be the note holder, regardless of the source of family member’s loan

Max CLTV is 100% of the lesser of purchase price or appraised value plus closing costs, pre-paid expenses and discount points.

Required payments, if any, must be included in borrower’s ratios.

A fully executed copy of the document outlining the terms of the secondary financing must be provided (copy of the note).

Cash back to the borrower is not permitted.

The note must not provide for a balloon payment within five years of the date of execution.

PRIVATE SAVINGS CLUB • Provide copies of account ledgers for the club • Document existence and identification of club with club treasurer • Provide receipts for borrower’s deposits into the club’s account – Funds deposited by anyone

other than the borrower are ineligible • Document that it is reasonable for the borrower to have saved the money in the club and

funds are not being borrowed from the club with expectation of repayment • If the club requires the borrower to continue to make ongoing contributions to the private

savings club, the amount of the required deposit must be included as a debt in the borrower’s debt-to-income ratios


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PROCEEDS FROM THE SALE OF A PERSONAL ASSET The borrower may sell a car, motorcycle, recreational vehicle, jewelry, stamp, coin, or baseball card collection, etc.

All of the following documentation is required:

• Evidence of borrower’s ownership of the asset • Estimate of the asset’s value • Bill of sale • Copy of purchaser’s check • Evidence of deposit of purchaser’s check into borrower’s bank account

PROCEEDS FROM THE ARMS LENGTH SALE OF REAL ESTATE HUD-I Settlement Statement required

REAL ESTATE COMMISSION FROM SUBJECT PROPERTY Real estate commission from the subject property may be used as funds to close when the borrower is the licensed real estate agent for the property.

A family member who is a licensed real estate agent for the subject property may give the borrower commission received from the subject property; the following documentation is required:

• Fully executed gift letter • HUD-I settlement statement reflecting credit of the family member/realtor’s commission

RENT CREDIT Provide a copy of the rent-with-option-to-buy agreement clearly defining the terms and conditions, including rent credit.

The portion of rent credit that exceeds fair market rents for the area may be credited toward borrower’s funds to close (i.e. If the monthly fair market rent for the property is $750 and the option-to-buy agreement indicates a monthly rent credit of $800, then $50 times the number of payments the borrower has made may be credited to the borrower).

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

If the borrower lived in the property rent-free or paid rent below fair market value, the difference between rent paid and fair market rent must be treated as an inducement to purchase resulting in a dollar-for-dollar reduction in the sales price before calculating the maximum LTV (i.e. If the monthly fair market rent is $500 and the borrower paid $350 in monthly rent, then $150 times the number of payments the borrower made must be deducted from the purchase price before the maximum purchase LTV is calculated).


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RETIREMENT SAVINGS • Document balances with the most recent statement • Document the terms and conditions for withdrawal and/or borrowing, regardless of whether

the borrower is using funds to close o When funds may only be withdrawn in the event of the borrower’s retirement or death,

the funds may not be used as reserves • When used as reserves, 60% of the vested account balance may be used • When funds are used to close on the subject loan, proof of liquidation is required, regardless

of TOTAL Scorecard response • Proof of liquidation required for all manually underwritten loans (note: manually written loans

are not currently available for purchase). For loans receiving a Total Scorecard approve or accept, follow liquidation requirements stated on the findings.

SAVINGS BONDS • Provide copies of bonds indicating ownership • Provide evidence of redemption value • Provide evidence proceeds were deposited to borrower’s bank account

SECURED LOANS • Borrowed funds are acceptable, provided they are fully secured by investment accounts or

real property such as stocks, bonds, real estate, etc. o Proceeds from vehicle refinance loans are considered acceptable funds to close,

provided all of the following requirements are met: Provide documentation the borrower is the owner of the vehicle that secures the loan Provide documentation the existing financing secured by the subject vehicle has

been paid in full Provide evidence the amount of the new loan does not exceed the verified value of

the subject vehicle The creditor on the new loan may not be anyone who is an interested party to the

FHA mortgage transaction • The secured loan must be obtained through an independent third party lender

o Interested parties (sellers, realtors, etc.) may not supply loans, even when the loan is secured by an asset

• Unacceptable borrowed funds include, but are not limited to, signature loans, cash advances on credit cards, loans secured by household goods such as furniture, etc.

STOCKS AND/OR BONDS • Provide most recent two months’ brokerage statements


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• Proof of liquidation is not required with Total Scorecard Approve or Accept response • Proof of liquidation is required for manual underwriting approval

SWEAT EQUITY Not allowed

TRADE EQUITY • When a borrower trades in a real property as all or part of the down payment, closing costs,

pre-paid expenses and/or discount points, the amount of trade equity is determined using the following calculation:

o The lesser of the appraised value from an appraisal <= six months old or sales price minus,

o All existing liens minus o Real estate commissions paid on the property being traded

• Documented evidence the borrower owns the property being traded is required • If the property being traded is currently FHA-insured, FHA’s assumption processing

requirements and restrictions apply – See HUD Handbook 4155.1 7.1-3

AUS – TOTAL SCORECARD SYSTEM A TOTAL Scorecard approve or accept response is required for all loan purposes. Streamline Refinance transactions and loans in which all borrowers have no credit score are not available.

• DE Delegated customers who are not seller-servicers must have the TOTAL Scorecard findings (AUS response) assigned and finalized to Flagstar Bank.

• DE Delegated customers who are seller-servicers must submit findings in their company name

MANUAL DOWNGRADES Loans manually downgraded from a TOTAL Scorecard Approve or Accept response to a “refer” response are subject to decline.

HUD requires the underwriter to manually downgrade a TOTAL Scorecard Approve or Accept response to a “refer” response and perform a complete manual underwrite based on standard FHA guidelines if any of the following conditions exist:

• The loan is a cash-out refinance and the existing non-occupant co-borrowers will remain on the new loan


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• The underwriter is unable to satisfy any of the automated underwriting conditions, including, but not limited to, the most recent year-to-date pay stub documenting one full month’s earnings

• Additional derogatory credit is received but the credit reference was not included on the credit report evaluated by TOTAL Scorecard

• Disputed accounts or disputed public records are indicated on the credit report o If the credit report indicates the borrower(s) have one or more disputed accounts with

cumulative balances totaling $1,000 or more, the loan must be manually downgraded to a refer response The following accounts are included in the cumulative balance of disputed accounts:

◊ Disputed collections ◊ Disputed charge-offs ◊ Disputed trade lines on which the borrower has made late payments within the

most recent 24 months ◊ Borrowers may not circumvent the manual downgrade requirement by paying

down the balance(s) on disputed accounts to an amount < $1,000 ◊ Payoff of the disputed accounts is not required. However, if disputed accounts

are also collection accounts totaling $2,000 or more, the guidance in the Collection section of this document applies

◊ Even if the borrower is an “authorized user” only on any of the above accounts, FHA requires inclusion in the disputed accounts balance

The following accounts are excluded from the cumulative balance of outstanding disputed accounts: ◊ Disputed medical collections ◊ Disputed accounts resulting from identity theft, credit card theft or unauthorized

use (Proof of fraud in the form of a letter from the creditor, police report, etc., is required)

◊ Non-derogatory disputed accounts, including disputed accounts with no balance, disputed accounts with late payments more than 24 months old and disputed accounts paid as agreed

• Suspended and debarred Individuals may not be approved, if any party (borrower, seller, loan officer, listing or selling agent, appraiser) is included on the LDP or GSA list

• Borrowers have delinquent federal debt and do not receive a clear CAIVR number o For additional information, including exceptions and erroneous information resolution,

refer to HUD Handbook 4155.1, 4.A.7.a-g • Borrowers have a foreclosure or deed-in-lieu of foreclosure in the most recent three years • Borrowers have a Chapter 7 or Chapter 13 bankruptcy in the most recent two years • Borrower’s most recent 12-month mortgage histories reflect:

o Three or more late payments ≥30 days or


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o One or more late payment of 60 days plus one or more 30-day late payment or o One or more payment > 90 days late

• Effective for case numbers assigned on or after April 1, 2013, if the borrower’s credit score is less than 620 and the total debt-to-income ratio for the loan is greater than 43%, manual underwriting is required o FHA expects TOTAL Scorecard to be updated by April 1, but in the event a loan falling

within these parameters receives an “approve” or “accept” response, the loan must be manually downgraded

o Because our minimum credit score for FHA loans is not less than 620, this policy does not apply to any loans underwritten or purchased by LenderLive

Total Scorecard Tolerances When verifying actual reserves, income, and PITI, TOTAL Scorecard must be re-run to reflect the correct amounts unless the difference meets one of the following FHA tolerances:

• Verified reserves are no more than 10% less than the amount listed on the 1003

• Verified income is no more than 5% less than the income listed on the 1003

• The ratios do not result in a 2% or greater ratio increase due to estimated taxes and insurance

BORROWERS – ELIGIBLE AND INELIGIBLE ELIGIBLE BORROWERS

• U.S. Citizens with a valid U.S. Social Security Number • Permanent Resident Aliens

o Copy of permanent residency document issued by the Bureau of Citizenship and Immigration Services within the Department of Homeland Security required

o Evidence of a valid Social Security Number required • Non-Permanent Resident Aliens, provided they:

o Have a valid SSN and o Occupy the property as a principal residence and o Are eligible to work in the U.S Copy of Employment Authorization Document (EAD) issued by the Department of

Homeland Security required ◊ There must be at least one remaining year of authorization to work unless the

borrower has a previous history of EAD renewal


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Only borrowers having refugee or asylee status granted by the USCIS are automatically eligible to work in the United States; therefore, refugee or asylee borrowers are not required to provide an EAD

INELIGIBLE BORROWERS • Any individual without a valid U.S. Social Security Number • Individuals with a U.S. Individual Taxpayer Identification Number (ITIN)

o An ITIN is formatted like a SSN but begins with “9”; no valid SSN begins with “9” • Investors • Foreign nationals and borrowers with diplomatic immunity • Illegal aliens • Inter vivos or “living” revocable trusts

NON-PURCHASING SPOUSES • If the property is located in a community property state or the borrower resides in a

community property state, the debts, judgments and collection accounts of the non-purchasing spouse must be included in the ratios o FHA recognizes same-sex marriages and civil unions permitted by state law; if a

community property state permits same sex marriages or civil unions that grant state level spousal rights, the debts of the non-purchasing same sex spouse must be included in the ratios

• The non-purchasing spouse’s credit is not considered a reason to deny a loan application

BUY-DOWNS Ineligible

CASE NUMBER ASSIGNMENT/TRANSFER BORROWERS The borrower’s name on the case number assignment must match the borrower’s name in LenderLive system and the note and mortgage

• The following name discrepancies are the only acceptable variations: o James Everett Brown, James E. Brown, James Brown o William Smith Jr., William Smith, William R. Smith, William Ryan Smith, Jr., William Ryan

Smith, William R. Smith, Jr.


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• The following name discrepancies must be resolved prior to the loan closing (this list is not all-inclusive and name discrepancies are reviewed on a case-by-case basis): o Name discrepancies due to marriage (Case number shows Mary Smith, but

documentation in LenderLive system and/or the note and mortgage shows Mary Jones) o Hyphenated name discrepancies (Case number shows Bill Smith but documentation in

LenderLive system and/or the note and mortgage shows Bill Smith-Jones) o Middle name discrepancies (Case number shows Bill John Smith but documentation in

LenderLive system and/or the note and mortgage shows Bill Robert Smith) o First name discrepancies (Case number shows Bill Smith, but documentation in

LenderLive system and/or the note and mortgage shows William Smith) o Last name prefix discrepancies (Case number shows Bill St. Pete, but documentation in

LenderLive system and/or the note and mortgage shows Bill Stpete)

PROPERTY ADDRESSES • FHA case numbers are assigned to the property and remain with the property, regardless of

borrower changes after a prior sales transaction for the property fails to close (For additional information, see Case Number Expiration)

• The property addresses on the appraisal, case number assignment, mortgage, and note must be identical, and must match the information in the LenderLive System o However, the abbreviation of “Street,” “Road,” etc. is acceptable if “Street” or “Road” is

fully spelled in another document. This is the only acceptable variance. o Use the standardized USPS address Compare the USPS address to the legal description on the title commitment and use

the city in the legal description if it differs from the USPS address

ORDERING CASE NUMBERS • Case numbers may not be ordered unless the lender has received a completed application

and the borrower has a property – Lenders must certify in FHA Connection “at the time of requesting a case number they have an active loan application for the subject borrower and property”

• Old case numbers may not be used to circumvent new FHA requirements • Duplicate case numbers may not be ordered to circumvent using an appraisal already

performed for the subject property • Case numbers must be ordered and received prior to the appraisal effective date unless one

of the following exceptions applies: o Appraisal was originally ordered for a conventional loan that subsequently converted to

an FHA loan or o Appraisal is for a HUD REO property or


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o Appraisal was ordered for a government guaranteed loan such as a VA loan that subsequently converted to an FHA loan Documentation of prior non-FHA loan type required

• Case validation warnings must be resolved and duplicate case numbers may not be ordered to resolve a duplicate address, circumvent the case transfer requirement or any other case validation warning

• Only the appropriate homeownership center can correct a case number for a condominium project that was erroneously ordered as a site condominium – Submit the request in writing to the HOC having jurisdiction over the property o Atlanta HOC – ATLInsurance&[email protected] o Denver HOC – E-mail the request to [email protected] o Santa Ana HOC – E-mail the request to [email protected] o Philadelphia HOC – E-mail the request to [email protected] o The subject line of the email must include “Case Number Cancellation” followed by the

case number o The text of the email must include the lender name, phone number, email address and

contact name • FHA will not assign a Streamline refinance case number until the FHA loan being refinanced

meets all of the following seasoning requirements: o 210 days have passed since the closing date of the FHA loan being refinanced and o The borrower has made at least six payments on the FHA loan being refinanced and o At least six full months have passed since the first payment due date of the FHA loan

being refinanced o FHA does not permit ordering a case number as a rate and term refi to circumvent these

requirements and FHA will not revise a case assigned as a rate and term or cash-out to a Streamline refinance

OBTAINING A CASE NUMBER – DE DELEGATED AND UNCONDITIONALLY APPROVED AUTHORIZED AGENT CORRESPONDENTS Case numbers are ordered through FHA Connection (a property address is required):

• Select “Single Family FHA” • Select “Single Family Origination” • Select “Case Processing” • Select “Case Number Assignment”

o New Case Number – Select “Establish a New Case” o Revise an Existing Case Number – Select “Update an Existing Case”

• Complete all appropriate fields: o Borrower name, social security number, property information and loan purpose must be

accurate and match the information contained in the loan file


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o If LenderLive is underwriting the loan, the case type cannot be “pre-closing review” – If case number was pulled as a pre-closing review, the case number must be canceled and a new case number assignment must be completed.

• DE Delegated Correspondents: o Originator ID – Must reflect DE correspondent’s company name and FHA Originator ID

number o Sponsor/Agent – Do not complete

• Authorized Agent Correspondents: o Select “no” when answering the following question in the case number assignment

screen: “Is this a Sponsored Originator Case?” o Originator ID – Must reflect Authorized Agent’s (originating lender’s) company name and

FHA Originator ID number o Sponsor/Agent – Must reflect LenderLive – FHA Sponsor ID #1559800018

CASE NUMBER EXPIRATION/CANCELLATION Case numbers must be cancelled if a loan does not close on or before the appraisal expiration date

• For DE Delegated and unconditionally approved Authorized Agent correspondents, a case number cancellation request must be emailed to the FHA Homeownership Center having jurisdiction over the property location: o Atlanta HOC – E-mail the request to [email protected] o Denver HOC – E-mail the request to [email protected] o Santa Ana HOC – E-mail the request to [email protected] o Philadelphia HOC – E-mail the request to [email protected]

• The subject line of the email must include “Case Number Cancellation” followed by the case number

• The text of the email must include the lender name, phone number, email address and contact name

To comply with FHA’s case number/appraisal requirements, if the loan is still active but the appraisal has expired the following events must be completed in the chronological order listed below:

1. Cancel case number for the loan having an expired appraisal 2. Order and receive a new case number 3. Order a new appraisal

o The appraisal effective date must be after the case number received date

Beginning April 18, 2011, FHA will begin auto-canceling case numbers for which there has been no activity within the most recent six months since the last action in FHA Connection. If there has been no activity in the most recent six months, the only case numbers that will not be cancelled are those for which the upfront mortgage insurance premium has been paid or an appraisal update has been


mailto:[email protected]

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entered in FHA Connection within the most recent six months. The following FHA Connection activities are the only items FHA considers “Last Activity”:

• Case number assignment • Appraisal logging completed • FHA issued a firm commitment • FHA has received the insurance application and subsequent updates • FHA has issued a Notice of Return (NOR) and/or received additional insuring resubmissions

o FHA will not reinstate a cancelled case number unless the lender can document the loan closed prior to the case number cancellation Submit the HUD-I indicating the loan closed prior to the case cancellation date to the

Homeownership Center having jurisdiction over the state in which the property is located ◊ When faxing the request, include the name of your company and the contact

name and phone number: ♦ Denver HOC: E-mail the request to [email protected]. The subject line must

read “Case Reinstatement Request” ♦ Atlanta HOC: E-mail the request to [email protected]. ♦ Philadelphia HOC: E-mail the request to [email protected]. ♦ Santa Ana HOC: E-mail the request to [email protected]. ♦ The subject line must read “Case Reinstatement Request”

LenderLive requires case numbers older than six months be canceled. Exceptions for loans having valid appraisals will be reviewed on a case by case basis but in no event may the case number appear to have been ordered to circumvent new FHA requirements.

CASE NUMBER TRANSFERS Case numbers are transferred through FHA Connection

• DE lender must perform case number transfer o Select “Single Family FHA” o Select “Single Family Origination” o Select “Case Processing” o Select “Case Transfer” o Complete the required information: FHA Case Number New Originator ID New Sponsor/Agent ID, if applicable Date of Assignment Letter


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CASH RESERVES • All reserves included in the TOTAL Scorecard data must be documented • Cash reserves may not include funds received as a gift, regardless of the source • 60% of the vested balance of a 401k may be used - Must document terms and conditions for

withdrawal and/or borrowing and the borrower is eligible for withdrawals

DEPARTURE OF CURRENT RESIDENCE Refer to the Purchases section

3 TO 4-UNIT PROPERTIES 3 months PITI is required on all 3 to 4-unit transactions, regardless of TOTAL Scorecard findings

FEWER THAN TEN PAYMENTS REMAIN ON EXCLUDED DEBT Substantial reserves are a major compensating factor when excluding installment debts with fewer than ten remaining payments

CLOSING COSTS ALLOWABLE/NON-ALLOWABLE CLOSING COSTS Borrowers may pay customary and reasonable closing costs, subject to the following limitations:

• Borrowers may never pay the tax service fee • Commitment and/or lock-in fees may only be charged when the interest rate and discount

points, if any, are guaranteed to the borrower in writing for a minimum of 15 days • Fees and charges must be reasonable and customary and comply with all Federal, State and

local regulations and predatory lending rules

For purchase transactions, FHA does not permit the borrower to bring additional funds to close to pay any portion of the seller’s liens or short sale fees – For example, if a seller owes $120,000 on an existing property, and the sales price is $100,000, the borrower may not pay any portion of the remaining $20,000 on behalf of the seller.

• Borrowers may pay a reasonable and customary short sale negotiation fee subject to all of the following requirements: o Reasonable and customary fees are ≤ 1% of the purchase price o The fee must be listed on the purchase agreement as a separate fee and may not be

included in the purchase price


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o The fee must be listed as a line item on the HUD-1 Settlement Statement and may not be included in the purchase price

CLOSING REQUIREMENTS PROPERTY ADDRESSES The property addresses on the appraisal, case number assignment, mortgage, and note must be identical, and must match the information in the LenderLive system. However, abbreviation of “Street,” “Road,” etc. is acceptable, even if “Street” or “Road” is fully spelled in another document. This is the only acceptable variance

• Use the standardized USPS address o Compare the USPS address to the legal description on the title commitment and use the

city in the legal description if it differs from the USPS address

CLOSING REQUIREMENTS In addition to the underwriting-performed VOE, a verbal VOE must be submitted with the funding request.

