Lending Guide Government Product Suite 602 – Table of Contents Guide/Guidelines/602/06-02-WS-Gvt.pdf · 234(b) 731 Condo – Standard ARM 734 Condo- Standard FRM 749 Condo – FRM

Lending Guide Government Product Suite

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602 – Table of Contents

602 - GOVERNMENT LOANS ........................................................................................ 602-1 PRODUCT DESCRIPTION AND PRODUCT CODES ............................................................................... 602-1

Product Description ...................................................................................................... 602-1 Product Codes ............................................................................................................. 602-1 FHA Sections and ADP Codes ......................................................................................... 602-2

Eligible FHA Matrix ........................................................................................................... 602-2 Ineligible FHA Matrix ......................................................................................................... 602-2

VA Sections ................................................................................................................. 602-3 LOAN DETAILS ................................................................................................................... 602-4

Overview .................................................................................................................... 602-4 Borrowers ................................................................................................................... 602-4 Eligible States ............................................................................................................. 602-5 Escrow/ Impound Waiver .............................................................................................. 602-5 Price Adjustments ........................................................................................................ 602-5 Mortgage Credit Certificate (MCC) .................................................................................. 602-5 Occupancy .................................................................................................................. 602-5 Property Types ............................................................................................................ 602-6

DOCUMENTATION ................................................................................................................ 602-7 Requirements .............................................................................................................. 602-7 Streamline Refinance and IRRRL .................................................................................... 602-8

GENERAL UNDERWRITING GUIDELINES........................................................................................ 602-9 Overview .................................................................................................................... 602-9 Helpful Web Sites ........................................................................................................ 602-9 Underwriting Method .................................................................................................... 602-9

AUS ........................................................................................................................ 602-9 MSI Manual Underwriting Requirements .................................................................... 602-10 MSI Requirements/overlays for manual underwriting of VA loans: ................................. 602-10

Underwriting Guidelines .............................................................................................. 602-10 Presentation .............................................................................................................. 602-11 Acceptable AUS Decisions ........................................................................................... 602-12 Alimony/ Child Support/ Separate Maintenance ............................................................. 602-14 Age of Documents ...................................................................................................... 602-15 AUS Overlays ............................................................................................................ 602-15 4506-T ..................................................................................................................... 602-15 Anti-Flipping Rule ...................................................................................................... 602-16

Temporary Waiver of 90-Day Anti-Flipping Requirements ............................................ 602-16 Appraisal .................................................................................................................. 602-17

Age of Appraisal ..................................................................................................... 602-17 Market Conditions Addendum ................................................................................... 602-17

FHA Appraisal ............................................................................................................ 602-18 FHA Case Numbers and Appraisers ........................................................................... 602-18 Second Appraisal Guidelines ..................................................................................... 602-19

FHA Appraiser Independence ....................................................................................... 602-20 Documentation Requirements Matrix ......................................................................... 602-20

FHA Case Numbers .................................................................................................... 602-20 Financial Reform – CFPB ............................................................................................. 602-21 HPML ....................................................................................................................... 602-22 VA Appraisal ............................................................................................................. 602-22


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Bank Statements – NSF .............................................................................................. 602-22 Bankruptcy ............................................................................................................... 602-22

Chapter 7 or 11 ...................................................................................................... 602-22 Builder Bailouts ......................................................................................................... 602-22 Condos – FHA ............................................................................................................ 602-23 Business Funds .......................................................................................................... 602-24 Condos- VA ............................................................................................................... 602-24 Credit ....................................................................................................................... 602-25

Co-Signed Obligations ............................................................................................. 602-25 Collections or Judgments ......................................................................................... 602-25 Trade Lines – MSI Minimum Requirement-FHA and VA ................................................ 602-26 Closed-End Installment Debt - FHA ........................................................................... 602-26 MSI Policy for Disputed Credit .................................................................................. 602-27 Projected Obligations – FHA and VA loans .................................................................. 602-29

Conditions/ Stipulations .............................................................................................. 602-29 Delinquent Property Taxes .......................................................................................... 602-29 FHA – Conversion of a Principal Residence .................................................................... 602-30 Co-Signers on the Loan .............................................................................................. 602-31 Credit Report Requirements ........................................................................................ 602-31 Debts to Qualify ......................................................................................................... 602-33

Revolving Debt Paid-Off to Qualify ............................................................................ 602-33 Declining Markets Policy ............................................................................................. 602-33 Disaster Policy ........................................................................................................... 602-34

FHA Streamline Refinance Loans Without Appraisals.................................................... 602-34 Down Payment Assistance .......................................................................................... 602-34 FICO Scores .............................................................................................................. 602-35

Minimum FICO Requirements ................................................................................... 602-35 Government FICO 580 – 619 ...................................................................................... 602-36 Government FICO 620-639/659 ................................................................................... 602-38 First Time Homebuyers ........................................................... Error! Bookmark not defined. Gifts-FHA .................................................................................................................. 602-39 Gift of Equity ............................................................................................................. 602-39 HUD Repo ................................................................................................................. 602-41 Income Documentation............................................................................................... 602-41

Self-Employed Income ............................................................................................ 602-41 Public Assistance and/or Section 8 ............................................................................... 602-41 Lender Certifications for Repairs .................................................................................. 602-41 Multiple Mortgages to One Borrower ............................................................................. 602-42

FHA/More than one FHA Mortgage held by the Borrower .............................................. 602-42 Net Tangible Benefit ................................................................................................... 602-43 New Construction....................................................................................................... 602-43

FHA Reminders, MSI Underwriting Tips and MSI Guidelines .......................................... 602-43 FHA New Construction Inspections ............................................................................ 602-44 Building on Own Land .............................................................................................. 602-45 FHA Escrow Holdback .............................................................................................. 602-45

FHA Non-Occupant Co-Mortgagor................................................................................. 602-46 Property Tax Estimation .............................................................................................. 602-46 Purchase Price Restriction ........................................................................................... 602-47 Purchase Agreements – Re-negotiated ......................................................................... 602-47 Qualifying Ratios (DTI) ............................................................................................... 602-47

FHA ...................................................................................................................... 602-47 VA .................................................................................... Error! Bookmark not defined.