• Verbal VOEs for hourly, salaried, or commission income borrowers must be completed within 10 business days of the note and must confirm the borrower is currently employed and must address the probability of continued employment o If the company representative states they do not perform verbal verifications, confirm

borrower is still employed via a receptionist, phone extension directory and/or active voice mail box

o If the company representative indicates they do not comment on probability of continued employment, document response on Verbal Verification of Employment.

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

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

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

A fully executed Undisclosed Debt Acknowledgement, Form #2002 is required at closing.

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

Interest abatement not allowed.


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For purchase transactions, FHA does not permit the borrower to bring additional funds to close to pay any portion of the seller’s liens or short sale fees – For example, if a seller owes $120,000 on an existing property, and the sales price is $100,000, the borrower may not pay any portion of the remaining $20,000 on behalf of the seller

• Borrowers may pay a reasonable and customary short sale negotiation fee subject to all of the following requirements:

• Reasonable and customary fees are ≤ 1% of the purchase price • The fee must be listed on the purchase agreement as a separate fee and may not be • included in the purchase price • The fee must be listed as a line item on the HUD-I Settlement Statement and may not

be included in the purchase price

In states where property taxes are paid in arrears, the tax pro-rations paid by the seller at closing may be used to reduce the borrower’s required cash-to-close, and the borrower may bring less than 3.5% to closing. Lenders must always verify the borrower has assets from an acceptable source that are at least 3.5% of the purchase price, regardless of the amount of tax pro-rations credited for taxes paid in arrears

Seller-paid tax pro-rations credited to the borrower for any period of time in which the seller did not occupy or own the property may NOT reduce the amount of funds the borrower brings to close, and the borrower must bring at least 3.5% of the purchase price to closing.

The borrower’s current escrow balance may not be credited to the borrower on the HUD-I Settlement Statement and may not be used to reduce the borrower’s principal balance. The servicer of the loan being paid off will refund the escrow balance to the borrower once they receive the payoff. Although FHA permits it, LenderLive does not offer an interest-free advance in the amount of the current escrow balance that enables the borrower to establish the new escrow account. Even if the originating lender is willing to provide one, interest-free advances are not permitted for any loans underwritten by LenderLive. LenderLive will purchase loans from DE Delegated Correspondents who offer an interest-free advance in the amount of the current escrow balance, provided the following documentation required by FHA is provided:

• A copy of the fully executed note for the interest-free advance must be included in the file at the time of purchase

• The interest-free advance must be credited to the borrower in the 200 section of the HUD-I Settlement Statement as “Lender Advance” or similar language indicating the credit is an advance

• The loan must be underwritten by the DE Delegated Correspondent

For FHA to FHA refinance transactions, the up-front mortgage insurance premium refund may be credited to the borrower in the 200, 800 or 900 section of the HUD-I Settlement Statement.


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All closing/funding conditions must be collected and provided in the closing package.

Any changes to loan amount, upfront MIP, cash-to-close, interest rate, points, PITI, etc. must be reviewed by underwriting prior to closing and disbursing loan.

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

• If the total of the lender and/or seller credits exceeds the total of the actual closing costs, pre-paid expenses and discount points by half or more of the financed up-front mortgage insurance premium, the required principal reduction is the higher of the amount by which the credits exceed the actual costs or the financed up-front mortgage insurance premium

• If the total of the lender and/or seller credits exceeds the total of the actual closing costs, pre-paid expenses and discount points by less than half of the financed up-front mortgage insurance premium, the required principal reduction is the amount by which the credits exceed the actual costs

• If the up-front mortgage insurance is paid in cash and the total of the lender and/or seller credits exceeds the total of the actual closing costs, pre-paid expenses, discount points and up-front mortgage insurance premium, the required principal reduction is the amount by which the credits exceed the total costs, including the UFMIP paid in cash

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

• Documented funds paid by the borrower outside of closing for items such as the EMD, appraisal or credit report may be refunded to the borrower at closing – Document funds paid outside of closing with one of the following: o Cancelled checks o Bank statement showing transfer of funds o Money order receipts and evidence of source of funds

Principal reductions are required when the borrower is receiving more than $500 cash at closing on a rate and term or streamline refinance loan. The principal reduction must include all cash back and not just the portion of cash back that exceeds $500. For example, if the HUD-I Settlement Statement indicates the borrower is receiving $626 cash back, a principal reduction in the amount of $626 is required. A principal reduction in the amount of $126 is insufficient

Lenders may use “premium pricing” to pay closing costs and pre-paid expenses on behalf of the borrower, provided it is disclosed on the Good Faith Estimate and HUD-I Settlement Statement. Under no circumstances may the lender credit plus seller paid costs exceed the actual amount of the closing costs and pre-paid expenses, nor may the lender or seller credit the borrower for the financed up-front mortgage insurance premium. Premium pricing may NOT be used to pay any of the following:


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Any portion of the borrower’s down payment on a purchase Any portion of the borrower’s existing principal balance on a refinance Debts Collection accounts Escrow shortages Missed mortgage payments Judgments

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

A fully executed Social Security Number Validation, Form #LLNSSA-89 must be included in the closing package for all borrowers.

POC ITEMS REIMBURSED BY THE SELLER Items such as the appraisal, credit report, etc. paid for by the borrower outside of closing (POCs) and subsequently reimbursed by the seller and seller-paid tax pro-rations may not be used to offset the minimum investment requirements for purchase transactions. However, they may reduce the amount of actual cash the borrower brings to the closing table. All of the following requirements must be met:

• The LTV may not exceed 96.5% o If there is an identity of interest between the borrower and seller, the LTV may not exceed

85% • The seller paid closing costs and pre-paid expenses, including the reimbursed POCs may not

exceed the actual closing costs and pre-paid expenses, including the POCs • The borrower must provide evidence the POC items cleared his or her bank account by

providing one of the following: o Copies of the cancelled check(s) for the POC items or o Copies of bank statements showing the POC items cleared the borrower’s bank account. If only bank statements are provided, evidence of the payee is required as evidence

the payment was for the reimbursed POC items o If the bank statements/printouts documenting the POCs clearing the borrower’s bank

account are more recent than those already reviewed by underwriting, the borrower’s available funds to close must be adjusted to reflect the new balances, large deposits must be verified and NSFs must be considered

o Because FHA does not allow POC items paid by credit card, the seller may not reimburse the borrower for any POC items paid with a credit card Reimbursement of items paid by credit card constitutes cash back to the borrower at

closing, which is not permitted


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• Even if seller-reimbursed POCs or seller paid pro-rations will reduce the amount of cash the borrower brings to the table, the borrower’s verified assets must reflect assets in the amount of the purchase price minus the down payment plus borrower paid closing costs and/or pre- paid expenses o Even if the seller-paid pro-rations will reduce the amount of funds the borrower brings to

closing, except in the case of a $100 down HUD REO purchase, under no circumstances may a borrower document less than the 3.5% down payment from an acceptable source

• To document the down payment is from an acceptable source and not an interested party, the amount of the verified EMD plus verified reimbursed POCs plus borrower’s cash-to-close plus wire transfers for acceptable gifts, grants and/or secondary financing must always equal or exceed the purchase price minus the base loan amount o Unreimbursed and unverified POC items may not be used to reduce the borrower’s funds

to close • Seller credits for property taxes paid in arrears may also be used to reduce the borrower’s

funds to close, provided the property tax credit is shown in the 200 section of the HUD-I Settlement Statement o The line item credit must clearly stipulate the time frame covered by the tax proration,

and the time frame must be prior to the loan closing date Example: If a loan funds on June 15, and the credit for the taxes paid in arrears

indicates a time frame of 1/1/12 – 6/14/12, the proration may be used to reduce the borrower’s funds to close

ESCROW STATES Arizona California Colorado Hawaii Idaho Montana Nevada New Mexico Oregon Utah Washington Wyoming

CO-BORROWERS CO-BORROWER RESOURCES Borrowers – Eligible and Ineligible


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Non-Occupant Co-Borrowers

COMPENSATING FACTORS Manual Underwriting is currently not allowed. The information below is provided for reference.

Ratio guidelines may be exceeded when compensating factor(s) that support loan approval are documented in the file. The remarks section of HUD Form 92900-LT must contain the underwriter’s list of compensating factors that were used to justify approval. The following items are FHA-recognized compensating factors:

• The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense for the new mortgage in the most recent 12-24 months

• The borrower makes a down payment ≥ 10% of the purchase price or for refinance transactions, there is a strong equity position

• The borrower has demonstrated the ability to accumulate savings and demonstrates a conservative attitude toward the use of credit

• The borrower’s previous credit history indicates the borrower is able to devote a greater portion of income to housing expenses

• The borrower receives documented compensation or income not reflected in the effective income on HUD Form 92900-LT but directly affecting the ability to pay the mortgage, including food stamps and similar public benefits

• There is only a minimal increase in the borrower’s housing expense • The borrower has substantial cash reserves (at least three months PITI) after closing • The borrower has substantial non-taxable income that was not grossed up when calculating

the effective income • The borrower has a potential for increased earnings, as indicated by job training or education

in the borrower’s profession • The home is being purchased as a result of relocation of the primary wage-earner, and the

secondary wage-earner has an established history of employment, is expected to return to work, and reasonable prospects exist for securing employment in a similar occupation in the new area. Available employment must be documented in the file – No income for the trailing spouse is included in the ratios

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


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CONDOMINIUMS Condos must be located in HUD-approved projects and the condo project must be listed as approved in FHA’s Condominium Search Engine. When searching for approved condos, make certain “HRAP/DELRAP” is selected in the “Approval Method” drop down of the search engine.

• HRAP refers to condos approved by HUD through the HUD Review and Approval Process. • DELRAP refers to condos approved by a DE lender through the DE Lender and Approval

process. o LenderLive will not approve condominium projects through DELRAP

For all FHA loan purposes, LenderLive will not approve or permit closing of any condominium-unit located in a project listed on any Exclusionary List.

Additionally, the condominium project may not have any characteristics listed below:

• Mandatory Rental Pool • Bell Captain, luggage service • On site rental agency or check in desk • Room Service • Central Telephone System • Central Key System • The overall project cannot include a hotel or similar type of entity, and may not be a project

with fragmented or segmented ownership, or a project with fractured interest • Condominium projects that include weekly and/or daily rentals are not acceptable if the HOA

is involved in rental of units • The project has Blackout dates restricting the owner’s use • Timeshare or segmented ownership projects • Houseboat projects • Multi-dwelling unit condominiums (projects that permit an owner to hold title to more than

one dwelling unit, with ownership of all of his or her owned units evidenced by a single deed and mortgage)

• Condominium projects representing a legal non-conforming use of land where zoning regulations prohibit rebuilding the improvement in the event of partial or full destruction

• Any project where the owner’s association pays the property taxes for the individual units • Common Interest Apartments or “Own Your Owns” • Projects without an established HOA • Projects in which more than 20% of the total square footage of the project is used for non-

residential purposes • Projects in which more than 20% of income is from sources other than dues and

assessments


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• A project for which the homeowners association (or developer, if the project has not been turned over to the unit owners) is a party to current litigation, arbitration, mediation or other dispute resolution process and the reason for the dispute involves the safety, structural soundness or habitability of the project

• New projects where the seller is offering sale/financing structures in excess of Investors eligibility policies for individual mortgage loans o These excessive structures include, but shall not be limited to, builder/developer

contributions, sales concessions, HOA or principal and interest payment abatements and/or contributions not disclosed on the HUD-1 Settlement Statement

• Projects where a single entity (the same individual, investor group, partnership or corporation) owns more than 10% of the total units in the project o For 2 to 4-Unit projects no single entity (the same individual, investor group, partnership

or corporation) may own more than one unit • Recreation lease for any project amenities • Less than 30% owner occupancy • Projects in which an auction has taken place to sell original units • Hotel/Resort Projects: any project operated as a hotel/resort, even though the units are

owned individually o While there is no single factor that can be used to determine whether a project should be

classified as a hotel/resort, LenderLive will consider, among other things: The existence of hotel/resort-type services, such as

◊ The presence of a registration desk ◊ The use of daily occupancy rates ◊ The availability of food and telephone services ◊ Provisions for daily cleaning services ◊ Advertisement of hotel/resort-type services ◊ Access to individual units is controlled through a centralized key system ◊ There are restrictions on interior decorating or furnishings or the units are sold

"fully furnished," or the purchasers must choose from a list of "approved" furniture, floor and wall coverings for the units

◊ Units have interior doors adjoining other units ◊ Units contain lockable storage closets, cabinets, safes or mini-bars ◊ Room service or food and beverage services are available to unit owners ◊ Signage is present indicating whether there are vacancies

The units are subject to rental pooling agreements requiring the unit owners to either rent their units or give a management firm control over the occupancy of the units

The project operates or advertises itself as a hotel, resort, inn, motel, lodge or similar type of hospitality entity

The project has the word Hotel, Motel or Resort in its name


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◊ Typical "second home" projects in which units may be rented on a short-term basis are not necessarily hotels

The project has a web site presenting itself as a hotel, resort, motel, inn, lodge or similar type of hospitality entity

The project has units available or advertised for rent through a web site offering travel services

The project is located at the same address or within the same project as a hotel, resort, motel, inn, lodge or similar type of hospitality entity.

The project has an affiliation or agreement with a hotel, resort, motel, inn, lodge or similar type of hospitality entity and the entity offers rental management or registration services for any unit owner of a unit within the project.

The project is a conversion of a hotel, resort, motel, inn, lodge or similar type of hospitality entity

The unit owners of the project share Common Elements (including Amenities) with a hotel, resort, motel, inn, lodge or similar type of hospitality entity or the unit owners pay additional fees for the use of such Common Elements if the unit owner is not part of a rental-management agreement with an entity associated with the project

The unit owner's ability to occupy the unit is restricted, whether the restriction is due to zoning or to the existence of a rental-management agreement between a unit owner and an entity associated with the project ◊ Examples of an entity associated with the project include but are not limited to

the developer, an affiliate of or successor to the developer or a hospitality entity associated with the project

The unit ownership is characterized as an investment opportunity and offers a rental split with an entity within the project or associated with the project, whether or not the project has documents on file with the U.S. Securities and Exchange Commission or comparable State agency

If a condominium project’s approval expires after a case number is received, the loan may close provided the case number correctly indicates the condominium project ID and all case expiration requirements defined in the “Case Number Assignment/Transfer” section of this document are met.

• If FHA withdraws a project’s condominium approval, the loan may not close, regardless of case number assignment date o LenderLive underwriters review project status prior to clearing any loan secured by a

condominium to close

Underwriters must certify the condominium unit is located within an approved project and the project continues to meet FHA’s requirements described in Condominium Project Approval and Processing Guide.


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• If the “Document Status” indicates “unrecorded” or “not on file,” forward all recorded Declarations, By-Laws and Amendments to the attention of “Condo Processing” at the appropriate HOC o Turn time is generally one week before the “Document Status” field is revised by FHA

• Questions about FHA condominiums may be directed to the FHA Resource Center: o Phone: (800) CALL-FHA (225-5342) o E-Mail: [email protected]

An HO-6 homeowner’s policy in an amount ≥ 20% of the appraised value is required.

o The monthly payment must be included in the ratio calculation, and escrows must be collected for the annual premium at closing

If flood insurance is required, an NFIP policy must be obtained by the homeowner’s association.

o Borrower purchased flood insurance is not permitted unless the property is a site condominium

o Loans must be denied if the HOA does not maintain adequate flood insurance, regardless of FHA condominium approval status

In Colorado, HOA Association Assessments have a “super-lien” position over the first mortgage. For both condominiums and PUDs, provide the following prior to closing:

• A copy of the HOA by-laws indicating HOA assessments are subordinate to the first lien or • A subordination agreement executed by a representative of the HOA indicating all current

and future HOA assessments are subordinate to the first lien mortgage

Condos in the following states are ineligible unless the homeowners have been in control of the Homeowner’s Association at least 12 months:

• Arizona • Florida

SITE CONDOMIUMS Site condos do not require FHA approval, provided the property is a fully detached single-family site condo.

• Site condominiums must meet ALL of the following requirements: o Single family detached dwelling having no shared garages, attached buildings, etc. o Encumbered by a declaration of condominium covenants or condominium form of

ownership o Unit consist of the entire structure and the site and air space are not considered to be

common areas or limited common areas o Insurance and maintenance costs are solely the responsibility of the unit owner


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o Common assessments are collected for amenities outside of the footprint of the individual site

• Appraisal must be completed on Fannie Mae Form 1073 – Condominium appraisal form • Condo rider must be included in the closing package • Section of the Act is 203(b) • ADP code is 431 (ARMs) or 734

CONDOMINIUM RESOURCES • Condominium Approval Process for Single-Family Housing, FHA Mortgagee Letter 2011-22 • Condominium Approval and Processing Guide • FHA’s Condominium Mortgage Insurance Webpage

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

All loan officers, including those employed by Sponsored Originators, are prohibited from being employed by multiple mortgage or real estate related companies. Therefore, loan officers may not hold a real estate license and work as an originator for any mortgage lender.

CREDIT HISTORY CREDIT INQUIRIES Inquiries within the most recent 90 days must be explained in writing, regardless of Total Scorecard response.

• The number of mortgage inquiries will be taken into consideration and may result in a denial • Fully executed Undisclosed Debt Acknowledgement, Form #2002 is required at origination

and closing for all loans

DEROGATORY CREDIT EXPLANATIONS Accept or Approve responses do not require credit explanation letters, however, underwriter reserves the right to request on case by case basis to ensure a sound decision. Example:

• Late payments within the most recent two years • Collections, charge-offs, judgments, and public records, regardless of time frame


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NON-TRADITIONAL CREDIT REQUIREMENTS

BORROWERS HAVE CREDIT SCORES LenderLive requires a minimum of three credit references per credit-qualifying loan, regardless of Total Scorecard response.

• Each credit reference must have at least a 12 month history • Three trade lines may be a combination of traditional references and acceptable non-

traditional references, however there is no rental history requirement as described in the following section for borrowers without credit scores

• For joint loans, the borrower’s and co-borrower’s combined trade lines must yield a total of three traditional and/or non-traditional trade lines.

• Borrowers on joint loans are not required to have three trade lines per borrower. Rather, the three trade line requirement is applied to the loan and not each individual borrower.

• A joint trade line reported on each borrower’s individual credit report is one trade line and may not be counted as two separate trade lines.

• Trade lines on which the borrower is an authorized user may not be counted as a traditional or non- traditional trade line.

• Non-traditional credit may not be used to offset a borrower’s poor credit, regardless of whether or not a credit score exists.

• Non-traditional credit verification is not required for non-credit qualifying Streamline refinances.

• Borrowers having fewer than three traditional trade lines are ineligible for 3 to 4-unit purchase or rate and term refinance transactions.

• Maximum ratios for borrowers having fewer than three traditional trade lines: o Maximum housing ratio – 31% o Maximum total debt ratio – 43%

OCCUPANT BORROWERS DO NOT HAVE CREDIT SCORES LenderLive does not allow loans that are not approved by Total Scorecard.

If only non-occupant co-borrowers have credit scores, the Approve or Accept response must be downgraded to a “refer,” and the loan will be declined.