Refinance – FHA Rate –Term ....................................................................................... 602-48 Rate/Term Credit Qualifying Refinance – With Appraisal .............................................. 602-48


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FHA Refinance ........................................................................................................... 602-49 FHA Refinance MSI Overlays Matrix ....................................................................................... 602-49

Refinance – FHA ........................................................................................................ 602-50 FHA Refinance MSI Overlays Matrix ....................................................................................... 602-50 FHA Streamline Refinances ................................................................................................ 602-53

FHA Net Tangible Benefit Matrix................................................................................... 602-57 INCOME ................................................................................................................... 602-58

FHA Streamlines Without Appraisal Over Current Statutory Limits .................................... 602-59 Rental Income ........................................................................................................... 602-59 Retirement Accounts .................................................................................................. 602-60 Secondary Financing .................................................................................................. 602-60 Security Bars ............................................................................................................ 602-61 Short Sales/ Foreclosure ............................................................................................. 602-61 Social Security Number .............................................................................................. 602-62 Temporary Buy down ................................................................................................. 602-63 Trailing Co-Borrower Income ....................................................................................... 602-63 Undisclosed Debt ....................................................................................................... 602-63 Vacancy Factor .......................................................................................................... 602-63 Water Purification Systems ......................................................................................... 602-63

RESTRICTIONS ................................................................................................................. 602-64 Introduction .............................................................................................................. 602-64 High Cost and Responsible Lending Restrictions ............................................................. 602-64 State Restrictions ...................................................................................................... 602-65

MSI State-Specific Guidelines .............................................................................................. 602-65 CLOSING ........................................................................................................................ 602-66

Closing Costs ............................................................................................................ 602-66 Interest Credit ........................................................................................................... 602-66 Photo ID ................................................................................................................... 602-66

FHA LOANS .................................................................................................................... 602-67 Summary .................................................................................................................. 602-67 Loan Parameters - FHA – “Standard” Maximum Loan Amounts ........................................ 602-68 FHA Purchase Transactions ......................................................................................... 602-69 FHA Refinance ........................................................................................................... 602-69 FHA Fixed Rate Mortgage ............................................................................................ 602-69

FHA ARM LOANS ............................................................................................................. 602-70 Overview .................................................................................................................. 602-70 Occupancy ................................................................................................................ 602-70 Qualifying Rate .......................................................................................................... 602-70 Temporary Buy Downs ............................................................................................... 602-70 ARM Summary .......................................................................................................... 602-71 First Adjustment Date ................................................................................................ 602-71

MSI FHA HIGH BALANCE .................................................................................................... 602-72 Overview .................................................................................................................. 602-72 Guidelines ................................................................................................................. 602-72 MSI Loan Limits ......................................................................................................... 602-72 Products Eligibility ...................................................................................................... 602-72 MSI High Balance Overlays ......................................................................................... 602-73

FHA High Balance Streamline .............................................................................................. 602-74 Loan Parameters – MSI FHA High Balance 15 & 30 Year – FRM & ARM .............................. 602-75

VA LOANS ...................................................................................................................... 602-76 Overview .................................................................................................................. 602-76 Eligible Borrower ....................................................................................................... 602-76

Alive and Well and Not MIA ...................................................................................... 602-76 Occupancy ................................................................................................................ 602-77


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Loan Parameters – VA ................................................................................................ 602-78 VA 5/1 ARM .............................................................................................................. 602-79 VA 7/1 ARM .............................................................................................................. 602-79 Closing Costs ............................................................................................................ 602-80

MSI Audit Point – VA Closing Costs ........................................................................... 602-80 Condos ..................................................................................................................... 602-81 Day Care Obligation ................................................................................................... 602-81 Funding Fee .............................................................................................................. 602-81

Exempt Veterans .................................................................................................... 602-81 VA IRRRL – MSI Overlays ............................................................................................ 602-82

VA IRRRL MSI Overlays Matrix ............................................................................................ 602-82 VA IRRRL MSI Overlays Matrix ............................................................................................ 602-83

LAPP “Appraisals” ...................................................................................................... 602-84 New Construction....................................................................................................... 602-84 IRRRL Borrower Rules ................................................................................................ 602-84 Residual Income ........................................................................................................ 602-84

VA 100% CASH OUT ........................................................................................................ 602-85 MSI Overlays ............................................................................................................. 602-85

VA HIGH BALANCE ............................................................................................................ 602-86 Overview .................................................................................................................. 602-86 MSI High Balance Overlays ......................................................................................... 602-86 Loan Parameters – MSI VA High Balance 30 Year – FRM Only .......................................... 602-87

VA JUMBO ...................................................................................................................... 602-88 Overview .................................................................................................................. 602-88 MSI VA Jumbo Overlays .............................................................................................. 602-88 Loan Parameters – MSI VA Jumbo 30 Year – FRM Only ................................................... 602-89


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602 - Government Loans

Product Description and Product Codes

Product Description

Fixed Rate and Adjustable Rate Loans that meet applicable government guidelines. Presentation To minimize repetition, general guidelines and requirements that affect all government loans are presented first, and then product-specific requirements are presented as a sub-section of this product summary. Each sub-section has a loan parameter matrix for easy reference. Guidelines presented as MSI/FHA or MSI/VA or MSI/FHA/AUS mean

the more restrictive of the guidelines published.

Product Codes ) Current Product Codes are found on the daily rate sheet.

• Always verify the product code on the daily rate sheet prior to registering or locking a loan.

• If a product published in this Product Suite is not available on the Rate Sheet, contact Pricing for availability.

Continued on next page



Product Description and Product Codes, Continued

FHA Sections and ADP Codes

FHA loans insured under the following ADP and Program Codes are eligible.

Eligible FHA Matrix Section

of the Act ADP Code

Brief Description

203(b) 703 Standard FRM

748 FRM or ARM ≤ $50,000 (3% down)

729 ARM – Treasury 5/1

796 Temporary Buy down- NOT PERMITTED DUE TO REGULATORY ISSUES

234(b) 731 Condo – Standard ARM

734 Condo- Standard FRM

749 Condo – FRM or ARM ≤ $50,000 (3% down)

797 Condo – Temporary Buy down- NOT PERMITTED DUE TO REGULATORY ISSUES

Notes: FHA loans originated under any other ADP codes are not eligible for MSI.

Ineligible FHA Matrix The following FHA loans are ineligible for sale to MSI: Cash Out Refinance loans primary residence in Texas 203(k) Renovation loans, standard Energy Efficient Mortgage Program (EEM) Military Impact Area Loans Non-profit organization borrowers HUD 184 Program – Indian Reservations Loans on manufactured housing (mobile homes). Properties where the borrower pays over list price in declining or oversupplied markets . Loans approved based on non-traditional credit history, a traditional tri-merge credit report with

Loan Scores is required.




Product Description and Product Codes, Continued

VA Sections

VA loans guaranteed as follows are eligible for MSI: Sections 3710 and 3720 of title 38, U.S Code and the VA Loan

Guaranty Standards. FRM 5/1 ARM The following loans are not acceptable to MSI:

• Cash Out Refinance loans in Texas • VA Indian Leasehold properties • HUD 184 – Indian Reservations • Loans on manufactured housing (mobile homes) • Energy Efficient Mortgages (EEM)



Loan Details

Overview Unless otherwise noted in a specific product sub-section, the loan details noted below apply to all Government loan products. See the specific product sub-sections for full details regarding loan parameters.

Important: All government loans must meet the more restrictive of current MSI Overlays, FHA or VA guidelines, as applicable to the product. “FHA/VA/MSI” as seen in this product summary denotes FHA or VA, as applicable to the product.

Borrowers

The following matrix outlines the applicable borrower types. All borrowers must meet current FHA/VA guidelines:

Eligible Borrowers Ineligible Borrowers Loans are granted only to natural persons Title must be held in individual names only Each borrower must have a valid documented social

security number FHA Loans: The following are permitted to the

applicable MSI/FHA underwriting guidelines: • U.S. Citizens • Permanent Resident Aliens • Non-Permanent Resident Aliens

VA loans must meet the current VA borrower requirements • Co-Signors or Guarantor are ineligible for VA loans • Only the Veteran and the spouse are permitted on

the loan. • Joint VA loan (2 veterans) • Vet/non-Veteran transaction (25% down payment

required from non-Veteran) Inter Vivos Revocable Trust (For FHA and VA) Mortgage Company Employees have special

requirements.

Possession by corporations or partnerships is not acceptable, including, but not limited to, the following: Borrowers without a valid documented social security

number Borrowers with a current CAIVR alert/default Borrowers with diplomatic immunity S Corporations/LLC Life Estates Real Estate Syndication General Partnerships Foreign Nationals Non-profit organizations Borrowers specifically prohibited by current FHA/VA

guidelines Illinois Land Trust

Notes: Each borrower must have a valid documented U.S. Social Security number. See Underwriting/Borrowers for additional details




Loan Details, Continued

Eligible States See the eligible states on the intranet at this link: MSI Eligible States

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

Escrow/ Impound Waiver

Waiver of escrow/impounds is not permitted for government loans under any circumstances.

Price Adjustments

Loan Level Price Adjustments (LLPA) may be applied against Government loans. See the daily Price Sheets for details.

Mortgage Credit Certificate (MCC)

Eligible for MSI for FHA and VA , however the credit cannot be used in qualifying in the AUS. FHA: VA:

• AUS: Do not enter the MCC credit amount in the AUS findings • Must complete all applicable paperwork to obtain the tax credit.

Occupancy Owner-occupied properties are eligible for government loans. The following property types are not permitted: Second Vacation Home

Investment (Non-owner occupied) Except streamlines case by case




Loan Details, Continued

Property Types

The following matrix outlines the applicable property types:

Eligible Property Types Unless otherwise specifically restricted or not permitted by the applicable loan parameters, the following property types are acceptable to MSI/agency Guidelines: 1-4 Unit Properties, attached & detached

• Modular homes, See Underwriting/Property for details o .

Condominiums – FHA and VA currently approved condos. See Condos – FHA for additional details.) PUDs Leasehold Estate Properties

• FHA – must be in full compliance with all current FHA requirements. • VA – Must be on the most current VA Approved Leasehold List, or approved by VA. No other leaseholds eligible

Ineligible Property Types

Auction – Properties purchased at auction. Commercial operations Condotels Cooperative Projects Geodesic Domes Earth Homes Houseboats Mobile (Manufactured) Homes, single- or double-wide Model Home Leaseback properties Multi-dwelling or Multi-Unit condominiums Non-Warrantable Condos Non-conforming or illegal zoning Own-your-Own”, Timeshare/segmented ownership Properties in fair condition For Refinance Transactions: Properties currently listed

for sale

Properties that do no meet HUD/VA minimum property standards.

Properties that do not meet highest and best use. Properties with deed restrictions that limit transferability

of title, or contain a “first right of refusal” provision Properties located outside the United States or District of

Columbia Unimproved (Raw) Land Working farms, ranches or orchards Properties located on Indian Reservations Properties with assignments of purchase (assigning the

purchase contract to another party) No double escrows. Properties specifically prohibited by current FHA/VA

guidelines

Notes: See specific product sub-sets for any additional restrictions. Properties are eligible only in strict accordance with current FHA/VA guidelines Access this site for FHA-approved Condos, http://www.hud.gov/groups/lenders.cfm Access this site VA-approved Condos and VA-approved Builders: https ://vip.vba.va.gov/portal/VBAH/Home

http://www.hud.gov/groups/lenders.cfm

https://vip.vba.va.gov/portal/VBAH/Home



Documentation

Requirements Loans must be documented to AUS TOTAL Scorecard processing in strict

accordance with current MSI/FHA/VA guidelines. All loans must meet the following additional MSI requirements: MSI requires that a 4506-T is signed by each qualifying borrower at

closing for each loan, even though tax transcripts are included in the loan file. • MSI will obtain tax transcripts (and a Record of Account) at the

time of underwriting. o FHA Streamline Refinance and VA Interest Rate Reduction

Refinance Loans (IRRRL) require a 4506-T for each borrower to be signed at closing.

• Verbal VOE completed no earlier than 10-calendar days before loan closing. See Underwriting/ Documentation Types/Verbal Verification of Employment for full details.

• MSI will perform a VVOE prior to loan closing/disbursement on all Government loans, including streamline refinance loans. If the borrower(s) is no longer employed and it appears that he/she (they) can no longer qualify for the loan, MSI will not close.

• If a Direct Verification of Employment or Deposit (VOE or VOD) is used, it must be supported by copies of current paystub, W-2 and/or Tax Returns and copies of the original bank statement. See Underwriting/Documentation Types/Direct Verification Notes for details.




Documentation, Continued

Requirements, Continued

Important Note: Amended Tax Returns The IRS permits tax returns to be amended up to 3-years after the initial tax-filing year. If tax returns have been amended, the underwriter must be able to document the following, Record of Account obtained using the 4506-T: The IRS has processed and accepted the amended tax returns; that

information is contained in the Record of Account. All outstanding liabilities and/or tax penalties have been paid. MSI will not accept tax returns amended for the sole purpose of

qualifying.

Additionally, the underwriter must carefully review any increased income to insure its validity, and the loan file should contain: Documentation to support receipt of the income as well continuation

of the income (reasonably for at least 2-years in the future). The underwriter in these cases must make every effort to prudently

document the added income and the reasonable expectation of continuation.