FORECLOSURES A borrower with a foreclosure or deed-in-lieu of foreclosure within the most recent three years is ineligible for FHA financing unless an Approve or Accept response is received through the Total Scorecard System and significant extenuating circumstances exist, such as illness or death of a wager earner, and there is evidence of re-established good credit. Loss of employment is not


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considered an extenuating circumstance. Loans for borrowers with foreclosures less than one year old will not be considered, regardless of Total Scorecard response.

Extenuating circumstances as described in FHA’s “Back-to-Work” mortgagee letter are not permitted.

• If the loan secured by the foreclosed property was not an FHA loan, the foreclosure time frame is measured from the foreclosure completion date, regardless of whether the home was included in a bankruptcy and/or the date on the trustee’s deed.

• If the loan secured by the foreclosed property was an FHA loan, the three year time frame is measured from the date FHA paid the insurance claim

Defaulted time share loans are not considered foreclosures.

Trade lines listed as “Mobile homes” are considered foreclosures if the property was taxed as real estate and/or attached to a permanent foundation

If the loan receives a Total Scorecard Approve or Accept response and the borrower had a foreclosure within the most recent three years, the loan must be manually downgraded to a “refer” response and will be declined.

If the borrower’s mortgage was included in the Chapter 7 Bankruptcy, and the credit report reflects a foreclosure but does not indicate the foreclosure completion date, a letter from the servicer is necessary to determine the foreclosure date. FHA does not permit lenders to use the bankruptcy discharge date or the date on the trustee’s deed. The borrower is eligible for FHA financing three years from the date the servicer indicates the foreclosure was final.

If the borrower’s mortgage was included in the Chapter 7 Bankruptcy and the credit report does not reflect a foreclosure, a letter from the servicer must indicate the mortgage was paid in full, no additional liabilities exist and there was NO foreclosure. The borrower is eligible for FHA financing two years from the date of the Chapter 7 Bankruptcy discharge, provided all other FHA and LenderLive requirements are met.

CHAPTER 7 BANKRUPTCIES A borrower with a Chapter 7 Bankruptcy discharged less than two years is ineligible unless an Approve or Accept response is received through the Total Scorecard System and significant extenuating circumstances exist, such as illness or death of a wage earner. Loss of employment is not considered an extenuating circumstance. Loans for borrowers with bankruptcies discharged less than one year will not be considered, regardless of Total Scorecard response. Extenuating circumstances as described in FHA’s “Back-to-Work” mortgagee letter are not permitted.

If the loan receives a Total Scorecard Approve or Accept response and the borrower had a bankruptcy discharged within the most recent two years, the loan must be manually downgraded to a “refer” response and will be declined.


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If the borrower’s mortgage was included in the Chapter 7 Bankruptcy, and the credit report reflects a foreclosure but does not indicate the foreclosure completion date, a letter from the servicer is necessary to determine the foreclosure date. FHA does not permit lenders to use the bankruptcy discharge date.

• If the loan secured by the foreclosed property was not an FHA loan, the borrower is eligible for FHA financing three years from the date the servicer indicates the foreclosure was finalized

• If the loan secured by the foreclosed property was an FHA loan, the borrower is eligible for FHA financing three years after FHA paid the insurance claim

If the borrower’s mortgage was included in the Chapter 7 Bankruptcy and the credit report does not reflect a foreclosure, a letter from the servicer must indicate the mortgage was paid in full, no additional liabilities exist and there was NO foreclosure. The borrower is eligible for FHA financing two years from the date of the Chapter 7 Bankruptcy discharge, provided all other FHA and LenderLive requirements are met.

CHAPTER 13 BANKRUPTCIES • Document at least one year into the payout plan has elapsed • Document all required payments have been made on time • If borrower is still in repayment, obtain court permission to enter into the new mortgage • If the borrower is still in repayment, include the Chapter 13 payment in the debt ratio • If the loan receives a Total Scorecard Approve or Accept response and the borrower had a

bankruptcy discharged within the most recent two years, the loan must be manually downgraded to a “refer” response and declined

CREDIT COUNSELING • Total Scorecard “refer” responses:

o Not Allowed • Total Scorecard Approve or Accept responses:

o No explanation or other documentation required, however, underwriter receives the right to request on a case by case basis

COLLECTIONS, JUDGMENTS AND DISPUTED TRADE LINES Please refer to the matrix below in addition to the following guidance

JUDGMENTS • Judgments must be paid in full prior to closing unless both of the following items are

provided:


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o Fully executed repayment agreement o Prior to loan approval, the borrower must have made three payments within the month

due o The payment must be included in the debt-to-income ratios when qualifying the borrower o In order to expedite the loan approval, the borrower may not pre-pay the three months

payments. • Judgments belonging to a non-borrowing spouse are subject to all of the above requirements

when the borrowers live in or purchase a property located in a community property state • All outstanding judgments on title must be removed prior-to-closing

o For cash-out refinances, proceeds may not be used to pay off outstanding judgments at closing.


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Collections Judgments Disputed Accounts Approve

Accept Refer and/or Manually

Underwritten

Not Allowed

Approve Accept

Refer and/or Manually Underwritten

Not Allowed

Approve Accept

Refer and/or Manually Underwritten

Not Allowed

Credit Explanation & Supporting Documentation Required

No N/A No N/A Yes N/A

Payoff Required No N/A Yes, unless borrower meets all underwriting requirements below No N/A

Underwriting & Downgrade Requirements

Underwriting Requirements – Credit Capacity If cumulative collections are ≥ $2,000, one of the following is required: • Payment in full of all collections or • Evidence of payment arrangements and include payment in ratios - No pay history required or • Calculate monthly payment using 5% of the outstanding balance of each collection and include in ratios - No payment arrangement and/or payment history required • Pay down to a cumulative balance < $2000 does not remove requirement Downgrade Requirements: None unless borrower also has disputed trade lines totaling $1,000 or more – See Disputed Accounts column right

In lieu of payment in full, provide all of the following: • Borrower's written payment arrangement with the creditor AND • Evidence borrower has made 3 monthly timely payments in accordance with the agreement prior to credit approval (prepayment of three payments not permitted) AND • Include monthly payment in ratios

Underwriting Requirements – Credit Capacity None unless borrower also has collections totaling $2,000 or more – See Collection column left Downgrade Requirements If cumulative disputed trade lines are ≥ $1,000, the DE underwriter must manually downgrade the TOTAL Scorecard approval to a “refer” and manually underwrite the loan. All of the following disputed trade lines are included in the total: • Disputed collections • Disputed charge offs • Disputed trade lines with late payments in the most recent 24 months • Pay down to a cumulative balance < $1,000 does not remove requirement

Excluded from Cumulative Balances

• Medical Collections • Charge offs

N/A • Disputed medical accounts • Disputed accounts resulting from identity theft, credit card theft or unauthorized use (proof required - letter from creditor, police report, etc.) • Non-derogatory disputed accounts - Includes disputed accounts with no balance, disputed accounts with late payments aged 24 months or greater and disputed accounts paid as agreed

Non-Purchasing Spouse - Community property states only

Subject to all of the requirements above Subject to all of the requirements above N/A

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AUTHORIZED USER ACCOUNTS For the purposes of determining the number of valid trade lines, authorized user trade lines are not considered as one of the borrower’s trade lines.

Authorized user debts are not included in the ratio, provided documentation proving the borrower is not obligated to repay the debt is provided.

If the account on which the borrower is an authorized user is in the name of the non-borrowing spouse and the property is located in a community property state or the borrower(s) reside in a community property state, the debt must be included in the ratios.

If the borrower has little or no usable credit and has only authorized user accounts, supplemental non- traditional credit is required – See the Minimum Trade lines/References for Borrowers With Credit Scores above.

TAX LIENS

Tax liens must be paid in full prior to closing unless both of the following items are provided:

• Fully executed payment arrangement and • Evidence timely payments have been made (evaluated on a case-by-case basis, generally for

a minimum of 12 months) • The payment must be included in the debt-to-income ratios • Tax liens belonging to a non-borrowing spouse are subject to all of the above requirements

when the borrowers live in or purchase a property located in a community property state • For cash-out refinance transactions, proceeds may be used to pay off outstanding tax liens at

closing o Underwriter exception approval required and exceptions are granted on a case-by- case

basis o The lender must provide evidence the tax lien is paid in full and released after closing

If the income tax liens remain unpaid, provide a fully-executed subordination agreement.

If the government holding the tax lien is unwilling to subordinate the tax lien, it must be paid in full and released prior to closing.

MORTGAGE LATE PAYMENTS Regardless of refinance type, the borrowers must be current on the existing loan at the time of closing. The borrower must have made the payment for the month prior to funding within the month prior to funding. Therefore, if a loan funds in May, the borrower is considered current on the existing loan if the April mortgage payment was made within the month of April. The payoff, in and of itself,


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does not demonstrate the borrower is current or demonstrate an acceptable mortgage payment history. The following items or combination of the following items constitutes acceptable evidence of timely mortgage payments:

• Verification of mortgage from a third party credit reporting provider indicating the mortgage payment history through the month prior to funding

• Payment history provided by the current servicing lender indicating the mortgage payment history through the month prior to funding (If the borrower makes payments to a private individual, a mortgage history from the individual is not permitted)

• Bank statements provided by the borrower that show direct payments to the servicing lender through the month prior to funding

• Cancelled checks provided by the borrower that show timely payments through the month prior to funding

Purchases and rate and term refinances:

• Mortgage lates must be due to extenuating circumstances and will be evaluated on a case-by- case basis. Loans receiving Approve or Accept responses are approvable without explanations, provided the mortgage lates do not require a manual downgrade to a refer response. Refer to Manual Downgrades

Cash-out refinances:

• If the mortgage payment history indicates the borrower has made at least 12 payments on the loan being refinanced, all payments for the most recent 12 months must have been made within the month due

• If the mortgage payment history indicates the borrower has made at least six but fewer than 12 mortgage payments on the loan being refinanced, all payments must have been made within the month due

• If the mortgage payment history for the loan being refinanced indicates the borrower has made fewer than six mortgage payments, the loan is ineligible for cash-out. Borrowers who inherited the property within the most recent six months are exempt from this seasoning requirement.

• Second mortgages paid off with or subordinated to the cash out refinance transaction need not be seasoned six months or greater but must have acceptable payment histories as described above. All payments for second liens seasoned less than six months must have been made within the month due


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SHORT SALES FHA permits loans to borrowers whose credit history indicates a short sale, provided all of the following conditions are met:

• The borrower must have made all mortgage payments within the month due for the 12 months prior to the short sale o Borrowers who executed a short sale after completing a permanent modification are

eligible for FHA financing, provided the borrower made at least 12 payments on the permanent modification and all payments on the permanent modification were made within the month due for the 12 months prior to the short sale

o Borrowers who completed a short sale on a loan that was under a temporary modification plan at the time of the short sale are ineligible for FHA financing for three years after the short sale

• The borrower must have made all installment debt payments within the month due for the 12 months prior to the short sale

• The short sale must serve as payment in full on the existing liens, and the existing mortgage servicer may not require repayment of the difference between the mortgage balance and the short payoff

• Borrowers may not execute a short sale to “take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance”

• Borrowers in default on their mortgages at the time of a short sale are ineligible for FHA financing for three years after the date of the short sale unless the borrower experienced significant extenuating circumstances, such as illness or death of a wage earner. Loss of employment is not considered an extenuating circumstance. Total Scorecard Approve or Accept response required Extenuating circumstances as described in FHA’s “Back-to-Work” mortgagee letter are not permitted.

SHORT REFINANCES LenderLive does not allow short refinances.

DEFAULTED CAIVR NUMBERS • Credit Alert Interactive Voice Response System (CAIVRS)

o Results must be obtained through FHA Connection • If the borrower is currently delinquent on any federal debt, VA mortgage, Title I Loan, Federal

student loan, SBA loan, Federal taxes or has a lien against the property for debt owed to the United States, the borrower is not eligible until the delinquent account is brought current or


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satisfied. The borrower’s CAIVR number is preceded by one of the following codes indicating whether the borrower has an acceptable CAIVR number or the type of loan default: o A – Clear (this indicates the borrower has no delinquent Federal debt) o B – Bankruptcy o C – Claim o D – Default o E – Department of Education o F – Foreclosure o J – Department of Justice

• For additional information, including exceptions and resolving conflicting information, refer to HUD Handbook 4155.1, 4.A.7.a-g

CREDIT HISTORY RESOURCES • HUD Handbook 4155.1, 4.C • Non-Traditional Credit Verification and Evaluation, FHA Mortgagee Letter 2008-11 • Mortgagee Letter 2012-03 • FAQs: Mortgagee Letter 2012-03

CREDIT REPORTS • All credit reports must be tri-merge credit reports or Residential Mortgage Credit Reports and

must be imported to LenderLive systems • Individual credit reports are required for unmarried borrowers who do not have joint liabilities • Credit for married borrowers may be pulled jointly or individually

AGE OF CREDIT REPORTS • Credit reports must be dated within 30 days of underwriting and must be dated within 120

days of loan disbursement • To achieve LenderLive’s and FHA’s minimum credit requirements, a new credit report may be

re-pulled after a borrower has repaired derogatory credit, and LenderLive will honor the new credit score

• The following credit report discrepancies require a new credit report: o Social Security number is incorrect o Last name is incorrect o Middle initial is incorrect o Misspelled first names and/or missing or incorrect suffixes (Jr./Sr.) require a new credit

report unless the name variation appears in the AKA section of the credit report


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OFAC SCREENING • Credit report must contain Office of Foreign Assets Control (OFAC) screening • If credit report indicates a potential OFAC match, the loan will not be accepted until the OFAC

is cleared and documentation to clear it reviewed by underwriter

CREDIT SCORES MEDIAN CREDIT SCORE (REPRESENTATIVE CREDIT SCORE) The following methodology is used to determine a borrower’s representative credit score:

• Three Scores – Use the middle credit score • Two Scores – Use the lowest credit score • One Score – Use that score

MINIMUM CREDIT SCORES Minimum FHA Credit Score Requirements

Loan Purpose Purchase Rate and Term

Refinance Cash-Out Refinance

Units 1 to 4 Units

1 to 2 Units

3 to 4 Units SFR 2 Units

Minimum Credit Score

620 620 640 640 680

Note: 3 to 4 Units Ineligible for Cash-Out Refinance

If the non-occupant co-borrower’s scores are lower than the occupant borrower’s scores, the ratio guidelines and Total Scorecard response requirements are based on the lowest credit score for all borrowers

DISCLOSURES/FORMS REQUIRED DISCLOSURES AND FORMS In addition to the other forms listed in Government Forms and Disclosures, Form #3005, HUD/VA Addendum to Uniform Residential Loan Application, HUD Form 92900-a is required for all FHA loans.


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Lender and sponsor information on the form is based on the originating lender’s relationship with FHA and/or LenderLive. Complete the fields described below in the following manner:

• Loans Underwritten by LenderLive as Authorized Agent for an FHA-approved DE Lender who has completed their test cases and is unconditionally approved by FHA o Page 1: Box 13 – Enter originating lender’s FHA lender ID Box 14 – Enter LenderLive’s FHA Lender ID - 1559800018 Box 15 – Enter originating lender’s name and address Box 16 – Enter LenderLive’s name and address: LenderLive Network, Inc.,710 S Ash

Street, Suite 200, Glendale, Colorado 80246 Box 17 – Enter originating lender’s phone number An officer (not the loan officer or originator) of the originating lender’s company must

sign – No originator signature is required - Must not be signed prior to the borrower signing page 2

o Page 2: • No Lender/sponsor info Form must be signed by borrower(s) at initial application

o Page 3: Box 13 – Enter originating lender’s FHA lender ID Box 14 – Enter LenderLive’s FHA Lender ID - 1559800018 Box 15 – Enter originating lender’s name and address Box 16 – Enter LenderLive’s name and address Box 17 – Enter originating lender’s phone number Sponsored originations section – Leave blank Form is signed by LenderLive’s underwriter

o Page 4: Lender’s Name – Originating lender’s name An officer (not the loan officer or originator) of the originating lender’s company must

sign – No originator signature is required Form must be signed by borrower(s) at closing

• Loans Underwritten by LenderLive-approved DE Delegated Correspondents o Page 1: Box 13 – Enter DE Delegated correspondent’s FHA lender ID Box 14 – Leave blank Box 15 – Enter DE Delegated correspondent’s name and address Box 16 – Leave Blank Box 17 – Enter DE Delegated correspondent’s phone number An officer (not the loan officer or originator) of the DE Delegated correspondent’s

company must sign – No originator signature is required -– Must not be signed prior to the borrower signing page 2


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o Page 2: No Lender/sponsor info Form must be signed by borrower(s) at initial application

o Page 3: Box 13 – Enter DE Delegated Correspondent’s FHA lender ID Box 14 – Leave blank Box 15 – Enter DE Delegated correspondent’s name and address Box 16 – Leave blank Box 17 – Enter DE Delegated correspondent’s phone number Sponsored originations section – Leave blank Form is signed by DE Delegated correspondent’s underwriter

o Page 4: Lender’s Name – DE Delegated correspondent’s name An officer (not the loan officer or originator) of the DE Delegated correspondent’s

company must sign – No originator signature is required Form must be signed by borrower(s) at closing

DOWN PAYMENT REQUIREMENTS PURCHASE TRANSACTIONS The borrower must make a minimum down payment of 3.5% of the lesser of the sales price or appraised value

• In states where property taxes are paid in arrears, the tax pro-rations paid by the seller at closing may be used to reduce the borrower’s required cash-to-close, and the borrower may bring less than 3.5% to closing. Lenders must always verify the borrower has assets from an acceptable source that are at least 3.5% of the purchase price, regardless of the amount of tax pro-rations credited for taxes paid in arrears

• Seller-paid tax pro-rations credited to the borrower for any period of time in which the seller did not occupy or own the property may NOT reduce the amount of funds the borrower brings to close, and the borrower must bring at least 3.5% of the purchase price to closing

For exceptions to the 3.5% minimum down payment, see Identity of Interest

DOWN PAYMENT REQUIREMENT RESOURCES • HUD Handbook 4155.1, 2.A

• FHA Maximum Mortgage Worksheet - Purchase, Form #3328


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DOWN PAYMENT ASSISTANCE • Seller funded DPAs are not permitted • For information about acceptable down payment assistance, refer to Gift Funds and

Subordinate Financing

ELECTRONIC SIGNATURES • Neither buyers, sellers, real estate agents nor builders are permitted to sign any origination

or closing document with electronic signatures • FHA permits electronic signatures for “third party documents that are originated and signed

outside the mortgagees control, such as a sales contract” • Electronic signatures for appraisers are allowed • Electronic signatures for DE underwriters are not permitted on any FHA documents

ELECTRONIC SIGNATURE RESOURCES Electronic Signatures on Third Party Documents, FHA Mortgagee Letter 2010-14

EMPLOYMENT HISTORY/VERIFICATION EMPLOYMENT HISTORY

• Borrowers must have a two-year history of employment prior to application • Job changes are acceptable, provided the borrower’s income remains stable • The following borrowers may be approved for FHA loans without a two-year employment

history prior to application: o Students who provide college transcripts or a college diploma o Individuals recently discharged from the military o Individuals who recently rejoined the workforce after an extended absence (FHA defines

“extended” as six months or more) to care for children, family members, etc. – Evidence of two years employment prior to leaving the work force and evidence of six months employment in new position are required

• 4506-T transcripts are required for most loans • Verbal verifications of employment required on all loans


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EMPLOYMENT GAPS Total Scorecard Approve or Accept response – Written explanation required for gaps in employment ≥ six months

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

EMPLOYMENT RESOURCES

• HUD Handbook 4155.1, 4.D.1.a-h • Income

ENERGY EFFICIENT MORTGAGES Energy efficient mortgages are not permitted – This includes all programs and loan purposes.

ESCROWS Escrow waivers not allowed.