Underwriting/Delivery Tip: MSI performs a thorough review of all tax transcripts. Tax transcripts can be utilized in lieu of returns if borrower is unable to provide them (unless schedules aren’t detailed line by line on transcripts) See the Underwriting Chapter/Tax Transcripts Review for full details and assistance.

Streamline Refinance and IRRRL

See FHA Streamline Refinances and/or VA IRRRL – MSI Overlays for details.



General Underwriting Guidelines

Overview

All government loans must: Conform to the applicable FHA or VA 1-4 family housing requirements. Meet MSI requirements and overlays. Be insured/guaranteed by FHA/VA and eligible for inclusion in pools of

mortgage-backed securities fully guaranteed by the Government National Mortgage Association (Ginnie Mae).

Be prudently underwritten and be of sound investment quality.

Note: MSI reserves the right to refuse any loan that does not meet our guidelines.

Helpful Web Sites

The following government Web Sites provide access to Handbooks, forms and other helpful information for originating, underwriting, closing and insuring government loans. FHA – http ://www.hud.gov/groups/lenders.cfm VA – https ://vip.vba.va.gov/portal/VBAH/Home

Underwriting Method

AUS All government loans submitted to MSI must be submitted through either Fannie Mae DU or Freddie Mac LP (DU/LP, referred to collectively as AUS). FHA loans must be submitted through FHA TOTAL Mortgage Scorecard

in all cases, in accordance with FHA and the applicable AUS requirements for FHA loans, which includes the FHA case number. • FHA loans submitted to TOTAL Scorecard without the FHA case

number are not considered validated. • Credit reports must be generated from the AUS/TOTAL scorecard,

no other reports are acceptable. VA loans must be submitted to the applicable AUS in strict adherence

to the VA and AUS requirements for VA loans. All loans must meet the more restrictive MSI requirement overlays

which must be applied by underwriter review. The AUS Feedback Certificate must not expire prior to loan closing.


http://www.hud.gov/groups/lenders.cfm




General Underwriting Guidelines, Continued

Underwriting Method, Continued

REV (3/08/16) MSI Manual Underwriting Requirements FHA Note that “manually underwritten” applies to loans submitted to an

AUS and “downgraded” per 4000.1 instruction for manual downgrade or AUS Total Scorecard findings reflecting Refer. • On a case-by-case basis, and at MSI’s sole discretion, MSI may

accept the business income decline downgrade with acceptable documentation.

Refer findings for Chapter 13 due to unreporting credit histories and at MSI’s sole discretion.

Refer findings for divorce situation with reporting derogatory debts assigned to the ex-spouse.

Refer findings due to documented identity theft and derogatory credit reporting not opened by the borrower(s).

Manual underwrite requires 1 month reserve, DTI max of 31/43 and current rental verification if applicable, otherwise letter evidencing not applicable. • All other FHA loans (except FHA Streamline ) must receive an

Approve or Accept from FHA Total Scorecard (AUS).

MSI Requirements/overlays for manual underwriting of VA loans: If the VA loan is permitted to be manually underwritten by MSI, the

following MSI overlays apply: • DTI Ratios >41% must have a minimum of 120% of the residual

requirement. Note: The determination of acceptability will be made solely by MSI

based on the borrower’s credit worthiness.

Underwriting Guidelines

Government loans must be originated, processed, underwritten and closed in strict compliance with current applicable FHA/VA guidelines unless MSI guidelines are more restrictive. In general, the Underwriting chapter of the MSI Seller Guide applies to conventional loans. There are, however, some guidelines in the Underwriting chapter that apply to government loans. We have made every attempt to reference those guidelines in this

product summary. Guidelines in the Underwriting chapter that are pertinent to

government loans are: • Inter Vivos Revocable Trust • Power of Attorney

Note: Sellers are encouraged to check the Underwriting chapter for assistance.



Presentation The guidelines in this section are presented in alphabetical order. Unless specifically designated for either FHA or VA, the guidelines

apply to all government loans.





Acceptable AUS Decisions

Government loans submitted to either DU or LP must meet the FHA/VA guidelines for those loan products. MSI will accept loans with the following credit recommendations:

AUS System Credit

Recommendation

Comments/Requirements FHA

DU/Approve & LP/Accept DU/LP Refer

FHA DU/LP loans submitted for close must include the findings and AUS credit report in the file. Files must be underwritten, validated and packaged in accordance with:

• Fannie Mae DU/Freddie Mac LP requirements and • The FHA published requirements for TOTAL Mortgage Scorecard

Notes: For the AUS Approval to be valid, the borrower(s) must have 2 reporting trades each with a

minimum history of 12-months to be considered valid. MSI will not close loans that do not have a valid AUS approval unless the MSI underwriter downgrades and manually underwrites and approves the loan file.

MSI will allow FHA loans with a Refer recommendation due to Chapter 13 filing. Notes: A copy of the applicable final AUS findings report and applicable loan analysis must be in the loan file at time of delivery for

closing by MSI. The report/findings must be the most current used to close the loan, must reflect the FHA case number in the findings and

may not be older than 120-days from the date of closing. All loans submitted to an AUS are subject to a 100% validation audit that may occur pre-or post-close.





Acceptable AUS Decisions , Continued

AUS System Credit

Recommendation

Comments/Requirements VA

DU/Approve & LP Accept

VA DU/LP loans submitted to underwriting must include the findings and credit report in the file. The DU/LP Approve/Accept must be valid. For the AUS Approval to be valid, the borrower(s)

must have 2 reporting trades for which they have been making payments for a minimum of 12-months.

Files must be underwritten, validated and packaged in accordance with: Fannie Mae DU/Freddie Mac LP requirements and The VA published requirements in the VA Lenders Handbook.

DU & LP Refer

VA DU/LP loans submitted for underwriting must include the findings report(s) in the file. If a loan receives a Refer from the AUS , or if the AUS Approve is not valid, it may be

“downgraded” and manually underwritten by MSI at the underwriter’s sole discretion. Files must be underwritten, validated and packaged in accordance with:

• Fannie Mae DU/Freddie Mac LP requirements and • The requirements published in the VA Lenders Handbook

All Loans receiving a ‘Refer’ credit risk classification will require the underwriter’s certification on VA Form 26-6393, Loan Analysis.

Notes: Important: The VA case number must be submitted to the AUS for the AUS to be validated. A copy of the applicable AUS findings report and applicable loan analysis must be in the loan file at time of delivery for close

by MSI. The report/findings must be the most current used to close the loan and may not be older than 120-days from the date of

closing. All loans submitted to an AUS are subject to a 100% validation audit that may occur pre-or post-close.