• Escrows are required for all of the following: o Real estate taxes o Monthly mortgage insurance premiums o Hazard insurance premiums, including flood insurance, wind insurance, etc. o Special assessments o Ground rents

With the exception of new construction properties, property tax escrows are calculated using the taxes stated on the title commitment, regardless of the rate used to calculate the borrower’s debt-to-income ratios.

For properties being purchased from a seller who paid non-homestead taxes, the title commitment will indicate the non-homestead tax rate. Homestead tax rates may be used to calculate the borrower’s ratios, provided evidence of the no-homestead tax rate is obtained from the local tax assessor’s office. Lenders must collect escrows based on the amount shown on the title commitment.


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Property tax escrows for new construction properties must be calculated based on the fully assessed property value. To calculate taxes for qualifying and escrows LenderLive will use 1.5% of the appraised value.

ESCROW HOLDBACKS Not Allowed

FAMILY MEMBERS For the purpose of determining family member eligibility and restrictions, persons with the following relationships to the borrower are considered family members:

• Children, including step children and foster children and children • Legally adopted children, including children who are placed with the borrower by an

authorized agency for legal adoption • Spouse • Parents, including step parents and foster parents • Grandparents, including step grandparents and foster grandparents • Brothers and sisters, including step brothers and sisters • Aunts and Uncles

GEOGRAPHIC RESTRICTIONS ELIGIBLE LENDING AREAS All except the Following:

• Hawaii • New York • Puerto Rico • Virgin Islands

COMMUNITY PROPERTY STATES The following states are community property states:

• Arizona • California • Idaho


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• Louisiana • Nevada • New Mexico • Texas • Washington • Wisconsin

Community property guidelines must be followed if the subject property is located in a community property state or the borrower(s) reside in a community property state.

A credit report is required for all non-borrowing spouses.

Debts of non-borrowing spouses must be counted in the borrower’s qualifying ratios for all credit qualifying loans.

• FHA recognizes same-sex marriages and civil unions permitted by state law. If a community property state permits same sex marriages or civil unions that grant state level spousal rights, the debts of the non-purchasing same sex spouse must be included in the ratios

• Collections and judgments of a non-borrowing spouse are subject to the requirements in the Credit History section of this document

• If the non-borrowing spouse has an ITIN (individual tax identification number), we will consider the loan with the following documentation: o A credit report that determines spouse’s debts and o A letter from Social Security Administration stating no social security number has been

issued for the non-borrowing spouse

STATE SPECIFIC REQUIREMENTS State Jurisdiction Other Requirements

Alabama Atlanta Homeownership Center


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State Jurisdiction Other Requirements Alaska Santa Ana Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Alaska state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie

Mae form 1004D or • Inspection reported on HUD Form 92051 –

Compliance Inspection Report completed by an FHA-approved appraiser or HUD Fee Inspector or

• Paid invoice from a licensed professional qualified to sell and install carbon monoxide detectors. The invoice must indicate an employee of the company installed the required carbon monoxide detector.

• Inspections for carbon monoxide detectors installed by the borrower, seller or any other unqualified individual must be documented with Fannie Mae form 1004D or HUD Form 92051

Arizona Santa Ana Homeownership Center Arkansas Denver Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Arkansas state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie Mae

form 1004D or • Inspection reported on HUD Form 92051 –





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State Jurisdiction Other Requirements California Santa Ana Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to California state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Colorado Denver Homeownership Center In Colorado, HOA Association Assessments have a “super-lien” position over the first mortgage. For PUD subordination documentation requirements, refer to Property Eligibility If the appraiser indicates carbon monoxide detectors are not installed according to Colorado state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie Mae





Connecticut Philadelphia Homeownership Center Delaware Philadelphia Homeownership Center


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State Jurisdiction Other Requirements District of Columbia Philadelphia Homeownership Center Florida Atlanta Homeownership Center Condos, including FHA-approved condos that do

not meet the following requirement are ineligible: Homeowners have been in control of the Homeowner’s Association at least 12 months and Condominium appraisals must be performed by a LenderLive -approved appraisal management company If the appraiser indicates carbon monoxide detectors are not installed according to Florida state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie






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State Jurisdiction Other Requirements Georgia Atlanta Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Georgia state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Idaho Santa Ana Homeownership Center Illinois Atlanta Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Illinois state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie Mae





Indiana Atlanta Homeownership Center Iowa Denver Homeownership Center Kansas Denver Homeownership Center Kentucky Atlanta Homeownership Center


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State Jurisdiction Other Requirements Louisiana Denver Homeownership Center Maine Philadelphia Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Maine state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Maryland Philadelphia Homeownership Center If the appraiser indicates carbon monoxide detectors are not installed according to Maryland state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Michigan Philadelphia Homeownership Center


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State Jurisdiction Other Requirements Minnesota Denver Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Minnesota state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Mississippi Atlanta Homeownership Center Missouri Denver Homeownership Center Montana Denver Homeownership Center Nebraska Denver Homeownership Center Nevada Santa Ana Homeownership Center New Hampshire Philadelphia Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to New Hampshire state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie






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State Jurisdiction Other Requirements New Jersey Philadelphia Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to New Jersey state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





New Mexico Denver Homeownership Center North Carolina Atlanta Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to North Carolina state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





North Dakota Denver Homeownership Center Ohio Philadelphia Homeownership Center Oklahoma Denver Homeownership Center


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State Jurisdiction Other Requirements Oregon Santa Ana Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Oregon state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Pennsylvania Philadelphia Homeownership Center If the appraiser indicates carbon monoxide detectors are not installed according to Pennsylvania state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie






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State Jurisdiction Other Requirements Rhode Island Philadelphia Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Rhode Island state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





South Carolina Atlanta Homeownership Center South Dakota Denver Homeownership Center Tennessee Atlanta Homeownership Center Borrowers who add an additional owner to title

must first deed the property to a third party and then deed the property back to themselves plus the individual being added to title. All property flipping/second appraisal requirements apply

Texas Denver Homeownership Center Cash out refinance transactions not allowed Borrower may not receive any cash back on rate and term or streamline refinance transactions Subordination agreement for child support liens not required – Child support liens do not attach to owner-occupied primary residences A T-17 title endorsement may be accepted as evidence of PUD lien subordination


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State Jurisdiction Other Requirements Utah Denver Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Utah state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Vermont Philadelphia Homeownership Center If the appraiser indicates carbon monoxide detectors are not installed according to Vermont state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Virginia Philadelphia Homeownership Center


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State Jurisdiction Other Requirements Washington Santa Ana Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Washington state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





West Virginia Philadelphia Homeownership Center If the appraiser indicates carbon monoxide detectors are not installed according to West Virginia state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie






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State Jurisdiction Other Requirements Wisconsin Denver Homeownership Center If the appraiser indicates carbon monoxide

detectors are not installed according to Wisconsin state law, the underwriter must condition for installation and evidence of installation. Acceptable evidence of installation must be in one of the following formats: • Re-inspection by the appraiser on Fannie





Wyoming Denver Homeownership Center

GIFT FUNDS LENDERLIVE GIFT OVERLAYS Deposits made to a joint account by a non-borrowing spouse are not considered gifts, provided the non-borrowing spouse and borrower are joint account owners on the subject bank account – Large deposit verification is still required.

GIFT DONORS Eligible donors listed below may provide funds for the borrower’s down payment, closing costs, pre-paid expenses and/or discount points:

• Borrower’s relative • Gifts of equity from a family member, subject to all requirements in Gift of Equity

GIFT OF EQUITY • Only family members may provide gifts of equity on a property being sold to other family

members


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• If the home is not the donor’s primary residence, the LTV is limited to 85% unless there is documented evidence the borrower leased the property for the past six months

• If the family member is also the non-occupant co-borrower, the LTV is limited to 75% • The family member’s proceeds may only be used for the gift of equity and payment of closing

costs, discount points and pre-paid expenses – The proceeds may not be used to pay-off debt on behalf of the borrower, and the borrower may not receive cash back at closing

INELIGIBLE SOURCES FOR DOWN PAYMENT • Any person or entity with an interest in the sale of the property, such as the seller, real estate

agent, broker or builder • Any person or entity associated with any party having an interest in the transaction – For

exceptions, see Gift of Equity • Gifts or Grants from Down Payment Assistance Programs

GIFT DOCUMENTATION • FHA requires all of the following:

o Fully executed gift letter – For an acceptable gift letter, refer to FHA Gift Letter Certification, Form #3317 – A gift letter other than LenderLive Form #9317 may be used, but it must contain the following verbiage: “These funds are a true gift with no expectation or obligation on the applicant’s part to repay me at any time. Furthermore, the funds given to the applicant were not made available to me from any person or entity with an interest in the sale of the property, including the seller, real estate agent or broker, builder, loan officer or any entity associated with them.”

o Evidence of donor’s withdrawal of funds (e.g. Copy of donor’s canceled check, bank statement or bank-validated withdrawal slip)

• If donor’s statement shows a recent large deposit, FHA requires evidence of the source of deposit

• Cash-on-hand is never an acceptable source of donor’s gift funds o Evidence of deposit into borrower’s account

• Excess gift funds may not be considered as reserves but may be considered as a compensating factor

• All gift fund documentation must be satisfied prior-to-closing

HIGHER PRICED MORTGAGE LOANS (HPML) Loans having an APR ≥ 1.5% above the APOR on the date the loan locked are classified as an HPML. All HPMLs must meet the following requirements:


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• Pre-payment penalties are not permitted – Although FHA payoffs require the borrower to pay a full month’s interest, regardless of closing date, refinances of FHA loans are exempt from this provision until January 21, 2015

• The interest rate cannot adjust within the first seven years of the loan - FHA ARMs classified as HPMLs are ineligible

• Escrows must be collected for the life of the loan • Underwriters must verify the borrower’s ability to repay

o All borrowers must have made the mortgage payment on the loan being refinanced by the 15th of the month the loan disburses

INCOME “Income may not be used in calculating the borrower’s debt-to-income ratios if it comes from any source that cannot be verified, is not stable, or will not continue.” – From HUD Handbook 4155.1, 4.D.1.a

Acceptable sources of income are described in the sections below:

Loans receiving a Total Scorecard Approve or Accept response – Refer to the TOTAL Scorecard findings for documentation requirements

ALIMONY AND CHILD SUPPORT • Provide evidence the income will continue at least three years after the loan closes via one or

more of the following: o Final divorce decree o Fully-executed legal separation agreement o Voluntary payment agreement

• Provide evidence the borrower has been receiving the payments for the most recent 12 months via one of the following (periods of fewer than 12 months may be acceptable, provided the lender documents the payer’s ability and willingness to make timely payments): o Canceled checks o Deposit slips o Tax returns o Court records, such as a Friend of the Court statement

• If non-taxable, child support income may be grossed up: o Borrower files tax returns: Non-taxable Child Support income may be grossed up by the

tax rate used to calculate the borrower’s last year’s income tax o Borrower is not required to file tax returns: Non-taxable Child Support income may be

grossed up by 25%


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• Alimony income may not be grossed up

AUTOMOBILE ALLOWANCES • Only the amount of the allowance that exceeds actual automobile expenses may be used for

qualification • Amount of allowance is calculated using borrower’s most recent two years’ IRS form 2106 –

Employee Business Expenses o If the borrower uses the standard per-mile rate in calculating the automobile expenses,

as opposed to the actual cost method, the portion the IRS considers depreciation may be added to income

o The borrower’s monthly car payment must be included in the ratios • Employer verification that auto allowance payments will continue is required • The borrower’s monthly car payment and any loss resulting from the calculation of the

difference between the actual expenditures and the expense account allowance must be included in the debt ratio

COMMISSION INCOME The following is required for borrowers whose commission income is 25% or more of their income:

• The commission portion of the borrower’s income is averaged over the most recent two years • Copies of the borrower’s personal tax returns are required, and un-reimbursed business

expenses from Schedule A of the 1040s must be deducted from the gross commission before averaging the commission income

• If commission income is declining, it cannot be used without evidence of significant compensating factors

• If the borrower has received commission income at least one year but less than two years, the commission income may be used for qualification purposes, provided the lender documents the income is likely to continue and the underwriter’s rationalization is documented in writing in the file

• If the borrower has received commission income less than one year, the income is not eligible for qualification purposes unless the borrower’s income was re-structured from salary to commission and the borrower works in the same or similar position with the same employer

DISABILITY INCOME • Due to its temporary nature, short-term disability income may not be used to qualify the

borrower


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• Social Security disability income and other sources of long-term disability income may be used to qualify the borrower o Verify income with one of the following: Federal tax returns The most recent bank statement showing deposit of the social security disability

income Proof of income letter from the Social Security Administration A copy of the borrower’s Social Security Benefit Statement (SSA Form 1099/1042S)

• Evidence of three years continuance must be documented with one of the following documents: o Copy of the borrower’s last Social Security award letter o Equivalent document establishing award benefits to the borrower If the letter indicates the income will expire within three years of the date of

application, the income may not be used to qualify the borrower and may only be used as a compensating factor

If the letter does not reflect a benefit expiration date, the underwriter may assume the income will continue, even if the letter indicates the benefit is subject to current or pending evaluation

Disability income is effective on the start date recorded on the award letter and borrowers must have other income to qualify for the mortgage until the start date of the income. See also Projected Income

Under no circumstances may lenders inquire into or request documentation concerning the nature of the disability or the medical condition of the recipient

• Non-taxable disability income may be grossed up (not all disability income is non-taxable): o Borrower files tax returns: Non-taxable disability income may be grossed up by the tax

rate used to calculate the borrower’s last year’s income tax o Borrower is not required to file tax returns: Non- taxable disability income may be grossed

up by 25%

DIVIDEND AND INTEREST INCOME Eligible, provided borrower has a two year history of receiving dividend and/or interest income.

Dividend and interest income is averaged over the most recent two years using tax returns.

If the borrower’s funds to close are derived from any of the accounts that provide dividend and/or interest income, subtract the portion of funds that will be depleted from the asset’s account balance before calculating dividend and interest income.


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EMPLOYER SUBSIDIZED MORTGAGE PAYMENTS (EMPLOYER DIFFERENTIAL PAYMENTS)

• Eligible as income if the employer pays the mortgage company directly • May not be used to offset the mortgage payment

BORROWERS EMPLOYED BY A FAMILY-OWNED BUSINESS Borrower must document that he or she does not have ownership in the company via signed personal tax returns or signed corporate tax returns showing all of the owners and the percentage of the company each owns.

If the borrower owns 25% or more of the family business, the borrower is self-employed and subject to Self-Employment requirements.

GOVERNMENT ASSISTANCE PROGRAMS Eligible, provided documentation the income will continue at least three years after the loan closes is included in the file.

MILITARY INCOME • Eligible • Income is documented with a copy of the borrower’s Leave and Earnings Statement (LES) -

Refer to the AUS findings for specific documentation requirements • In addition to the borrower’s base pay and provided evidence of continuance is verified in

writing, some allowances and additional pay types showing on the LES may be included in the borrower’s qualifying income o Allowances are non-taxable and may be grossed up by the tax rate used to calculate the

borrower’s last year’s income tax o Additional pay, such as pro-pay, hazard pay, etc. is taxable and may not be grossed up

NOTES RECEIVABLE INCOME Eligible, provided all of the following are documented:

• Copy of the note indicating payment amount the borrower receives and how long the payments will continue (The payments must continue for at least three years after the loan closes) and

• Evidence the borrower has consistently received the income from the note for the most recent 12 months via one or more of the following: o Cancelled deposit slips


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o Canceled checks o Tax returns

OVERTIME AND BONUS INCOME Eligible, provided borrower has received the overtime and/or bonus income for the past two years, and it is likely to continue.

• Income is averaged over most recent two years • If income is declining, income cannot be used without justification by the lender and

documentation supporting the justification must be included in the file • If income varies significantly from year-to-year, income must be averaged over a period of

time greater than two years • If income has been received less than two years, it may be acceptable, provided lender

justifies the use of it in writing and the justification is documented in the file

Overtime and bonus income are ineligible if the verification of employment indicates it is unlikely to continue.

PART-TIME PRIMARY EMPLOYMENT Eligible, provided the lender can document the stability of income and likelihood of ongoing employment.

PART-TIME INCOME FROM A SECOND JOB Eligible, provided borrower has received second job income for the most recent two years, and it is likely to continue.

• FHA defines part-time income as “jobs taken to supplement the borrower’s income from regular employment, such as a second job less than 40 hours per week”

• If income from a second job has been received less than two years, it may be acceptable, provided the lender justifies the use of it in writing and the justification is documented in the file – Evidence the income is likely to continue is required

PROJECTED/FUTURE INCOME Eligible, subject to the following conditions:

• Income is a cost-of living adjustment, performance salary increase and/or bonus and the following documentation is provided: o The borrower’s employer has verified the amount of the increase in writing and


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o The borrower’s employer has verified the start date of the income increase in writing (the increase must take effect within 60 days of the loan closing) and

o The borrower has sufficient current income and/or reserves to pay the mortgage payment between loan closing and the new pay rate

• Income is the result of the borrower’s new employment and the following documentation is provided: o A fully executed contract for employment (An offer letter is unacceptable) and o The contract indicates the borrower’s new employment will begin within 60 days of the

loan closing and o The borrower has sufficient current income and/or reserves to pay the mortgage

payment between loan closing and beginning the new job

RENTAL INCOME

CONVERTING EXISTING HOMES TO RENTALS • Refer to Purchases

2-UNIT SUBJECT PROPERTY – PURCHASE Not Allowed

3 TO 4-UNIT SUBJECT PROPERTY – PURCHASE Not Allowed

2-UNIT SUBJECT PROPERTY – RATE AND TERM REFINANCE AND CASH-OUT REFINANCE Not Allowed

3 TO 4-UNIT SUBJECT PROPERTY – RATE AND TERM REFINANCE Not Allowed

3 TO 4-UNIT SUBJECT PROPERTY – CASH-OUT REFINANCE Not Allowed

ADDITIONAL INVESTMENT PROPERTIES OWNED BY THE BORROWER – NOT THE SUBJECT PROPERTY

• 1 to 2-unit properties acquired during the current calendar year – Rental income must be documented with all of the following items:


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o Fully executed lease agreement(s) between the borrower and the renter(s) o A 25% vacancy factor will be applied to the lesser of the appraiser’s estimate of

rental income for the unit(s) or the actual rental income stated on the lease agreement(s)

o If the units are not currently leased, rental income may not be used for qualification

o Additional conditions may apply • 1 to 4-unit properties acquired in previous calendar years – Rental income is

calculated using Schedule E of IRS Form 1040 • 3 to 4-unit properties acquired during the current calendar year - Lease agreements

may not be used to calculate rental income, and the borrower must qualify with the full PITI

BOARDER INCOME Eligible, provided both of the following conditions are fulfilled:

• Boarder is related by blood, marriage or law and • Boarder income is shown on borrower’s tax returns

ROOMMATE INCOME Ineligible

RETIREMENT INCOME Eligible, provided it will continue at least three years after the loan closes.

SEASONAL INCOME (SEASONAL COACHING, HOLIDAY EMPLOYMENT, ETC.) Eligible, provided the borrower has received the income for the most recent two years and the borrower expects to be hired next season.