Alimony/ Child Support/ Separate Maintenance

For all Purchase and “Non-Streamline” Refinance Transactions MSI guidelines for Alimony/Child Support or Separate Maintenance Income are required, regardless of the AUS condition. Alimony not required if not being utilized as qualifying income. . For Alimony/Child Support or Separate Maintenance as a debt, follow

FHA/VA requirements. Same applies to all court ordered debt. The underwriter must manually apply the reduction in income for

alimony if not being utilized as a debt.

If the Alimony/Child Support or Separate Maintenance Income

Then…

Is required to qualify for a Purchase Transaction or a “regular” Refinance” transaction

The borrower must have received the full income for a minimum of 12 months prior to application. To consider the income: The payer must be obligated in writing to make payments:

• For a minimum of 12-months prior to loan application, and • For a minimum of 3-years after loan closing.

Evidence of the regular and stable receipt of the full amount of the income may follow AUS finding requirements (generally 3-months).

Required Acceptable Documentation Verification of the award (“obligation in writing”) of alimony/child support /separate maintenance in one the following

documents: • Copy of the divorce decree or, Formal separation agreement or Court records or order. o MSI will also accept any other legal agreement or court decree that describes the payment terms, or a copy of any

applicable state law that requires alimony, child support or maintenance payments and specifies the conditions under which the payments must be made.

• The document must specify the amount of the award and the period of time over which it must be received. Evidence that the payments have been received in the full amount and consistently (deposit slips, canceled checks,

bank statements or Federal income tax returns.) is required to AUS requirements. Restrictions – Income may not be considered if:

The payer is obligated less than 12-months before loan application. The payer is obligated less than 36 months after loan closing. • The payments received (regardless of the court documents) are not for the full amount OR are not received on a

consistent basis. Important Notes: Alimony is taxable therefore do not gross-up; however, child support is not taxable and is eligible to be grossed-up. Documentation for alimony, child support income is not required if the borrower does not use the income to qualify.





Age of Documents

All standard credit documentation used to determine the borrower’s eligibility must be no more than: 120 days prior to the Note Date for standard credit documents.

• Pay Stubs must be within 30-days of application; no greater than 120-days from Note Date.

• Bank Statements must be most recent consecutive 2 months (additional month may be required depending on when earnest money is paid) .

Appraisals: • FHA – 120-days from Note Date. • VA – 120-days from Note Date.

Notes: Document age is measured from the date of the document to the date

the Note is signed. MSI reserves the right to request updated credit at our discretion.

AUS Findings All requirements specified in this product suite and/or as referenced to the

MSI underwriting chapter must be considered on all loans, regardless of AUS decision.

4506-T

MSI requires that the most recent 4506-T form is signed/dated by each qualifying borrower at time of underwriting and MSI will condition for a 4506-T to be signed at closing. Note: Please ensure attestation box is checked by the borrower(s).

For credit-qualifying loans, MSI requires the most recent 2 years tax transcripts/Record of Account for any income used to qualify.

Borrowers who are not required to file tax returns, do not have to provide the tax transcripts, but we still need the Record of Account of non-filing.

FHA Streamline Refinance and VA Interest Rate Reduction Refinance

Loans (IRRRL) require a 4506-T for each borrower to be signed at closing.

See Documentation for additional information.





Anti-Flipping Rule

FHA loans must be in full compliance with the FHA anti-flipping rule and the additional guidelines below.

If the property was sold … Then … Between 0 and 90-days of the seller’s acquisition The loan is not eligible. Between 91 and 180 days of the seller’s acquisition and the current sales price is increased > 20% but < 100%.

MSI requires a Desk Review to support the increased value.

Between 91 and 180 days of the seller’s acquisition and the current sales price is increased by 100% or more

Acceptable documentation to support the increased value including any rehabilitation or remodeling.

A second FHA appraisal is required. • The borrower may not be charged for the appraisal. • The LTV must be based on the lower value of the 2

appraisals. Between 181 and 365 days-of the seller’s acquisition and the current sales price is increased ≥ 20.00%

MSI may require documentation to support the increased value including any rehabilitation or remodeling. MSI reserves the right to request a second FHA appraisal

which may not be charged to the borrower and is the property seller’s obligation for the cost. .

Reminder: Under no condition are double escrows allowed.

• If someone wishes to purchase a property and re-sell it, they must consummate that transaction with their own funds and cannot utilize our borrower’s loan proceeds to accomplish their purchase. Any increase in value utilized will need to be disclosed and supported. .

Any Temporary Waiver of 90-Day Anti-Flipping Requirements MSI does not participate.





Appraisal

Appraisal requirements must meet current FHA/VA guidelines. The appraisals must be completed by an appraiser that is approved by the appropriate agency: 1-Unit – Form 1004 2-4 Unit – Form 1025 Condos – Form 1073 Important Note: FHA and VA appraisals must meet UAD requirements including MSI

Quality (Q1 – Q5 are acceptable, Q6 is not) and Condition (C1-C4 are acceptable, C5 & C6 are not) requirements. Repairs or improvements necessary to bring the property up to acceptable standards is allowed.

Age of Appraisal The validity period for all appraisals on existing and proposed and

under construction properties will be from Note Date: FHA/120 days; VA/120 days.

Appraisal Updates (Fannie 1004D/Freddie 442). FHA ML 2009-51 permits the use of Appraisal Updates. MSI limits the expansion of the validity period for the Appraisal to the following circumstances. All other requirements in the ML must be followed.

o The loan must already be underwritten and approved prior to the appraisal being 120-days “old” from the original appraisal date. 30 day extension may be allowed.

o The 1004D/442 may be used to extend the appraisal for a maximum of 180-days from the original date of the appraisal to accommodate loan closing.

Market Conditions Addendum (Fannie Mae 1004MC/Freddie Mac 71-11/08) Each FHA and VA appraisal dated on/after 4/01/09 must include a fully

completed Market Conditions Addendum. The Addendum must be completed in full compliance with guidelines

outlined in FHA ML 2009-09 and VA Circular 26-09-4..





Appraisal, Continued

FHA Appraisal The following MSI requirements apply: The appraisals must be completed by an FHA Roster appraiser as

reflected on the FHA Case Number Assignment. • The information in the report must be accurate, internally

consistent, written in clearly understandable language, fully supported, and sufficiently documented to FHA standards

The appraisal must be reviewed by the FHA-registered DE underwriter. The appraisal report must be dated within 120 days of the Note date. Must meet the requirements for the FHA Anti-Flipping Rule. MSI requires photos of the subject and comparables and subject

interior. (garages given value need to be included with photos) All appraisals must include the SSR report required on all appraisals as

of June 27, 2016 and in electronic format. Properties appraised in “Fair or Poor Condition” are unacceptable.

• The property must be repaired to at least “Average Condition”, prior to closing.

• A HUD Compliance Inspection Report (HUD-92051) or Form 442 (Completion Inspection) showing the work has been completed must be included in the file.

FHA Case Numbers and Appraisers MSI requires compliance with Mortgagee Letter 2010-15: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-15ml.pdf . See the ML for full details. In general, the Mortgagee Letter provides guidance as follows: Informs mortgagees of changes to data entry requirements in FHA

Connection; Permits mortgagees to request a case number in FHA Connection,

(MSI will utilize an AMC for FHA Roster appraiser selection) and, Requires that the effective date of the appraisal be after the case

number assignment date except in certain limited circumstances.

Refinance Appraisal Requirement Appraisals are valid for 120 days. Purchase Appraisal cannot be used for refinance transactions, even if

less than 120-days. New appraisal is required for each refinance transaction requiring an

appraisal.


http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-15ml.pdf





Appraisal/FHA, Continued

Second Appraisal Guidelines The instructions in ML 2008-48 regarding when a second appraisal is

needed, and the requirements for that second appraisal are in effect, with the following MSI overlays: • MSI requires a second FHA appraisal to comply with property-

flipping requirements. Ordering the Second Appraisal for Loans Underwritten by MSI:

• MSI will order the second appraisal from an independent, separate FHA approved Roster appraiser/appraisal firm.

• The appraiser may not appear on HUD’s Limited Denial Participation (LDP) list nor on MSI’s Appraiser (exclusionary) List. The appraisal must meet all requirements outlined in ML 2008-09.

• The second appraisal must be included in the underwriting package submitted to MSI.

Inspections –Termite, Septic or Well Inspections may be required at the discretion of the Underwriter or

Appraiser. Inspections required by the sales contract and/or local jurisdiction

must be completed (and must be satisfactory). All new construction loans must be in full compliance with ML-99-3.

3-4 Unit Properties Property must be self-sufficient, (i.e., the maximum mortgage amount

may be limited so that the PITI does not exceed rental income). • FHA debt service requirements must be met.

o Appraisal must include the fully completed Fannie Mae 216, to support “cash flow” for the property.

• Net rental income is the appraiser’s estimate of fair market rent for all units, including the unit chosen by the Borrower for occupancy, less the appraiser’s estimate for vacancies, or the vacancy factor used by the Regional HOC.

• This calculation is only used to determine the maximum loan amount

• The Borrower still must follow guidelines for credit qualifying. Borrower must qualify at the Note Rate. Borrower must have a reserve of three (3) months’ mortgage

payments (PITI) after closing, on purchase transactions only. Gift funds on 3-4 units are not permitted.





FHA Appraiser Independence

MSI follows all FHA and regulatory requirements for Appraiser Independence.

Reminder to FHA Appraisers: Additionally, MSI would like to remind all FHA Appraisers that the Uniform

Standards of Professional Appraisal Practice (USPAP) apply to all appraisals performed for properties that are security for FHA insured financing including the Competency Rule. Per the Appraiser’s Certifications contained in the property specific Fannie Mae/Freddie Mac appraisal reporting forms adopted by FHA, appraisers must certify that: • “I have knowledge and experience in appraising this type of

property in this market area” (Appraiser’s Certification # 11), and • “I am aware of, and have access to, the necessary and appropriate

public and private data sources, such as multiple listing services, tax assessment records, public land records and other such data sources for the area in which the property is located.” ( Appraiser’s Certification #12)

• Appraiser Certification: MSI requires that the FHA Appraiser make the following additional certification in the Appraisal: “This FHA appraisal was ordered in compliance with HUD Mortgagee Letter 2009-28.”

Documentation Requirements Matrix Seller Uses

MSI AMC Each FHA Appraisal must contain additional Appraiser Certification

FHA Case Numbers

The following statement is copied from the FHA Frequently Asked Questions: Do FHA Case Numbers Expire? Case numbers are automatically canceled in FHAC after six months of

inactivity. Reminder: Case number order date is the determining factor for

eligibility for meeting the timeline for prior foreclosure, pre-forclosure, deed in lieu, short sale, and bankruptcy.





Financial Reform – CFPB

FHA/HUD MSI will close only those FHA loans that are defined as HUD Qualified

Mortgages (QM). • All loans must meet the Ability to Repay (ATR) guidelines

published in the final rule. See Underwriting/CFPB for full details. The loan must be insured/guaranteed by FHA/HUD; and cannot

exceed upfront points/fees of 3% (with adjustments to account for smaller loan sizes). See Underwriting/CFPB-Points/Fees for full details.

MSI does not offer any of the “risky” loan features prohibited by CFPB and the HUD final rule.

Loans must meet the following HUD Safe Harbor Qualified Mortgage requirements: • HUD Safe Harbor QM: APR ≤ APOR + 115 bps + Annual MIP. • Rebuttable Presumption QM: APR > APOR + 115 bps + Annual

MIP.

(7/02/14) VA MSI will close only those VA loans that are defined as Qualified

Mortgages (QM) under the current VA interim final rule. QM with Safe Harbor: All purchase money loans and credit-qualified

refinance loans guaranteed/insured by the VA with the exception of certain IRRRLs.

IRRRL with Safe Harbor must meet the following to be eligible: • Seasoning: The loan must be originated a minimum of 6 months

from the prior loan closing date. • The loan cannot be more than 30 days past due during the most

recent 6 months. (MSI requires the loan to be current and does not accept any mortgage lates in the most current 12 month period.)

• Fees and charges may not exceed 3% (calculated from the amount financed less the funding fee) and the Borrower must recoup those fees within 36 months of loan closing.

• All VA requirements must be met. The loans must be guaranteed by VA. .





HPML The following loans may not be a Higher Priced Mortgage Loan (HPML). If

one of the following loans fails the HPML test, it is not eligible: FHA Streamline VA IRRRL Note: if HPML must be changed to full credit qualifying to be eligible.

VA Appraisal The appraisals must be completed by a VA approved appraiser. Selection of appraiser is determined by VA. On new construction, the property must be at least 95% complete

prior to order of the appraisal. Appraisals are valid for 6 months (180 days). If the appraisal indicates that the subject property was previously sold

within the last 12-months, the underwriter is required to determine that the change in value is valid and documented.

Bank Statements – NSF

Underwriters must exercise a high level of due diligence for loans when there are continuous NSFs in the Bank Statements.

Bankruptcy REV (9/14/15)

Chapter 7 Per AUS guidelines and documentation requirements. A minimum of 2 years must have elapsed (with re-establishment of

credit) since the completion/discharge of the bankruptcy to the case number assignment date. 3 years if a property discharged.