SELF-EMPLOYED BORROWERS • Borrowers who own 25% or more of any business are considered self-employed • Self-employed income is eligible, provided the borrower has been self-employed at least two

years, and the income is averaged over the most recent two year period o Income from borrowers who have been self-employed at least one year but less than two

years may be used for qualification, provided the borrower has: At least two years of successful prior employment in the same line of work or


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At least two years of successful employment in a related occupation or A combination of one year of successful employment and formal education or

training in the same or related occupation o Income from borrowers self-employed less than one year is ineligible o The business must be expected to generate sufficient income to meet the borrower’s

needs o Lenders must carefully analyze the business’ financial strength, including the source of

the income and general economic outlook for similar businesses in the area o Income from businesses that show a significant decline income over the analysis period

may not be used to calculate the borrower’s ratios, even if current income and debt ratios meet FHA guidelines

• The following income documentation is required: o Signed and dated individual tax returns for the most recent two years, including all tax

schedules. Significant declining income may not be used to qualify the borrower(s) o Signed and dated corporate or partnership tax returns for the most recent two years,

including all tax schedules. Significant declining income may not be used to qualify the borrower(s)

o Profit and loss statements and balance sheets, are required if more than seven months have elapsed since the business’ tax year ending date and income from each self-employed business is > 5% of the borrower’s stable income. Effective for case numbers assigned on or after April 1, 2012, a profit and loss statement and balance sheet are required if, on the date of loan application, more than one calendar quarter has elapsed since the date the most recent calendar or fiscal year-end tax returns were filed. Example: If a loan application is taken on May 1 and the borrower filed the fiscal year-end tax returns January 31 or earlier, a profit and loss statement and balance sheet are required.

• If the borrower is required to file quarterly tax returns, income from the quarterly returns may be used to qualify the borrower

• For information about calculating income using tax returns, refer to HUD Handbook 4155.1, 4.D.5-8 o Capital losses carried over from previous years may NOT be added back to the income. o Only depreciation and depletion may be added back to the borrower’s portion of earnings o The income must be reduced proportionally (the borrower’s portion) by the total

obligations o payable by the company in less than one year


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SOCIAL SECURITY INCOME • Eligible, provided the social security income will continue for at least three years after the

loan closes • If borrower is not of retirement age, continuance must be documented • Non-taxable Social Security income may be grossed up:

o Borrower files tax returns: Non-taxable Social Security income may be grossed up by the tax rate used to calculate the borrower’s last year’s income tax

o Borrower is not required to file tax returns: Nontaxable Social Security income may be grossed up by 25%

TRAILING SPOUSE INCOME • Ineligible • Trailing spouse income may be considered as a compensating factor only, provided all of the

following requirements are fulfilled: o Primary wage earner is relocating for the purpose of new or transferred employment

and o The trailing spouse has an established history of employment and is expected to

return to work and There is evidence of available employment within the trailing spouse’s profession and that available employment is within reasonable commuting distance of the subject property

TRUST INCOME • Eligible, provided the borrower will receive guaranteed, constant payments for at least three

years after the loan closes • Document trust income with the following:

o Copy of the trust agreement or trustee statement showing: The amount of the trust and Frequency of distribution(s) and Duration of payments – Must be at least three years

o If trust account funds are being used for borrower’s funds to close, provide evidence the distribution will not have a negative impact on borrower’s income from the trust

UNEMPLOYMENT INCOME • Eligible, provided all of the following are documented:

o Borrower has received unemployment income annually for the most recent two years; and


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o Borrower works in a seasonal profession, such as landscaping or construction or works for a resort, etc., so there is reasonable assurance the unemployment income will continue.

INCOME/EMPLOYMENT RESOURCES • HUD Handbook 4155.1

INDUCEMENTS TO PURCHASE Expenses paid by the seller above and beyond reasonable and customary closing costs and pre-paid expenses are considered an inducement to purchase and result in a dollar-for-dollar reduction to the sales price before applying the appropriate LTV ratio. Inducements to purchase include but are not limited to the following:

• Seller-paid closing costs and pre-paids in excess of 6% of the purchase price or in excess of the actual closing costs and pre-paid expenses

• Decorating allowances • Repair allowances • Moving costs • Excess rent credit • Gift funds that do not meet the gift requirements in the “Gift Funds” section of this

document, including someone other than a family member paying off debts • Personal property items not normally included in the purchase of a home (e.g. boats, cars,

riding lawn mowers, furniture, televisions, etc.) • The value must be deducted from the purchase price and appraised value if not already done • by the appraiser • The value of included ranges, refrigerators, dishwashers, washers, dryers, carpeting, window • treatments and other items as determined by the jurisdictional HOC need not be deducted

from the sales price or appraised value • Replacement of existing items, such as carpeting or air conditioners need to be deducted

from the purchase price or appraised value, provided they are replaced prior to closing and no cash allowance is given the borrower

• Sales commissions paid on behalf of the borrower on the sale of the borrower’s present residence

• Borrower does not pay real estate commission on the sale of a present home when the real estate broker or agent is involved in both transactions and the seller of the property purchased by the borrower pays a real estate commission exceeding that typical for the area


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INDUCEMENT TO PURCHASE RESOURCES • HUD Handbook 4155.1, 2.A.4.a-c

INSURANCE HAZARD INSURANCE See the Hazard Insurance section of the Correspondent Lending Manual.

FLOOD INSURANCE • See the Flood Insurance section of the Correspondent Lending Manual. • Eligible Flood Provider Companies – see FEMA Flood Insurance Company List • Flood insurance policy must be a NFIP policy – Flood insurance provided by private providers

is not permitted • If the subject property is a condominium-unit, the NFIP policy must be obtained by the

homeowner’s association. Borrower purchased flood insurance is not permitted unless the property is a site condominium. Loans must be denied if the HOA does not maintain adequate flood insurance, regardless of FHA condominium approval status

CONDOMINIUM FIDELITY/LIABILITY INSURANCE • Each project must have $1,000,000 business liability insurance coverage with the HOA

named as the insured • Projects having > 20 units must show evidence of Fidelity (employee dishonesty) coverage ≥

three months HOA income with the HOA named as the insured • Site Condominiums – Liability insurance is not required • Must be provided prior-to-close

HO-6 POLICY • Required for all attached units unless documentation that the master condo policy includes

the same interior unit coverage is provided – Interior coverage in the master policy must include replacement of improvements and betterment coverage to cover any improvements made to the unit

• HO-6 Policy applies to PUDs having any coverage maintained under a master policy • HO-6 insurance premium must be included in the ratios, and escrows must be collected at

closing • For coverage requirements, refer to Hazard Insurance section of the Correspondent Lending

Manual


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LAND CONTRACTS • Payoff of a land contract or contract for deed when the borrower does not currently have title

to the property may be processed as either a purchase or rate and term refinance, provided all the following requirements are met: o Borrower does not receive cash at closing For rate and term refinance transactions, cash back ≤ $500 is acceptable, provided

the cash back is for documented overages o Loan proceeds must be used to pay-off a land contract, contract for deed or similar

financing arrangement where borrower does not have title to the property o If the property was acquired within the most recent 12 months and the loan proceeds

payoff the existing loan and eligible repairs and/or renovations, the LTV is calculated using the lesser of the appraised value or purchase price listed on the contract plus documented improvements or repairs (as evidenced by canceled checks and paid receipts) plus allowable closing costs and reasonable discount points if the transaction is processed as a refinance

o The borrower’s equity in the property may be used for the cash investment Equity in the property is calculated by subtracting the amount owed from the original

sales price o The borrower may receive, at closing, reimbursement for the total of any documented

repairs, improvements, renovation or weatherization, provided the amounts are documented with canceled checks and paid receipts. Cash received by the borrower for these items is not considered “cash back,” and the

transaction is not limited to an 85% LTV o Payment history required. Document with one of the following: 12 months cancelled checks

◊ If the land contract is less than 12 months old, provide cancelled checks for all payments since the contract date

◊ Required if land contract holder is a family member or any other person or business having an identity of interest

Verification of rent from a land contract management company Bank statements showing direct payment to the land contract Management Company

• If the borrower receives more than $500 cash back at closing and the property was acquired within the most recent 12 months, the LTV is limited to 85% of the lesser of the following: o Appraised value of the land and improvements or o Total cost to acquire the property: purchase price listed on the contract plus documented

improvements or repairs (as evidenced by canceled checks and paid receipts) plus allowable closing costs and reasonable discount points if the transaction is processed as a refinance


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o The borrower may receive, at closing, reimbursement for the total of any documented repairs, improvements, renovation or weatherization, provided the amounts are documented with canceled checks and paid receipts. Cash received by the borrower for these items is not considered “cash back,” and the transaction is not limited to an 85% LTV

LAND CONTRACT RESOURCES • HUD Handbook 4155.1, 2.B.6.a-c • FHA Refinance Transactions, FHA Mortgagee Letter 2011-11 • FAQ on FHA Mortgagee Letter 2011-11

LIABILITIES • All mortgage, installment, revolving, child support and alimony obligations must be included

in borrower’s ratios o In lieu of including alimony payments in the borrower’s ratios, lenders may instead

reduce the amount of the borrower’s monthly income by the amount of the monthly alimony obligation

o Auto leases must be included in the borrower’s ratios, regardless of remaining term o Revolving debt paid off or paid down prior to or at closing

• When the credit report does not provide a minimum payment for a revolving debt, use the greater of $10 or 5% of the outstanding balance

• Debts paid by a borrower’s schedule C business may not be excluded from the ratios – See Excluded Liabilities for partnership, S-Corp and Corporate requirements

• If the borrower obtains a new HELOC, or re-subordinates an existing HELOC, the monthly payment is calculated using the higher of the maximum accessible line of credit or existing balance

EXCLUDED LIABILITIES • 401K loans • Union dues • Child care expenses • Installment debts with fewer than ten payments remaining unless there is an impact to the

borrower’s ability to make timely payments in the months immediately after closing, particularly if the borrower has no reserves

• Co-signed debts, subject to all of the following documentation: o Evidence the person for whom the borrower co-signed has made the payments and


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o Evidence all payments have been made within the month due (Evaluated on a case-by-case basis generally for a minimum 12-month period) and

o Evidence the person making the payments is obligated on the excluded co-signed liability • Mortgage assumptions – The borrower remains obligated on a mortgage loan that was

subsequently assumed. To exclude the mortgage debt from the liabilities, one of the following two requirements must be documented: o TOTAL Scorecard “approve” or “accept” responses A copy of the divorce decree requiring the spouse to make the payments or A copy of the assumption agreement and the transfer deed indicating the property

was transferred to the new owner (FHA does not require 12 months’ seasoning since the transfer of ownership)

• Student loans that are deferred more than 12 months from the closing date: o Six month deferments stating borrower “may be” eligible for additional deferments are

not acceptable unless documentation is provided showing the borrower qualifies for an extension and the extension will cause a deferment period extending at least 12 months past the loan closing

• Debts paid by a borrower’s partnership, corporation or S-Corp, subject to all of the following requirements: o Obtain 12 months cancelled checks from the business account o Verify no late payments within the past 12 months o Verify debt is shown as an expense on the business returns o Verify the business is the primary obligor

LOAN TERMS (see daily rate sheet for specific product availability on a daily basis) FIXED RATE MORTGAGES 10, 15, 20, 25 and 30-year fixed rate mortgages without buy-down (buy-downs are ineligible)

ARMS 5/1 CMT adjustable-rate mortgages without temporary buy-downs

LTV/CLTV PURCHASES Refer to FHA Maximum Mortgage Worksheet - Purchase, Form #3328 and HUD Handbook 4155.1, 2.A-B


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• LTV: o Maximum LTV - 96.5% o Gross loan amount, including the financed up-front mortgage insurance premium, may

not exceed 100% LTV o Base loan amount, before addition of the up-front mortgage insurance premium, may

never exceed the lesser of the statutory loan limit for the county in which the property is located or LenderLive ’s maximum loan amount below: SFR: Contiguous 48 States - $729,750

• CLTV o Government Second Mortgage – 100% of acquisition cost (lesser of purchase price or

appraised value + closing costs, pre-paid expenses, repairs and reasonable discount points) – May be used to meet the borrower’s down payment requirement

o HUD-approved non-profit agency that is considered an instrumentality of government - 100% of acquisition cost (lesser of purchase price or appraised value + closing costs, pre-paid expenses, repairs and reasonable discount points) – May be used to meet the borrower’s down payment requirement Non-profit agencies approved to sell HUD homes may now also provide down

payment assistance or pay closing costs and pre-paid expenses on any transaction in which they are the seller

Section 115 Entities are considered “instrumentalities of government” and must provide one of the following documents stating the entity is excluded from federal taxation through Section 115 of the Internal Revenue Code: ◊ A letter from the organization’s auditor OR ◊ A written statement from the organization’s general counsel, as an official of the

organization OR ◊ A letter ruling issued by the Internal Revenue Service OR ◊ An equivalent document evidencing Section 115 status ◊ Even if the organization is also a non-profit entity, HUD approval is not required

for Section 115 entities o A HUD-approved non-profit agency that is not considered an instrumentality of

government may provide secondary financing for closing cost, pre-paid expense and discount point assistance only. The borrower must make the required 3.5% down payment from a documented and acceptable source, and the combined amount of the first and second liens must not exceed the FHA’s statutory loan limit for the county in which the property is located or the applicable maximum LTV for the loan (generally 96.5% for a purchases)

o With advanced approval from FHA, other organizations and private individuals may provide secondary financing for closing cost, pre-paid and discount point assistance only


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– The combination of the first and second mortgages may not exceed the applicable LTV ratio (96.5% for purchases)

o Second Mortgages from Family Members – 100% of the lesser of the purchase price or appraised value + closing costs, pre-paid expenses and discount points – May be used to meet the borrower’s down payment requirement

For a list of FHA-approved non-profits, refer to HUD’s Non-Profit Search Engine

RATE AND TERM REFINANCE • LTV:

o Maximum LTV – 97.75%, provided the borrower is not refinancing a previous investment property re-occupied within the most recent 12 months - Additional calculations apply – Refer to FHA Maximum Mortgage Worksheet – Rate and Term Refinance, Form #3342

o The total FHA mortgage, including financed UFMIP, is limited to 100% of the appraised value

o If the borrower is refinancing a non-FHA loan and has owned the property less than one year, the LTV is calculated using the lesser of the borrower’s purchase price or the new appraised value

o If the borrower re-occupied a previous investment property within 12 months of the loan application, the maximum LTV is 85% Acceptable re-occupancy documentation includes, but is not limited to, utility bills,

property assessment statements, bank statements and similar items • CLTV – 97.75%

o If the subordinate lien is a line of credit, the CLTV is calculated using the maximum accessible credit limit and not the outstanding balance

CASH-OUT REFINANCE Refer to FHA Maximum Mortgage Worksheet – Cash-Out Refinance, Form #3345

• LTV – 85% before addition of the up-front mortgage insurance premium o If the borrower has owned the property as his or her primary residence for at least a year

or the borrower acquired the property through inheritance and occupies or will occupy the property, use 85% of the new appraised value

o If borrower has owned the property as his or her primary residence for less than one year (FHA requires the borrower to have made at least six monthly payments), use 85% of the lesser of the purchase price or appraised value

o If the loan is secured by a previous investment property re-occupied by the borrower within 12 months of the loan application, the transaction must be underwritten and closed as a rate and term refinance with a maximum LTV of 85%


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Acceptable re-occupancy documentation includes, but is not limited to utility bills, property assessment statements, bank statements and similar items

• CLTV – 85% o If the subordinate lien is a line of credit, the CLTV is calculated using the maximum

accessible credit limit and not the outstanding balance

NON-OCCUPYING BORROWERS • Maximum LTV is 75% or less when a parent is selling a residence to a child and is also a co-

borrower • Maximum financing is allowed for loans having non-occupant co-borrowers that are family

members related by blood, marriage or law or for unrelated individuals who can document evidence of a long-term family-type relationship not arising out the loan transaction, provided the non-occupant co-borrower is not the seller and the property is a single-family residence

• Not allowed for cash-out refinances, unless the non-occupant co-borrower(s) are on the loan being refinanced

• LenderLive requires a 12 month rental history for the occupant borrower regardless of Total Scorecard findings.

INCREASE IN FAMILY SIZE Max LTV of 75% on present FHA-insured property when a second FHA loan is requested because the current residence is too small for the legal dependents occupying the property.

IDENTITY OF INTEREST TRANSACTIONS Identity of interest transactions are sales transactions between parties with family relationships or business relationships.

• Maximum LTV is 85% of purchase price • Maximum financing is permissible when any one of the following exceptions exists:

o A borrower purchases the primary residence of a family member or individual or entity with whom he or she has a business relationship

o A family member purchases a family member’s investment property or second home AND the borrower has been a tenant for at least six months prior to the sales contract

o An employee of a builder purchases one of the builder’s new homes or models as his or her primary residence If the builder is also the borrower’s employer and/or family member, the maximum

LTV is 85% o A current tenant purchases the property that he or she has rented from a family member

or someone with whom the borrower has a business relationship for at least six months


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prior to the sales contract (If there is no identity of interest between the seller and borrower, maximum financing is permitted even when the borrower has been leasing the property fewer than six months)

o A corporation transfers an employee to another location, purchases the employee’s home and then sells the home to another employee

o A current tenant purchases the property he or she has been renting from a seller who is not a family member and with whom he or she has no business relationship

MAXIMUM/MINIMUM LOAN AMOUNTS • In addition to the appropriate LTV calculation and LenderLive’s loan limits shown below, the

base loan amount, before addition of the up-front mortgage insurance premium, may not exceed the statutory loan limit for the county in which the property is located as published by HUD – Refer to FHA Mortgage Limits.

• Gross loan amount, including the financed up-front mortgage insurance premium (UFMIP), can exceed the county’s statutory mortgage loan limit and/or LenderLive’s maximum loan amounts by an amount ≤ to the amount of the financed UFMIP.

• All loans must be rounded down to the nearest whole dollar. • Notwithstanding the FHA Mortgage Limits the following LENDERLIVE’S Maximum Loan

Amount will apply: o SFR: Allowable States – $729,750 o 2-Units: Allowable States – $934,200 o 3 to 4-Units- $650,000

MILITARY IMPACT ZONES Effective for loans endorsed (insured) on or after March 20, 2012, loans for properties in the following counties must be originated and closed as Section 203(b) loans and are subject to the mortgage insurance premiums below.

• New York Counties o Jefferson o St. Lawrence o Lewis

• Georgia Counties o Bryan o Camden o Liberty


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MORTGAGE INSURANCE When the case number is input correctly to Total Scorecard, the correct MI will show on the automated underwriting findings.

UP-FRONT MORTGAGE INSURANCE • Calculated as a percentage of the base loan amount • Based on loan term and loan purpose • May be financed • May be paid by borrower or seller - Seller-paid up-front mortgage insurance premium is

included in the 6% seller contribution limitation • If paid at closing and not financed, the entire amount must be paid – Partial payment with

partial financing is not allowed

ANNUAL MORTGAGE INSURANCE • Calculated as a percentage of the base loan amount • Based on loan term, LTV and loan purpose • 1/12th of the calculated annual amount must be included in the proposed mortgage

payment and housing ratio

CASE NUMBERS ASSIGNED ON OR AFTER JUNE 3, 2013 Loan Term > 15 Years

Base Loan Amount LTV Up-Front MIP Annual (Monthly) MIP ≤ $625,500 ≤ 95% 1.75% 130 bps *

≤ $625,500 > 95% 1.75% 135 bps *

> $625,500 ≤ 95% 1.75% 150 bps *

> $625,500 > 95% 1.75% 155 bps *

Loan Term ≤ 15 Years ≤ $625,500 > 78% - 90% 1.75% 45 bps *

≤ $625,500 > 90% 1.75% 70 bps *

> $625,500 > 78% - 90% 1.75% 70 bps *

> $625,500 > 90% 1.75% 95 bps *

All ≤ 78% 1.75% 45 bps *

* For LTVs ≤ 90%, cancellation of the annual (monthly) premium will occur after eleven years. For LTVs > 90%, the borrower will pay the annual (monthly) premium for the life of the loan.


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• For case numbers assigned on or after June 3, 2013 and LTVs > 90%, the annual MIP is paid for the life of the loan

• For case numbers assigned on or after June 3, 2013 and LTVs ≤ 90%, cancellation of the annual (monthly) premium will occur after the borrower has paid the premium 11 years

UP-FRONT MORTGAGE INSURANCE PREMIUM REFUNDS Borrowers who refinance from one FHA loan to another FHA loan within the first three years of the existing loan term are eligible for a refund of a portion of the UFMIP paid on the loan being refinanced:

• FHA – FHA rate and term refinance • FHA – FHA cash-out refinance • Amount of refund is found in Refinance Authorization Screen in FHA Connection – Use the

unearned up-front mortgage insurance premium refund for the month the new loan funds and not the month the loan closes

• Maximum refund – 80% if refinanced in the first month of the existing mortgage term • Minimum refund – 10% if refinanced in 36th month of the existing mortgage term • Amount of refund is used in maximum mortgage refinance calculations – See Refinance

section • If the amount of the UFMIP refund is ≤ to the UFMIP for the new loan, the amount is not

refunded directly to the borrower but rather shown as a credit in section, 200, 800 or 900 of the HUD-I Settlement Statement

• If the amount of the UFMIP refund exceeds the new UFMIP, the amount of the new UFMIP is credited as the UFMIP refund on the HUD-I settlement statement. o HUD has not yet determined how they will refund the difference between the unearned

UFMIP shown on the Refinance Authorization screen in FHA Connection and the new UFMIP to the borrower

o The difference may not be shown as a credit on the HUD-I settlement statement • No refund is given when loan is refinanced from FHA to conventional or the property is sold • The up-front mortgage insurance premium refund table is found in Moratorium on Risk

Based Mortgage Insurance Premiums, FHA Mortgagee Letter 2008-22

MULTIPLE FHA LOANS FHA considers any individual who is obligated on an FHA note and/or holds title to a property encumbered by an FHA-insured mortgage to have interest in an FHA-insured property. Borrowers obligated on an FHA-insured mortgage and/or holding title to a property encumbered by an FHA-


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insured mortgage may not be approved for another FHA loan unless one of the following exceptions applies:

• Relocations – If the borrower’s job relocates to a location that is not within reasonable commuting distance from the existing home, he or she may obtain a new FHA insured primary residence loan. The relocation may be the employer’s or borrower’s choice, and sale of the present home is not required

• Increase in family size – Borrowers are permitted to obtain a second FHA insured primary residence loan when the existing home no longer meets the family’s needs due to increase in the number of legal dependents. Documentation of the increase in dependents, evidence of the current home’s size and failure to meet the family’s needs, and pay-down of the existing FHA mortgage to a 75% LTV are required (secondary liens do not need to be paid off or paid down). A current appraisal is used to verify the size and value of the current home

• Vacating a jointly owned property – If the borrower is vacating a primary residence that will remain occupied by a co-borrower, the borrower may obtain another FHA-insured primary residence loan

• Non-occupying co-borrower – A non-occupying co-borrower on a family member’s FHA-insured principal residence may have a joint interest in that property as well as in a principal residence of his or her own

MULTIPLE FHA LOAN RESOURCES HUD Handbook 4155.1, 4.B.2.d

MULTIPLE PROPERTIES Borrowers are limited to ownership of seven units when the subject property is within close proximity to a group of properties owned by the borrower. Each unit in a multi-unit property counts toward the seven-unit limitation (i.e., if a borrower owns a four-family apartment building, four units must be counted toward the borrower’s seven-unit limitation.) FHA defines “close proximity” as properties within a two-block radius from one another

MAXIMUM NUMBER OF LENDERLIVE LOANS LenderLive will not approve and close loans for borrowers having more than four loans with LenderLive or having an aggregate loan amount ≥$1,500,000. The maximum number of loans and aggregate loan amount calculations include all of the following:

• Non-closed loans • Loans closed and currently serviced by LenderLive


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• Loans closed with LenderLive but the servicing rights have been sold to another lender within the most recent 24 months

NET TANGIBLE BENEFIT RATE AND TERM REFINANCE TRANSACTIONS

• For the following transactions, the new principal and interest payment plus the new annual MIP must be at least 4% less than the current principal and interest plus the current mortgage insurance, if applicable: o Existing fixed rate to new fixed rate o Existing fixed rate to new hybrid ARM o Existing one-year ARM to new one-year ARM o Existing hybrid ARM currently in its fixed rate period to new fixed rate o Existing hybrid ARM currently in its initial fixed rate period to new hybrid ARM o Existing hybrid ARM currently in its adjustable period to new one-year ARM

• Existing fixed rate to new one-year ARM The number of months required to recapture the borrower-paid closing costs shown in sections 800, 1100 and 1200 of the Good Faith Estimate and HUD-I Settlement Statement may not exceed 48 months

• The following transactions are exempt from the rate and term net tangible benefit requirements: o The new Loan has a shorter amortization period than the loan being refinanced (For

example, the loan being refinanced is a 30 year fixed rate mortgage, and the new rate and term refinance is a 15 year fixed rate mortgage)

o The loan being refinanced is a hybrid ARM currently in its adjustable period or one-year ARM, and the new loan is a fixed rate mortgage

o The loan being refinanced is an interest only loan o The rate and term refinance is the result of a court-ordered divorce buyout – A copy of

the divorce decree is required o The loan being refinanced is a balloon mortgage, and the new loan is a fixed rate

mortgage • If the rate and term refinance consolidates a first mortgage and purchase money second or

seasoned second mortgage, exemption from net tangible benefit requirement is reviewed on a case-by-case basis and will not be granted if the payment is increasing and the note on the second is not due in the near future.

Note: LenderLive requires a Net Tangible Benefit Worksheet completed on each file regardless of exemption.


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NET TANGIBLE BENEFIT CALCULATION WORKSHEETS To calculate the borrower’s payment reduction and number of months to recapture the closing costs and see a list of loans exempt from the requirement, use FHA Refinance Net Tangible Benefit Worksheet, Form #3348

STATE-REQUIRED NET TANGIBLE BENEFIT FORMS The FHA Refinance Net Tangible Benefit Worksheet may not be used in lieu of any state-required net tangible benefit forms. When a state requires a net tangible benefit form, the appropriate form must be completed. See the table below for a listing of the states currently requiring a fully-executed net tangible benefit form, and a link to the appropriate form:

State Required Form Arkansas Form #3920 Refinance Net Tangible Benefit Form Colorado Form #3919 Colorado Net Tangible Benefit Disclosure Illinois Form #3920 Refinance Net Tangible Benefit Form Maine Form #3920 Refinance Net Tangible Benefit Form Maryland Form #3925 Maryland Net Tangible Benefit Worksheet Massachusetts Form #3917 Massachusetts Net Tangible Benefit Worksheet Nevada Form #3920 Refinance Net Tangible Benefit Form New Mexico Form #3920 Refinance Net Tangible Benefit Form North Carolina Form #3920 Refinance Net Tangible Benefit Form Rhode Island Form #3922 Rhode Island Net Tangible Benefit Worksheet South Carolina Form #3920 Refinance Net Tangible Benefit Form Virginia Form #3920 Refinance Net Tangible Benefit Form

NEW CONSTRUCTION Refer to Government Forms and Disclosures, Form #3005 for specific documentation requirements

• Any property less than one year old at the time of application is classified as New Construction, regardless of previous occupancy. One year is determined by the date the certificate of occupancy was issued.

• No construction draws allowed • Refinances of new construction draw loans must be submitted as purchase transactions • Cash-out refinances permitted up to an 85% LTV • If a property is less than one year old but is being sold by a lender that foreclosed on the

builder, new construction documentation, including termite certification and treatment, is not required


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o Although new construction documentation is not required, LenderLive requires a copy of the certificate of occupancy

• Construction exhibits are not required for re-sales of properties less than one year old, provided all of the following criteria are met: o Property is 100% complete, including all on and offsite improvements and o Re-sale is an arms-length transaction

• New construction properties fall into the following categories: o Proposed Construction - Excavation of construction site has not yet begun and

foundation is not yet in place o Under Construction – Any construction phase after site excavation but appraiser

indicates construction is not yet complete o Existing Construction Less Than One Year Old – Property is complete and appraisal is

completed as is

LenderLive only allows Existing Construction Less Than One Year Old

BUILDING ON OWN LAND • Borrower owns the land or acquires the land separately from builder • Borrower may act as his or her own general contractor, provided the borrower is a licensed

builder • To calculate the maximum mortgage, refer to the calculation formulas contained in Property

Underwriting and Eligibility, FHA Mortgagee Letter 2009-16 – The maximum base loan amount before addition of the financed up-front mortgage insurance premium is the lesser of the calculations below: o Statutory loan limit for the county in which the property is located or o LenderLive’s loan limit or SFR: Allowable States - $729,750 2-Units: Allowable States - $934,200 3 to 4-Units: $650,000

o 96.5% of the appraised value or o 96.5% of the total cost-to-construct, including hard costs and soft costs such as building

permits, plus the cost of the land, if separate. If the land has been owned more than six months or was received as an acceptable gift, the value of the land may be used instead of the cost of the land or

o The total existing indebtedness on the construction loan being paid off: Land plus the total cost to construct, including soft costs, plus borrower paid closing costs, pre-paid expenses and borrower paid discount points. If the land has been owned more than six months or was received as an acceptable gift, the value of the land may be used instead of the cost of the land


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• Land equity may be used for borrower’s investment • Sweat equity – Not permitted • Borrower may receive cash back for documented funds (canceled checks and paid receipts

required) paid during construction • Purchase 92900-LT required

PROPERTY TAXES Property tax amounts included in the PITI and property tax escrows must be calculated based on 1.5% of the appraised value.

EARTH FILL If the Builder’s Certification – HUD Form 92541 indicates the site has “earth fill,” one of the following must be provided:

• Soils and Structural report from a licensed engineer stating the property complies with HUD Handbook 4145.1 and FHA Data Sheet 79g or

• Soils and Structural report from a licensed engineer stating “re-compaction” is ≥ 95% and the “percent compaction” is ≥ 100%

NEW CONSTRUCTION RESOURCES HUD Handbook 4155.1, 2.B.5.a-d

HUD Handbook 4155.1, 2.B.7.a-b

Government Forms and Disclosures, Form #3005

NON-OCCUPANT CO-BORROWERS • May be added to improve ratios • May not be added to overcome any borrower’s derogatory credit history • Must have a principal residence in the United States unless one of the following exceptions

applies: o Non-occupant co-borrower is in the military and stationed overseas o Non-occupant co-borrower is a United States citizen living abroad

• Not allowed for cash-out refinances unless non-occupant co-borrowers were original borrowers on loan being refinanced

• Not allowed for borrowers without credit scores


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• If the non-occupant co-borrowers do not have scores, but the occupying borrowers have credit scores, LenderLive’s ratio guidelines and TOTAL Scorecard response requirements are based on the occupant borrower’s credit scores

• If the non-occupant co-borrower’s scores are lower than the occupant borrower’s scores, the ratio guidelines and TOTAL Scorecard response requirements are based on the lowest credit score for all borrowers

• 2 to 4-unit properties limited to LTVs ≤ 75% • Maximum LTV is 75% or less when a parent is selling a residence to a child and is also a co-

borrower • Maximum LTV is 75% if the non-occupant co-borrower is not a family member related by

blood, marriage or law or an individual having a long standing substantial family type relationship with the borrower not arising out of the loan transaction

• Maximum financing is allowed for borrowers related by blood, marriage or law or for unrelated individuals who can document evidence of a long-term family-type relationship, provided the non-occupant co-borrower is not an interested party to the transaction and the property is a single-family residence

OCCUPANCY Owner occupied primary residences only.

POWER OF ATTORNEY • Powers of Attorney meeting the following criteria are acceptable to FHA and LenderLive:

o The application and purchase agreement must be signed by all parties to the loan and may not be signed by an individual with power of attorney for any of the borrowers

o The following exceptions are permitted: Power of Attorney may be used for the application and application disclosures if the

borrower is on active military duty and deployed overseas or on an unaccompanied tour ◊ The lender should obtain the service member’s signature on the 1003 via mail or

fax Incapacitated borrowers – Provide evidence the signer has authority to purchase the

property and obligate the borrower ◊ Provide a copy of the Durable Power of Attorney specifically designed to survive

incapacity and avoid the need for court proceedings o Purchase or rate and term refinance only Military durable power of attorney permitted for cash-out transactions


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Cash-out transactions may not close with any power of attorney other than a military durable power of attorney

• All signatures on the power of attorney must be notarized, and the power of attorney must be reviewed by a LenderLive underwriter o All signatures must match the signatures in the file

• The POA must be specific to LenderLive’s loan and indicate the property address unless it is a Military Durable POA

• There must be more than one borrower on the loan and at least one borrower must be present at closing

• POA is not allowed for single borrower transactions unless LenderLive has borrower experience and the underwriter can compare signatures from previous transaction(s)

• Title policy may not include any exceptions related to the POA

PRIVATE ROADS • Must be protected by a permanent recorded easement reviewed and approved by the DE

underwriter or

• Must be owned and maintained by a Homeowner’s Association • Private road maintenance agreement is not required • Road must provide all-weather access to all buildings for essential and emergency use,

including access for deliveries, service, and maintenance and fire equipment. All-weather roads are defined as “surfaces over which emergency vehicles can pass in all types of weather.”

PRODUCTS AND SPECIAL FEATURES DISASTER VICTIMS MORTGAGE Not Allowed

ENERGY EFFICIENT MORTGAGES Ineligible

NEGATIVE EQUITY REFINANCE PROGRAM (ADP CODES 821, 822, 831 AND 832) Ineligible


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$100 HUD REO Ineligible

SECTION 8 HOUSING VOUCHERS The amount of the housing voucher must be treated as income.

MCC CREDITS MCC credits must be treated as income.

Due to system constraints, MCC credits may not be used to offset the proposed mortgage payment.

INELIGIBLE PROGRAMS • 203(K) Rehab • Streamline K Rehab • Title I Loans • Home Equity Conversion Mortgages (Reverse Mortgages) • Section 247 – Hawaiian Homelands • Section 248 – Indian Reservations • Section 223(e) – Declining Neighborhoods • FHA Negative Equity Refinance (ADP Codes 821, 822, 831, 832)

PROPERTY ELIGIBILITY ELIGIBLE

• Property size o FHA does not have a minimum square footage requirement o All properties must be marketable in the area and have adequate sanitary facilities and

suitable living, cooking, sleeping, and eating space • Owner occupancy • 1 – 4-units:

o 3 to 4-unit properties are ineligible for cash-out refinance transactions o 3 to 4-unit HUD REO properties are ineligible

• Condominiums – must be FHA-approved – See “Ineligible” section below for ineligible condos • PUDs


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o Homeowner’s assessments must be subordinate to the FHA mortgage. Provide one of the following items as documentation of HOA assessment subordination (Required for all loans except Streamline refinances): PUD by-laws indicating all homeowner’s association assessments are subordinate to

mortgage liens (At minimum, LenderLive must review the title page, table of contents and corresponding HOA lien subordination section reflecting the page(s) indicated in the table of contents) or

Subordination agreement executed by a representative of the homeowner’s association or

Title commitment stating that the title company will insure over any homeowner’s association assessment liens or

Letter on letterhead from the title company indicating that PUD liens cannot take first lien position in the state in which the property is located or

ALTA 9 or ALTA 5 title endorsement that specifically references HOA assessments In Texas, a T-17 title endorsement may be accepted as evidence of PUD lien

subordination 60-Day letters may not be provided in lieu of one of the documents above

• Excess land o Properties larger than what is a typical and readily marketable real estate entity in the

neighborhood AND capable of separate use are eligible for FHA financing, provided the following requirements are met: The appraiser must describe the excess property but not give value to the excess

land The portion of the land not considered excess is valued The appraiser must also describe the portion of the property being appraised The legal description must pertain to the portion of the property being appraised The maximum mortgage amount is calculated using the value of the property,

excluding the excess land Although no value is given to the excess land, the entire property, including the

excess land must be encumbered by the note and mortgage Maximum Acreage is 20 acres

• Leaseholds: Not Allowed

INELIGIBLE • Any property where the seller is not the owner of record • Any property being re-sold within 30 days where the seller is an individual or is not exempt

pursuant to FHA and VA Property Flipping guidelines • Mixed use/commercial properties


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• Non-owner occupied properties • Manufactured homes • Manufactured home units in condominium projects • 3 to 4-unit properties are ineligible for cash-out refinance transactions • 3 to 4-unit properties are ineligible if borrowers do not have credit scores or do not meet

LenderLive’s minimum trade line requirements, regardless of the number of non-traditional credit references

• Second homes • Co-operatives • Working farms, ranches and orchards • Properties located in Coastal Barrier Resource Systems – Coastal Barrier Resource Systems

are commonly located along the East Coast, Gulf Coast and the Great Lakes • Properties located in Wrightwood, California are ineligible unless the following

documentation is provided (FHA issues a case number warning stating, “Warning: Appraisal problem (unstable soil) for 92397 Wrightwood areas: property specific approval required due to liquefaction): o Geotechnical survey prepared by an engineer or geologist with competency in the field.

The survey must reference the property and indicate the home is reasonably safe from future damage caused by soil conditions on the site and

o Appraisal must be performed by a LenderLive-approved appraisal management company

• Properties having both a stick-built and manufactured home located on the same parcel or property

• Mixed use/commercial properties that have any one of the following characteristics o Commercial enterprises o Boarding houses o Hotels/motels o Condo-tels o Tourist homes o Private clubs o Bed and breakfast establishments o Fraternity/sorority houses

• Properties having Chinese drywall or properties previously having Chinese drywall, regardless of any drywall removal and/or efforts to cure the damage

• Properties located in a “cancer cluster” or other health hazard area unless the local health authority provides written certification that the subject property is not affected by the health hazard and the borrower provides a written certification acknowledging the health hazard and its resolution


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PROPERTY FLIPPING/SELLER SEASONING A second appraisal is required for any sales within 180 days of seller acquisition.

Second appraisal must be completed on the appropriate appraisal form.