Chapter 13 A minimum of 1 year payout must have elapsed (to the case number

assignment date) and the most current 12 month’s payment history must be 0x30. • Borrower may only enter into a mortgage with written approval

from the court. Housing payment (mortgage or rental) must be 0x30 for most recent 12 months.

Note: Please see the Seller Guide Underwriting Chapter for Bankruptcy guidelines and documentation requirements.

Builder Bailouts

Not allowed.





Condos – FHA

FHA Condos must meet the FHA requirements outlined in Mortgagee Letters 2009-46b and 2009-46a. • Condos must be approved by FHA; ensure that the project and

unit are approved. Check the address and unit number. • The project must be listed on FHA’s approved condominium project

list at https://entp.hud.gov/idapp/protect/condlook.cfm. • Note: If the project is no longer approved or does not meet

approval criteria, then only an FHA-to-FHA streamline refinance or HUD REO is permitted in the project; no other type of FHA transaction is permitted.

MSI will not provide the Direct Endorsement Lender Review and Approval Process (DELRAP). (MSI will not approve “spot” condos.)

MSI requires a copy of the recorded Condo Declarations. If the appraisal denotes incomplete items or repairs in a condo, an

FHA inspection is required. NOTE:

FHA condos must meet all applicable current guidelines outlined by FHA. See ML 09-46 a & b for full details. • Effective for loans closed on/after 3/01/12, condos and attached

PUD’s must meet the current Fannie Mae guidelines for H06 (formerly “walls-in”); coverage must be for the full replacement cost including improvements/betterment if the Condo master insurance does not provide “walls-in” coverage. See Fannie Mae Guidelines for details.

Remember that HO6 premiums must be included in the escrow account with all taxes and insurance.

An executed condo questionnaire evidencing current compliance is required with the file.

If the condo project carries a flood policy it must be sufficient to cover replacement or max flood insurance allowable for all units.


https://mail.msiloans.biz/owa/redir.aspx?C=dd5b1c652bda449b881dda9df4417c73&URL=https%3a%2f%2fentp.hud.gov%2fidapp%2fprotect%2fcondlook.cfm




Business Funds

MSI will not permit the use of business funds to close. Business funds may be used to consummate the loan under the

following guidelines: • The borrower must be the sole (100%) owner of the business. • The business must transfer the funds to the Borrower’s personal

account. • The accountant must confirm that the removal of the funds from

the business will not negatively affect the earning potential of the business. (Since the borrower was qualified using that income.)

• OR borrower must provide all business financials , a current profit and loss and balance sheet must be provided and evidenced that removal of the assets don’t put any undue strain on the operation.

• Note: business assets from a business not used for qualifying do not have to prove up affect on the business for removal of funds.

Condos- VA

VA condos must have VA approval to be acceptable – the project must be currently listed on the VA Approved Condo list. VA condos must meet FHA condo insurance requirements.

• Including an H06 policy for all condos for which the condo master insurance policy does not cover the borrower’s unit “walls-in”.

• The premium for the H06 policy must be included in the escrow (impound) account.



Credit

REV 3/8/16

Co-Signed Obligations Allowed for spouse only and must be an occupying borrower. Collections or Judgments MSI will require that outstanding collection and charge off accounts

(single occurrence or in aggregate for all borrowers) be paid in accordance with FHA. • MSI will require that outstanding collection accounts be paid if

they exceed the following amounts: o AUS TOTAL Scorecard approve/accept, $5000 or greater. o Medical collections are not included in this total.

• MSI will require for Charge-Offs: o The credit report must show $0 balance. Unless the charge off

is medical OR it is under $5,000 and over 2 years old. Or evidence provided that a 1099 was issued to the borrower

o OR evidence of 3 months repayment with the creditor, and cannot be prepaid to meet the required 3 months. .

Important Notes: For Streamlines also, MSI requires the following:

• Collections that total (single occurrence or aggregate for all borrowers) $5,000 or more must be paid.





Credit, Continued

The underwriter must consider collections and judgments as an indication of the borrower's creditworthiness. • The reasons for approving a mortgage where the Borrower has

collection accounts or judgments must be documented in the loan file by the underwriter.

• The Borrower must explain in writing all collections and judgments. Judgments:

• MSI requires that judgments and tax liens must be paid in full for all FHA and VA loans, including Streamline and IRRRL, (Unless creditor agrees to subordinate in writing, provides a subordination agreement( if applicable )and a repayment plan has been in place for at least 3 months. Cannot prepay to meet the 3 months requirement.

Trade Lines – MSI Minimum Requirement-FHA and VA MSI requires a minimum of 2 reported trade lines that have been

reviewed for a minimum of 12-months, regardless of the AUS. MSI does require an AUS Approve/Accept for credit-qualifying loans

run through Total Score Card with the case number. ) Closed-End Installment Debt - FHA Closed-end (installment) debts do not need to be included in

qualifying the Debt-to-Income Ratio if: • The cumulative payments of all debts is ≤ 5% of the Borrower’s

gross monthly income. • The total payoff of revolving or installment debt to qualify is

allowed. • The AUS Total Scorecard is to determine whether an installment

debt can be omitted and manually omitting in the findings is not allowed.





Credit, Continued

MSI Policy for Disputed Credit Disputed accounts cannot be ignored and all AUS conditions on the

disputed accounts must be satisfied prior to loan closing. The more restrictive of FHA/VA or MSI disputed credit policy must

be followed. • Please refer to HUD 4000.1 for additional details.

Should a borrower indicate that any significant information in the credit file is inaccurate, a request should be made to the credit reporting company to confirm accuracy and provide a corrected report.

For loans with an Approve/Accept AUS credit decision: If the trade line does not belong to the borrower, or a reported

payment history is inaccurate you must obtain written documentation and include it in the loan file submitted for underwriting. • You must ensure that all AUS conditions are met. • The underwriter must carefully evaluate the borrower’s credit

and written explanation for any dispute to ensure the credit-worthiness of the borrower and include any accurate payment information.

• The underwriter must provide a written explanation in the loan file.

If the trade line does belong to the borrower and the reported payment history is accurate, the disputed trade line(s) must be considered in the credit risk assessment. • To ensure the disputed trade line is considered in the findings

and the credit score, you must obtain a new credit report with the trade line no longer reported as disputed and resubmit the loan casefile to the AUS. Unless the disputed account is less than $1000. ,





Credit, Continued

FHA loans with disputed accounts do not require a manual downgrade provided the following requirements for the disputed account(s) have been met: The total outstanding balance for all disputed accounts (excluding

medical) is $1,000.00

Notes: Disputed derogatory credit accounts of a non-purchasing spouse in a

community property state are not included in the cumulative balance for purposes of determining if the mortgage application should be downgraded to Refer (and therefore not eligible to MSI).