If the property sales price increases by 100% or more, LenderLive must obtain exemption review and approval from the appropriate Homeownership Center prior to closing. The following criteria applies to these second appraisals:

• If property is a bank-owned REO, the selling bank may provide evidence of foreclosure amount o If new sales price is not 100% more than the foreclosed amount, the second appraisal is

not required • If the value indicated on the second appraisal is more than 5% lower than the value

indicated on the original appraisal, the lower value of the second appraisal must be used to calculate maximum loan amounts and LTV/CLTV

• The borrower may not be charged for the appraisal • Appraisal must be ordered in compliance with FHA and LenderLive Appraiser Independence

Requirements (See the “Appraisals” section of this document)

PROPERTY INSPECTIONS INSPECTION REQUIREMENTS FOR REQUIRED REPAIRS

• Repair inspections must confirm all required repairs are satisfactorily completed and must meet the requirements below: o HUD Form 92051 – Compliance Inspection Report – Completed by the appraiser or HUD

Fee Inspector o LenderLive does not accept a lender certification as evidence of repair completion for

any required repairs o For new construction requirements, refer to Government Forms and Disclosures, Form

#3005 If a 10 year warranty and final inspection is being documented instead of a building

permit and final Certificate of Occupancy, the final inspection must be performed by an FHA fee inspector

o Inspections requiring architectural expertise (structural and/or system repairs) must be completed on HUD form 92051 by a HUD Fee Inspector

o Documentation to support the repairs may be documented by a professionally and/or appropriately licensed, bonded, registered engineer or home inspector or tradesperson


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• For additional repair requirements, refer to HUD Handbook 4155.2, 4.6.a-e and the HOC Reference Guide

• In addition to the final inspection requirements above, if chipped, cracked or peeling paint repair was required for a property built prior to 1978, the following requirements must be met: • Homeowner completed the repair on his or her own home – A letter from the homeowner

stating he or she completed the repair is required • Property owner/landlord completed the repair – The individual who completed the work

must provide a copy of the EPA or state-lead training certification in his or her name • A contractor completed the repair - The contractor who completed the work must provide

a copy of the EPA or state-lead training certification in his or her name

TERMITE, WELL AND SEPTIC INSPECTIONS • Proposed, under construction and existing less than one year properties require mandatory

inspections or analysis and treatment when applicable, even if previously occupied • For specific requirements, refer to Government Forms and Disclosures, Form #3005 • If property is bank-owned and the bank foreclosed on the builder, inspection requirements

are the same as for existing construction

TERMITE INSPECTIONS For existing properties greater than one year old, termite inspection and/or treatment is required only if the appraiser indicates any of the following:

• The appraiser indicates there may be active infestation • Termite inspections are mandated by state or local jurisdiction • Termite inspections are customary in the area • May also be required at lender’s discretion

WELL INSPECTIONS For existing properties greater than one year old, a water test or well inspection is required if the appraiser indicates any of the following:

• Tests and/or inspections are mandated by state or local jurisdiction • Knowledge that well water may be contaminated or well is not functioning properly • Water supply relies on a water purification system due to the presence of contaminants • There is evidence of the following:

o Corrosion of pipes o Areas of intensive agriculture within ¼ mile


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o Coal mining or gas drilling operations within ¼ mile o A dump, junkyard, landfill, factory, gas station, or dry cleaning operation within ¼ mile o Unusually objectionable taste, smell or appearance of well water

When water tests are required, they must include all microbiological and chemical tests required by the municipality. At minimum, the water must be tested for lead and acute contaminants, including nitrates, nitrites and acute contaminants such as total and fecal coliform. The testing must also include any other contaminants of local concern

SEPTIC INSPECTIONS For existing properties greater than one year old, a septic test or inspection is required if the appraiser notes any of the following:

• Evidence of system failure • Septic inspections are mandated by state or local jurisdiction • Septic inspections are customary in the area • May be required at lender’s discretion

STATE AND LOCAL REQUIREMENTS • LenderLive will generally rely on the appraiser and realtor (via the sales contract) for

notification of mandatory state or local inspections • LenderLive is aware of mandatory inspections in the following areas:

o Arizona: Septic or other on-site sewage system (purchases only)

SNOW CLAD ROOF INSPECTIONS Not required – If the roof is not visible due to snow, the appraiser must inspect the interior of the home for evidence of roof problems. Any evidence of roof damage must be noted in the appraisal, and the appraiser must indicate he or she was unable to observe the roof due to snow coverage. If the appraiser indicates there is evidence of roof damage inside the home, a roof inspection must be requested by the underwriter. Appraisers are required to observe/inspect the attic by inserting their head and shoulders in to the attic space. However, they are not required to fully enter the attic space.

CHINESE DRYWALL If LenderLive is made aware Chinese drywall is currently present or previously existed in the home, we will not approve, fund or purchase the loan, regardless of any drywall removal and/or efforts to cure the damage.


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FEMA-DECLARED DISASTER AREAS Properties being purchased and/or refinanced within a FEMA-declared disaster area require the following documentation when the appraisal was performed prior to the disaster and the presidentially-declared disaster is still in effect (generally one year).

• Interior and exterior inspection performed by an FHA roster appraiser in good standing o The appraiser should be the original appraiser for the file o In the event the original appraiser is no longer available, another FHA roster appraiser

may perform the inspection, provided he is given a complete copy of the original appraisal

• No specific inspection form is required • Inspection must be dated after the “incident period end date” on the FEMA disaster website • Inspection must be an interior and exterior inspection and contain all of the following:

o Statement about whether the property is habitable and in acceptable condition o Evidence the property is still standing o Photographs of the interior and exterior of the property o Written description and photograph of the neighborhood condition o If damages are found, the inspection must indicate whether the cost to cure is less than

$5000 or $5000 or greater o Utilities need not be on at the time of inspection

• If property damage is not found, the loan may close and fund, provided original appraisal has not expired

• If the cost to cure the property damage is less than $5000 and the property is habitable, the following requirements must be met: o The original appraisal validity period is automatically extended to a maximum of one year

from the effective date of the original appraisal o Appraiser’s inspection must include an itemized repair list and itemized estimate of cost

to cure o All damages must be repaired, and repairs must restore the property to pre-disaster

condition o LenderLive will not fund or purchase any loan until repairs are complete – Repair

escrows are not permitted o Once completed, all repairs must be documented by the original appraiser on Fannie

Mae form 1004D – Appraisal Update/Completion Report Parts A and B must be completed Interior and exterior photos are required If the value has declined, the new appraised value must support the loan amount In the event the repair requires structural or system repairs, a technically qualified

third party must also provide documentation the repairs are complete


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◊ Technically qualified third parties are HUD fee inspectors or professionally and/or appropriately licensed, bonded, registered engineers, home inspectors or tradespersons

• If the cost to cure the property damage is $5,000 or greater and/or the property is inhabitable, the following requirements must be met: o The original appraisal validity period is automatically extended to a maximum of one year

from the date of the original appraisal o A qualified third party such as a licensed contractor must provide an itemized estimate of

repairs o Repairs must be completed prior to closing and/or LenderLive’s funding or purchase of

the loan o All repairs must be completed by licensed contractors or per local jurisdictional

requirements o All damages must be repaired, and repairs must restore the property to pre-disaster

condition o Once completed, all repairs must be documented by the original appraiser on Fannie

Mae form 1004D – Appraisal Update/Completion Report. Parts A and B must be completed Interior and exterior photos are required If the value has declined, the new appraised value must support the loan amount In the event the repair requires structural or system repairs, a technically qualified

third party must also provide documentation the repairs are complete ◊ Technically qualified third parties are HUD fee inspectors or professionally and/or

appropriately licensed, bonded, registered engineers, home inspectors or tradespersons.

For additional information, refer to FHA’s FHA Mortgagee Letter 2012-23 and FAQs to Mortgagee Letter 12-23

METHAMPHETAMINE CONTAMINATION To mitigate health hazards resulting from prior methamphetamine (meth) manufacture and/or consumption, properties having meth contamination require meth remediation. The following remediation protocols must be followed and documented in the file prior to the loan being issued a clear- to-close status:

• Report by a certified industrial hygienist including all of the following elements: o Initial site survey o Pre-remediation base-line testing results o Remediation protocols citing and conforming to local guidelines and/or regulations In the absence of local guidelines, EPA guidance must be followed


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o Post-remediation testing results o Certification as of a final testing date of contamination levels below recommended levels

(BRL) and stating the property, including the site and all structures, is safe for habitation by both humans and pets

• Affidavit signed by the borrowers stating they attest to: o Being aware of the contamination and its adverse impact o Acceptance of the remediation efforts, testing and reports

• The property must meet all other HUD minimum property requirements

Lenders having knowledge the property has been identified as a meth house must notify the appraiser, who must:

• If the appraisal inspection occurs during the remediation phase, including completion of related repairs, the appraiser must complete the appraisal subject to a certification that the property, including the site and dwelling, is safe for habitation

• Address any long term stigma and impact on the value and or marketability caused by the meth contamination

PROPERTY INSPECTION RESOURCES • Repair and Inspection Requirements, FHA Mortgagee Letter 2005-48 • Homeownership Reference Guide • HUD Handbook 4155.2, 4.6.a-e • FHA’s Natural Disaster Protocols FAQ • FHA’s Meth Remediation Protocols FAQ

PURCHASES/PURCHASE AGREEMENTS DEPARTURE OF CURRENT RESIDENCE Rental income from the property being vacated may be used to qualify the borrower, provided one of the following requirements are met:

• The borrower is relocating for new employment or being transferred by the current employer and the new employment is not within reasonable commuting distance from the borrower’s current primary residence or

• The borrower’s current LTV on the property being vacated is ≤ 75% of the current value based on an appraisal that is no more than six months old or the original sales price of the property

• Document the rental income with all of the following:


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o A fully executed lease signed by the borrower and lessee – The lease must have 12 remaining months after the loan closes

o Evidence of a security deposit or first month’s rent being deposited to the borrower’s account. Provide a copy of the check from the lessee deposited to the borrower’s account

PURCHASES OF SHORT SALES A purchase transaction is considered a short sale when the new purchase price is less than the total of all existing liens on the property and the existing servicer(s) will receive proceeds are less the current lien balance(s).

• Copy of the fully executed short sale agreement is required o Short sale agreement must be valid through the closing date on the new purchase

transaction • Purchase transaction must be an arms-length transaction - Non-arms-length transactions are

ineligible • The borrower may not pay any portion of the seller’s liens or short sale fees

PURCHASE/CONSTRUCTION AGREEMENTS • Purchase agreements and all addendums must be signed by all occupying borrowers

o Borrowers added after the original purchase agreement was executed are not required to sign the initial purchase agreement but must sign the addendum(s) executed on or after the date the borrower was added to the loan

• Non-occupant co-borrowers may but are not required to sign the purchase agreement • Unless property is a For Sale by Owner transaction, in addition to the realtors’ names, the

purchase agreement must contain the listing and selling real estate company names • All changes to any specifications listed in the initial purchase agreement require an

addendum to the purchase agreement o The addendum must be fully executed by all borrowers and sellers and real estate

agents, if applicable • When the home is being sold by a relocation company, the purchase agreement must be

signed by a representative from the relocation company who is authorized to sign on behalf of the relocation company

ADDITIONAL PURCHASE RESOURCES • Identity of Interest Transactions • Down Payment Requirements


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• Inducements to Purchase • LTV/CLTV • Property Flipping/Seller Seasoning

QUALIFYING RATES FIXED RATE MORTGAGES Borrowers are qualified at note rate.

ADJUSTABLE RATE MORTGAGES Borrowers are qualified at note rate.

RATIOS MAXIMUM RATIOS Ratio Requirements Purchase & Rate and Term and Cash-Out Refinances Source of Down Payment, Payoff of debt, closing costs and/or Pre-paid expenses

Borrower's Own Funds

Gift, Grant, Eligible DPA

Credit Scores

TOTAL Approve/Accept TOTAL Refer

TOTAL Approve/Accept TOTAL Refer

620-639 31/43 Not Eligible Not Eligible Not Eligible 640-679 Refer to findings Not Eligible 40/55 Not Eligible >=680 Refer to findings Not Eligible Refer to Findings Not Eligible No Scores Not Eligible Not Eligible Not Eligible Not Eligible

HOUSING RATIO All of the following expenses are included in the housing ratio:

• Principal and interest from the subject loan • Principal and interest from any allowable subordinate financing • Homeowner’s Association (HOA) dues


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• Real estate taxes o Taxes are calculated using the tax rate indicated on the title commitment. The following

exceptions apply: Property taxes for new construction properties must be calculated using 1.50% of the

appraised property value For properties being purchased from a seller who paid non-homestead taxes, the title

commitment will indicate the non-homestead tax rate. Homestead tax rates may be used to calculate the borrower’s ratios, provided evidence of the non-homestead tax rate is obtained from the local tax assessor’s office. Lenders must collect escrows based on the amount shown on the title commitment

• Hazard insurance premiums, including flood insurance, wind insurance, etc. • Special assessments

o FHA requires lenders to collect escrows for all special assessments. In order to collect escrows, the municipality must send the assessment bill to LenderLive. If the assessment is an exception to title and/or the municipality does not/will not send the bill to LenderLive, we cannot collect and disburse escrows, and the assessment must be paid in full.

• Ground rents

TOTAL DEBT RATIO All of the following monthly expenses must be included in the total debt ratio (For exceptions, see Liabilities):

• All of the items listed above under Housing Ratio • Child support and/or alimony payments • Installment debts • Revolving debts • Mortgage payments, including HOA payments, taxes, insurance, etc. for additional properties

owned by the borrower • Property taxes and/or hazard insurance payments for properties owned free and clear

RECENTLY LISTED PROPERTIES PURCHASES See Property Flipping


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CASH-OUT REFINANCES Property must be off the market at least six months prior to application.

RATE AND TERM REFINANCES • Property must be off the market at least one day prior to application – Evaluated on a case-

by-case basis

REFINANCE TRANSACTIONS BORROWER REQUIREMENTS Borrowers who are on title but not on the original note may refinance the property, provided the loan is not a Streamline refinance transaction.

• Refer to the Seasoning section of this document for seasoning requirements and determining property value

• Mortgage history must be acceptable

PAYOFF LETTERS Payoff letters for each lien being paid off must be included in the file.

Mortgage payoffs must indicate the borrower is current. The borrower may make the payment for the funding month prior to closing or include the payment in the payoff. If the borrower does not make the payment for the funding month prior to closing, the borrower must have made the payment for the month prior to funding within the month due. Therefore, if a loan funds in April, the borrower must have made the March payment within the month of March.

SHORT REFINANCES • Not Eligible • FHA Negative Equity Refinance Loans are ineligible (ADP Codes 821, 822, 831 and 832)

CASH-OUT REFINANCE TRANSACTIONS • Maximum loan amount is calculated using FHA Maximum Mortgage Worksheet – Cash-Out

Refinance, Form #3345 • Maximum LTV – 85%

o Owned as borrower’s principal residence at least one year – Maximum LTV is calculated using the appraised value


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If the borrower inherited the property and occupies or will occupy the property as his or her primary residence, the maximum LTV is 85% of the new appraised value, regardless of acquisition date

o Owned as borrower’s principal residence less than one year (FHA requires the borrower to have made at least six monthly payments) – Maximum LTV is calculated using the lesser of purchase price or appraised value When using the purchase price to calculate LTV, documented repairs cannot be

included o If the loan is secured by a previous investment property re-occupied by the borrower

within 12 months of the loan application, the transaction must be underwritten and closed as a rate and term refinance with a maximum LTV of 85% Acceptable re-occupancy documentation includes, but is not limited to utility bills,

property assessment statements, bank statements and similar items • Maximum CLTV – 85% - If the subordinate lien is a line of credit, the CLTV is calculated using

the maximum accessible credit limit and not the outstanding balance • 3 to 4-unit properties are ineligible • Mortgage payment history requirements are based on the seasoning requirements below:

o If the mortgage payment history indicates the borrower has made at least 12 payments on the loan being refinanced, all payments for the most recent 12 months must have been made within the month due

o If the mortgage payment history indicates the borrower has made at least six but fewer than 12 mortgage payments on the loan being refinanced, all payments must have been made within the month due

o If the mortgage payment history for the loan being refinanced indicates the borrower has made fewer than six months payments, the loan is ineligible for cash-out Borrowers who inherited the property within the most recent six months are not

required to meet the six month seasoning requirement o Second mortgages paid off with or subordinated to the cash out refinance transaction

need not be seasoned six months or greater but must have acceptable payment histories as described above All payments for second liens seasoned less than six months must have been made

within the month due • Modified loans are not eligible • Cash-out explanation is required • If revolving debt will be paid at close, the most recent account statement is required unless

the last reported month on the credit report is within 30 days of the loan closing and account must be closed

• Non-occupant co-borrowers not permitted unless they were borrowers on the loan being refinanced


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• Not allowed in the state of Texas • Maximum cash-in-hand - $200,000

RATE AND TERM REFINANCE TRANSACTIONS • Maximum loan amount is calculated using FHA Maximum Mortgage Worksheet – Rate and

Term Refinance, Form #3342 - The total FHA mortgage, including financed UFMIP, is limited to 100% of the appraised value

• Rate and term refinances of modified loans are not eligible • Short refinances not eligible • Cash back at closing may not exceed $500 and may only be the result of minor adjustments

at closing o Unexplainable cash back to the borrower on the HUD may delay your closing and/or

funding or require the originating lender to make a principle reduction to loan amount after closing

• The following items may be paid through and included in the rate and term refinance loan amount, provided the total does not exceed all other calculations on FHA Maximum Mortgage Worksheet – Rate and Term Refinance, Form #3342: o Payoff off of existing principal balance, per diem interest through loan payoff, escrow

shortages and late fees (no other fees, including delinquent interest and the pro-rated mortgage insurance premium indicated on the payoff may be included)

o Closing costs o Pre-paid expenses o Discount points o Equity to ex-spouse o Purchase money seconds o Junior liens > 12 months old (If junior lien is a HELOC, there may not have been draws

totaling more than $1000 in the most recent 12 months unless the funds were used for documented home improvements) Partial payoff of a junior lien may be financed in the rate and term refinance,

provided FHA’s seasoning requirements are met and the existing second is re-subordinated to the new mortgage ◊ Modification of the existing second lien is permitted at the time of re-

subordination ◊ FHA’s CLTV requirements apply

• Property value is calculated using the applicable formula below: o For FHA – FHA rate and term refinances, value is based on appraised value


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o For Non FHA – FHA rate and term refinances, if the borrower has owned the property less than one year, the LTV is calculated using the lesser of the borrower’s purchase price or the new appraised

o For Non-FHA – FHA rate and term refinances, if the borrower has owned the property at least 12 months, the LTV is calculated using the new appraised value

• Maximum CLTV – 97.75% o If the subordinate lien is a line of credit, the CLTV is calculated using the maximum

accessible credit limit and not the outstanding balance • Maximum LTV – 97.75%

o If the borrower re-occupied a previous investment property within the most recent 12 months, the maximum LTV is 85%

• Net Tangible Benefit Requirement o For the following transactions, the new principal and interest payment plus the new

annual MIP must be at least 4% less than the current principal and interest plus the current mortgage insurance, if applicable: Existing fixed rate to new fixed rate Existing hybrid ARM currently in its fixed rate period to new fixed rate

o The number of months required to recapture the borrower-paid closing costs shown in sections 800, 1100 and 1200 of the Good Faith Estimate and HUD-I Settlement Statement may not exceed 48 months

o The following transactions are exempt from the rate and term net tangible benefit requirements: The new Loan has a shorter amortization period than the loan being

refinanced (For example, the loan being refinanced is a 30 year fixed rate mortgage, and the new rate and term refinance is a 15 year fixed rate mortgage)

The loan being refinanced is a hybrid ARM or one-year ARM, and the new loan is a fixed rate mortgage

The loan being refinanced is an interest only loan The rate and term refinance is the result of a court-ordered divorce buyout – A copy

of the divorce decree is required The loan being refinanced is a balloon mortgage, and the new loan is a fixed rate

mortgage If the rate and term refinance consolidates a first mortgage and purchase money

second or seasoned second mortgage, exemption from net tangible benefit requirement is reviewed on a case-by-case basis and will not be granted if the payment is increasing and the note on the second is not due in the near future


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o To calculate the borrower’s payment reduction and number of months to recapture the closing costs, use FHA Refinance Net Tangible Benefit Worksheet, Form #3348

Note: LenderLive requires a Net Tangible Benefit Worksheet on all loans regardless of exemption.

HELPFUL LINKS - REFINANCE TRANSACTIONS HUD Handbook 4155.1, 3.A-C

HUD Handbook 4155.1, 6.C

FHA Refinance Transactions, FHA Mortgagee Letter 2011-11

Frequently Asked Questions on FHA Mortgagee Letter 2011-11

REO PROPERTIES REO properties are owned by HUD, a bank or another entity that foreclosed on the property.

• Amendatory Clause is not required • Real estate certification:

o For HUD REO properties, the Real Estate Certification must be signed by the borrower and real estate agents but HUD’s signature is not required

o For all other REO properties, HUD requires borrower, agent and seller signatures • The addendum to the HUD-I Settlement statement must be signed by the foreclosing lender

o The addendum to the HUD-I settlement statement is not required for HUD-owned properties

• Utilities must be turned on and the appraiser must note they are fully operable at the time of inspection o If the appraisal is completed without the utilities being turned on, the following condition

must be satisfied prior to the loan being cleared to close: Satisfactory inspection from a licensed contractor or qualified inspector certifying the

mechanical systems have been turned on and are functioning properly. Only required if not part of or included in appraisal from approved appraiser

• If a property is less than one year old but is being sold by a lender that foreclosed on the property, new construction documentation is not required


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UNEXPIRED RIGHTS OF REDEMPTION – ALL STATES EXCEPT ALABAMA

• Unless the property is located in the State of Alabama, LenderLive will not approve and/or purchase any loan having an unexpired right of redemption unless the purchase agreement, title and appraisal all show the same seller who is the original mortgagor o Title may show lis pendens notices from the bank or mortgagee o Purchase contract may indicate a short sale

• Unexpired Rights of Redemption – Alabama Only Purchase agreement, title and appraisal will be in the name of the lender and not the original mortgagor. o Title commitment will show one or both of the following acceptable recorded deeds: Foreclosure from John Doe (original mortgagor) to Anybank (foreclosing lender)

followed by the date on the deed and the recording date When the foreclosing lender deeds the property to HUD, Fannie Mae, Freddie Mac,

VA or GNMA, there will be a special warranty deed from Anybank (foreclosing lender) to one of the GSEs listed above followed by the date on the deed and the recording date

o If the above referenced deeds are dated within the most recent 12 months, the title commitment must contain a specific exception for the unexpired right of redemption and affirmatively insure, without qualification, the mortgagee (LenderLive) against all losses arising out of the exercise of any outstanding right of redemption

SEASONING REQUIREMENTS PURCHASES See Property Flipping

CASH-OUT REFINANCES • If property is owned as borrower’s principal residence less than one year (FHA requires the

borrower to have made at least six monthly payments on the first mortgage being paid off), LTV is calculated using the lower of the purchase price or new appraised value

• If property is owned as borrower’s principal residence at least one year, LTV is calculated using new appraised value

• If the property was transferred from the borrower’s LLC to the borrower within the most recent 12 months, LTV is calculated using the transfer price, if any

• If the mortgage payment history for the loan being refinanced indicates the borrower has made fewer than six months payments, the loan is ineligible for cash-out


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• If the subject property is a previous investment property re-occupied by the borrower within the most recent 12 months, the loan is ineligible for cash-out

RATE AND TERM REFINANCES • FHA to FHA – No seasoning required – LTV is calculated using the appraised value • Non FHA to FHA – If property is owned less than one year, LTV is calculated using the lower

of the purchase price or new appraised value; if property is owned at least one year, LTV is calculated using new appraised value

• If the property was transferred from the borrower’s LLC to the borrower within the most recent 12 months, LTV is calculated using the transfer price, if any

• If the subject property is a previous investment property re-occupied by the borrower within the most recent 12 months, the maximum LTV is 85%

SELLER CONTRIBUTIONS • Seller contributions allowed up to 6% of the sales price - If seller contributions exceed the

actual amount of closing costs, pre-paid expenses and discount points, refer to Inducements to Purchase

• UFMIP, when paid by the seller, is included in the 6% limitation • Seller must pay all or no UFMIP – Partial financing of UFMIP is not allowed • Any seller contribution exceeding 6% of the sales price results in a dollar for dollar reduction

to the sales price before calculating the maximum loan amount • Items which are customarily paid by the seller, such as the owner’s title policy, are not

included in the 6% seller contribution limitation o Items customarily paid by the seller vary by state o Documentation indicating a fee is typically seller-paid may be required

JOB LOSS INSURANCE • May be paid by builder or seller of property • HUD-I must reflect payment made directly to the insurance company • Amount paid on behalf of the borrower is included in the 6% seller contribution limitation • A copy of the insurance policy is required at closing

HOMEBUYER COUNSELING • May be paid by builder or seller of property • Amount paid on behalf of the borrower is included in the 6% seller contribution limitation

(typical fees are $250)


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• A copy of the homebuyer counseling certification is required prior-to-closing

SELLER CONTRIBUTION RESOURCES HUD Handbook 4155.1, 2.A.3.a-d

SOCIAL SECURITY VERIFICATION Social security verification is required for all borrowers on all files:

• W-2, paystub, passport, etc. • Copies of social security cards • 4506T transcripts, but not copies of tax returns • Fully executed Social Security Administration Authorization, Form #LLNSSA-89 if no other

verification exists • A fully executed Social Security Administration Authorization, Form #LLNSSA-89 required in

all closing packages • Social Security Verification is not required for non-borrowing spouses

SUBORDINATE FINANCING Subordinate financing includes any financing that creates a lien against the subject property, even if it is a “soft”, “silent”, or “forgivable” second. Subordinate Financing from Down Payment Assistance Programs is not eligible at this time.

• A family member may provide a second mortgage for the borrower’s entire down payment requirement, closing costs, pre-paid expenses and discount points

• Borrowers who receive a loan from a family member for down payment or closing cost assistance are subject to LenderLive’s ratio overlays for borrowers who receive gifts, grants, or down payment assistance

• Underwriter must examine a sample of the note and deed to verify the family member is the actual lien holder o Purchase transactions – Copies of the fully-executed note and mortgage are required at

closing o Refinance transactions – Copies of the fully-executed note and mortgage are required

prior-to- closing • Subordinate financing requiring a special designated servicer for the first lien or imposing

any servicing or resale restrictions on the first lien is not allowed


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• Must meet all additional requirements for subordinate financing as stated in HUD Handbook 4155.1, 5.C.1-6

SUBORDINATE FINANCING RESOURCES HUD Handbook 4155.1, 5.C.1-6

TITLE • Effective date of title commitment must be no older than 90 days on the date of

disbursement o A gap letter may be used to extend the commitment an additional 60 days

• 12 month chain of title required o Property must meet all FHA and LenderLive anti-flipping policies in FHA’s property flipping

amendment and the “Property Flipping” section of this document • To comply with Federal Housing Finance Agency regulations codified in Title 12, Part 1228 of

the Code of Federal Regulations, properties encumbered by private transfer fee covenants are ineligible

• Properties held in a life estate or land trust are ineligible • All occupant borrowers take title to the property • Non-occupant co-borrowers take title to the property • Co-signers provide income and assets for qualification but do not take title or sign the

security instruments or purchase agreement • Non-borrowers are permitted to take title with borrowers

o Non-borrowers must sign all documents necessary to ensure the FHA first mortgage is a valid enforceable lien (usually the mortgage, TIL and right of rescission, when applicable)

• Borrowers who are on title but not on the original note may refinance the property, provided the loan is not a Streamline refinance transaction o Refer to the Seasoning section of this document for seasoning requirements and

determining property value o Mortgage history must be acceptable

• For purchase transactions, the seller must be in title to the property o The owner of record on the title commitment, appraisal and AVM must match the name

of the seller on the purchase agreement o If property ownership is not evident, a chain of title is required o Refer to the Property Flipping section of this document for seller seasoning requirements


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SPECIAL ASSESSMENTS FHA requires lenders to collect escrows for all special assessments. In order to collect escrows, the municipality must send the assessment bill to LenderLive. If the assessment is an exception to title and/or the municipality does not/will not send the bill to LenderLive, we cannot collect and disburse escrows, and the assessment must be paid in full.

ENERGY LOAN TAX ASSESSMENT PROGRAM (ELTAP) LIENS Not permitted

PROPERTY ASSESSED CLEAN ENERGY (PACE) LIENS Not permitted

MINERAL RIGHTS – EXCEPTIONS TO TITLE Exceptions to title for Mineral Rights are acceptable as long as the title company states in writing there are no mineral rights on the property at the time of loan closing.

EXCEPTIONS TO TITLE FHA’s general waiver for title conditions waives objection to title for customary easements, restrictions and encroachments.

The general waiver includes easements for the following:

• Public Utilities • Party walls • Driveways • Encroachments on adjoining property by hedges or wooden or wire fences belonging to the

subject property • For a complete list of waivers, refer to the Code of Federal Regulations: Title 24: 203.389,

Waived Title Objections

DEED RESTRICTIONS Properties subject to deed restrictions are not eligible for FHA insurance unless the property meets one of the following exceptions:

• When the property is funded through a tax exempt bond, due on sale clauses are allowable as long as they permit the mortgagee to accelerate a mortgage that no longer meets the tax exempt requirements


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• Occupancy and/or transfer to non-elderly restrictions are allowed as long as they create no undue effect on marketability and are consistent with the Fair Housing Act and do not illegally discriminate

• Deed restrictions for one of the reasons listed below are acceptable as long as the restriction is part of an eligible government or non-profit program and the restriction automatically terminates when there is a foreclosure situation: o Borrower may be restricted to ensure the property is preserved for low to moderate

income borrowers o Borrower may be restricted from selling the property at a price greater than allowed

under the HOPE & HOME programs as long as the borrower is not prevented from collecting the original purchase price plus other reasonable costs for improvement and sale Purchase price cannot be less than the original purchase price plus reasonable costs

for improvement plus reasonable share of appreciation in value as is determined by HUD

o Rights under an option to purchase, preemptive rights to purchase, or a right of first refusal may be restricted to include only a governmental body or eligible non-profit or any person or organization approved by the HUD Secretary Purchase price cannot be less than the original purchase price plus reasonable costs

for improvement plus reasonable share of appreciation in value as is determined by HUD

• Borrower may be restricted to owner occupied • Borrower with a rehab loan under section 50 may hold title subject to a condition

subsequent where the holder of the right of entry also executes the mortgage, and the right of entry is exercisable only where the borrower has failed to rehab or occupy the property

• HUD authorized specific restrictions

In addition to any deed that does not meet one of the qualifications above, deed restrictions with the following characteristics are ineligible:

• Single-family use restrictions when the property is a two- to four-family property • Deed restriction creates or provides for a lien that would be prior to the lien of the home

mortgage or provides for the elimination of the home mortgage lien

The terms and provisions of the restrictive agreements or restrictive covenants must be commonly acceptable to the private institutional mortgage investors in the area where the mortgaged premises are located.

Title Company must provide an endorsement to the title policy that affirmatively insures no violation of any such restrictive agreement or restrictive covenant exists and any future violation shall not result in forfeiture or reversion of title is required.


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UNDERWRITING PROPERTY ADDRESS CHANGES If the loan status is “Received in Underwriting” or greater and the borrower selects a new property, a new loan registration and loan submission is required.

• The rate lock remains in place – Contact the lock desk to have the lock transferred from the old loan to the new loan

If a loan is in the “Application Registration” phase and the borrower selects a new property, a new registration is not required. Change the property address in LenderLive’s system prior to loan submission.

MANUAL UNDERWRITING All loans must have Total Scorecard Approve or Accept

MANUAL DOWNGRADES Loans manually downgraded from a TOTAL Scorecard Approve or Accept response to a “refer” response are subject to decline by LenderLive DE underwriter.

HUD requires the underwriter to manually downgrade a TOTAL Scorecard Approve or Accept response to a “refer” response and perform a complete manual underwrite based on standard FHA guidelines if any of the following credit characteristics exist:

• The underwriter is unable to satisfy any of the automated underwriting conditions, including, but not limited to, the most recent year-to-date pay stub documenting one full months earnings

• Additional derogatory credit is received but the credit reference was not included on the credit report evaluated by TOTAL Scorecard

• Disputed accounts or disputed public records are indicated on the credit report o If the credit supplement indicates the borrower(s) have one or more disputed accounts

with cumulative balances totaling $1,000 or more, the loan must be manually downgraded to a refer response

o The following accounts are included in the cumulative balance of disputed accounts: Disputed collections Disputed charge offs Disputed trade lines on which the borrower has made late payments within the most

recent 24 months


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Borrowers may not circumvent the manual downgrade requirement by paying down the balance(s) on disputed accounts to an amount < $1,000

Payoff of the disputed accounts is not required. However, if disputed accounts are also collection accounts totaling $2,000 or more, the guidance in the Collection section of this document applies

Even if the borrower is an “authorized user” only on any of the above accounts, FHA requires inclusion in the disputed accounts balance

o The following accounts are excluded from the cumulative balance of outstanding disputed accounts: Disputed medical collections Disputed accounts resulting from identity theft, credit card theft or unauthorized use

(Proof of fraud in the form of a letter from the creditor, police report, etc., is required) Non-derogatory disputed accounts, including disputed accounts with no balance,

disputed accounts with late payments more than 24 months old and disputed accounts paid as agreed.

• Suspended and debarred Individuals may not be approved. If any party (borrower, seller, loan officer, listing or selling agent, appraiser) is included on the LDP or GSA list

• Borrowers have delinquent federal debt and do not receive a clear CAIVR number • Borrowers have a foreclosure or deed-in-lieu of foreclosure in the most recent three years • Borrowers have a bankruptcy in the most recent two years • Borrower’s most recent 12-month mortgage histories reflect:

o Three or more late payments ≥30 days or o One or more late payment of 60 days plus one or more 30-day late payment or o One or more payment > 90 days late

• Effective for case numbers assigned on or after April 1, 2013, if the borrower’s credit score is less than 620 and the total debt-to-income ratio for the loan is greater than 43%, manual underwriting is required. FHA expects TOTAL Scorecard to be updated by April 1, but in the event a loan falling within these parameters receives an “approve” or “accept” response, the loan must be manually downgraded. Because our minimum credit score for FHA loans is not less than 620, this policy does not apply to any loans underwritten by LenderLive

MORTGAGE CREDIT REJECTS Underwriters are required to complete the Mortgage Credit Reject screen in FHA Connection for all FHA loan denials.

Underwriters must review the Mortgage Credit Reject screen in FHA Connection for each loan underwritten. Loans having a Mortgage Credit Reject from any lender require heavy scrutiny and written justification for loan approval on the DE underwriter’s company letterhead.


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Loans receiving a firm reject from HUD may never be approved or purchased – HUD may issue a firm reject upon review of a DE Lender’s test case loan – If the case number receives a firm reject, no lender is permitted to approve the loan.

All loans having previous mortgage credit rejects are audited by the FHA Homeownership Center having jurisdiction over the property location prior to insuring.

DE DELEGATED CORRESPONDENTS DE Delegated Correspondents must underwrite all of their loans unless LenderLive has approved the correspondent for an Authorized Agent relationship.

Test case loans issued a “Firm Reject” by the reviewing FHA Homeownership Center may never be underwritten and insured by LenderLive, regardless of whether an Authorized Agent relationship has been approved.

UNDERWRITING RESOURCES Email underwriting questions to: [email protected]

UTILITIES All utilities must be turned on and the appraiser must note they are fully operable at the time of inspection. If the appraisal is completed without the utilities being turned on, the following condition must be satisfied prior to the loan being cleared to close:

• Satisfactory inspection from a licensed contractor or qualified inspector certifying the mechanical systems have been turned on and are functioning properly. Only required if not part of or included in appraisal from approved appraiser.

WATER SYSTEMS/WELLS/SEPTIC SYSTEMS • If public or community water and/or sewer is available, hook-up is required unless the cost to

connect to the public/community system is > 3% of the property value • All individual water wells must comply with local and/or state health authority having

jurisdiction over the property location o Springs, lakes, rivers or cisterns are not permitted (Homeownership Centers have the

authority to make exceptions for cisterns if they are common to the area) o Dug wells are acceptable, provided they meet state and local requirements, the water

quality and quantity is acceptable, and the dug well does not affect the property’s marketability


mailto:[email protected]

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o Cesspools, individual pit privies and mound systems are acceptable, provided the file contains evidence from the local health authority that they are acceptable individual sewage systems

• Wells may not be located within the foundation walls of a new construction dwelling unless the property is located in an arctic or sub-arctic region. o Wells may not be located within the foundation walls of an existing construction property

unless the local jurisdiction recognizes and permits such a location • For minimum well and septic distance requirements, refer to Appendix K of HUD Handbook

4910.1 For additional information, refer to HUD Handbook 4150.1, Sections 12-16 and 12-17

CISTERNS Cisterns are not an acceptable water source unless the Homeownership Center having jurisdiction over the property grants a waiver.

• Waivers are granted only for existing properties greater than one year old • Property must be located in an area where cisterns are typical • New and proposed construction properties are ineligible for a cistern waiver • The Homeownership Center must review all of the following documentation prior to granting

a cistern waiver: o Fully executed letter on letterhead from the local regulating authority (building or health

authority) stating that cisterns are an approved private water supply system o Inspection from qualified inspector indicating the cistern complies with the local

regulating authority requirements and stating the type of construction and water capacity o Water quality test report from the local regulating authority (health department). If the local health authority does not perform testing, provide a water test from a

state approved EPA water test laboratory In the absence of local regulatory standards, a licensed laboratory test indicating

appropriate levels for all of the following contaminants is required: lead, nitrates, nitrites, total coliform, fecal coliform, and any other contaminants of local concern

Note: For properties located in the Virgin Islands, a full water test for all of the contaminants listed above is required

o Appraisal stating all of the following: Cisterns are typical private water supply systems for the area in which the property is

located Availability of local public water - If public water is available, hook up is required

unless the cost to do so is 3% or more of the property value The effect of the cistern on the marketability of the property

o Hold harmless agreement from the borrower acknowledging all of the following:


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Cisterns are not an FHA approved source of potable water Reliance on cisterns for drinking water can constitute health risks to the occupants of

the home Whether the local authority requires periodic cistern inspection Whether the local authority requires periodic sanitation Whether alternative public water systems are available

COMMUNITY WATER SYSTEMS Refer to HUD Handbook 4075.12, HUD Handbook 4150.2, 3-6 and the Community Water Systems section of the Homeownership Reference Guide

SHARED WELLS • Permitted for existing properties that cannot feasibly be connected to an acceptable public or

community water supply system • May not service more than four living units or properties – If more than four units are

serviced by the well, the well is subject to the requirements listed above for community water systems

• Valve required for each dwelling’s service line • Recorded shared well agreement that provides irrevocable water rights to the subject

property required o Agreement must be binding upon all signatory parties and their successors in title

• For additional information, refer to the Shared Wells section of the Homeownership Reference Guide


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REFERENCED FORMS Form # Form Title Link to Form

Form #2002 Undisclosed Debt Acknowledgement Open Form

Form #LLNSSA-89 Authorization for the SSA to release SSN Verification

Open Form

Form #3005 Government Forms and Disclosures Open Form

Form # 3301 FHA Case Number Assignment Request Open Form

Form # 3308 Informed Consumer Choice Disclosure Notice Open Form

Form # 3317 FHA Gift Letter Certification Open Form

Form # 3326 Notice to Homeowner Regarding Assumption of Policy

Open Form

Form # 3328 FHA Maximum Mortgage Worksheet (Purchase) Open Form

Form # 3334 FHA Amendatory Clause/Real Estate Certification

Open Form

Form # 3338 FHA Appraisal Certification Open Form

Form # 3339 FHA New Construction Certification Letter Open Form

Form # 3342 FHA Maximum Mortgage Worksheet (Rate & Term Refinance)

Open Form

Form # 3345 FHA Maximum Mortgage Worksheet (Cash-Out Refinance) Open Form

Form # 3348 FHA Refinance Net Tangible Benefit Worksheet Open Form

Form # 3353 FHA Refinance Credit Query/Authorization Request

Open Form

Form # 3917 Massachusetts Net Tangible Benefit Worksheet Open Form

Form # 3919 Colorado Net Tangible Benefit Disclosure Open Form

Form # 3920 Refinance Net Tangible Benefit Form Open Form

Form # 3922 Rhode Island Net Tangible Benefit Worksheet Open Form


http://www.lenderlive.com/Portals/18/CLDocs/LLN2002.pdf

http://www.lenderlive.com/Portals/18/CLDocs/LLNSSA-89.pdf

http://www.lenderlive.com/Portals/18/CLDocs/LLNFHA3005.pdf

















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Form # Form Title Link to Form Form # 3925 Maryland Net Tangible Benefit Worksheet Open Form