Disputed medical account are excluded from the limit and do not require documentation from a non-purchasing spouse.

Disputed derogatory credit accounts resulting from identity theft, credit card theft and unauthorized use, etc are also excluded from the $1,000 limit; however, documentation from the creditor or credit bureau must support the dispute and be included in the loan file. (copy of police report and/or creditor letter required).

Disputed derogatory credit accounts are defined as: • Disputed charge off accounts, • Disputed collection accounts, and • Disputed accounts with late payments in the most current 24

months.

Streamline refinance loans are not submitted to an AUS: Disputed credit must be resolved according to FHA policy, and if not resolved by a new credit report, borrower’s credit report and explanations for the dispute must be evaluated carefully to ensure credit worthiness and accurate fico scores..





Credit, Continued

REV (9/14/15)

REV (6/27/16)

Projected Obligations – FHA and VA loans

Debt payments, such as a student loan or balloon note scheduled to begin or come due within 12 months of closing must be included in the monthly debt obligations for qualification.

Deferred Student Loans must be counted as a recurring obligation. • If the monthly payment is not established, use a calculation of 1%

of the outstanding balance for qualifying purposes. • For an income-based repayment plan: If payment is zero, use zero

for qualification. And document based on current income used for qualifying.

• Graduated payment plan – use the current payment for qualifying (if not established, use the 1%).

Balloon notes that come due within 12 months of closing must be considered in the underwriting analysis.

Important Note: In accordance with Mortgagee Letter 2016-08, for case assignments after 6/30/16 the student loan qualifying calculation is the greater of 1% of the balance or the reporting monthly payment OR the actual documented payment provided it will fully amortize and retire the debt. If a debt is in forbearance or deferred, MSI does not permit the debt

to be ignored. It must be considered in the credit risk analysis. The underwriter must carefully consider the future debt, the reason for the forbearance and any negative impact on the borrower’s ability to repay the mortgage debt.

Conditions/ Stipulations

All conditions/stipulations on loans required either by the AUS and/or the DE underwriter must be approved by the underwriter or assignee and the supporting documentation must be included in the loan file.

Delinquent Property Taxes

For all Refinances, FHA and VA If taxes are 60 days or more delinquent, in order to be paid by the

refinance proceeds, the following apply: • The loan must be considered a Cash Out Transaction and meet the

applicable guidelines • Provide an LOX from the borrower as to the reason real estate

taxes were left unpaid.





FHA – Conversion of a Principal Residence

When converting a current principal residence to an investment property in order to purchase a new property with an FHA loan and use rental income to qualify, MSI requires: That both the current and the proposed mortgage payments (including

all Taxes, Insurance, and HOA dues) are used to qualify the borrower for the new transaction or must document a 25% equity position with an appraisal ordered by MSI.

Job transfer in excess of 100 miles allows for conversion without documenting the equity position for rental income offset.

If current property is secured by an FHA Mortgage, a 25% equity position is mandatory except for a job transfer in excess of 100 miles.

Exceptions: Borrowers may use up to 75% of the rental income from the existing

property to be used to offset the mortgage payment for qualification purposes if the following guidelines are met: • There is a documented minimum 25% equity in the existing

property. The value of the current property must be documented by a Fannie Mae 1004 appraisal ordered by MSI.

• The rental income is documented as follows: o Fannie Mae Form 1007, single Family Comparable Rent

Schedule. o A copy of the fully executed lease agreement. o Documentation of the receipt of the security deposit from the

tenant (deposited into the borrower’s account). • If the 25% equity in the existing property cannot be documented,

rental income may not be used to offset the mortgage payment and the borrower must qualify with both payments.





FHA – Conversion of a Principal Residence, Continued

Employer Relocations: If the homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance (100 miles minimum) they may use 75% of the rental income and are not required to document a 25% equity position in the prior principal residence.

A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration after the loan is closed is required. Evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.

Important Notes: MSI will accept only a full Appraisal ordered by MSI to document

equity in the converting/departing residence. The appraisal form must be dated within 60-days of the Note date of the current transaction and include current market rent for calculation of offset.

A former principal residence is exempt from the “conversion of a principal residence to an investment property rule” per Mortgagee Letter 08-25. The property is exempt when it has been rented or claimed as a rental property for at least 12-months, as evidenced on tax returns.

Refer to 4000.1 for HUD’s requirements to retain 2 FHA loans simultaneously for any further information. (Job transfer or any relocation must be 100 miles away from current FHA retained property)

Co-Signers on the Loan

MSI does not permit Co-Signers on the loan. Each borrower must sign the Note and the Security Instruments. Only Co-borrowers are allowed. Exception is occupying spouse who is allowed as a co-signor only

Credit Report Requirements

The credit report run through either the AUS or AUS/TOTAL Scorecard must meet HUD/VA guidelines for credit reports. MSI requires the following: Social Security Validation (check) OFAC check and alerts. Inquiries within the past 90 days that may have resulted in additional

credit require a Letter of Explanation and documentation of the total new debt and payment. The new debt must be considered in the qualification of the borrowers. A credit supplement is acceptable documentation.

See MSI Policy for Disputed Credit for additional details.







Debts to Qualify

Installment Debt As determined by FHA TOTAL scorecard for FHA and as determined by

the AUS for VA. Revolving Debt Paid-Off to Qualify Permitted for FHA and VA under the following requirements.

• All funds must be properly documented and sourced. • Accounts do not have to be closed out, but revolving must be paid

off, not paid down. Prior to application/still on the credit report: Properly documented as paid; including source of funds. Paid during the transaction: Provide a copy of the cancelled check to the creditor. Copy of the paid statement from the creditor or credit supplement

showing balance as zero. .

Paid at Close – Permitted for Refinance Transactions Only: Copy of pay-off letter. Payment must be reflected on Settlement Statement as payment to

creditor in full.

Declining Markets Policy

MSI uses industry sources (http://www.ofheo.gov/default.aspx) to monitor areas identified as “declining markets.” When a property is located in a Declining Market area as indicated by those sources and/or the Appraiser, MSI requires that the following policy applies: Loans must meet the “additional guidance” for collateral assessment

practices for properties located in a declining market specified in ML 2009-09.

MSI requires that “active listings” must reflect current time on the market in the appropriate grid to provide accurate information to the underwriter.

Loans must meet current FHA requirements and guidelines for declining markets..

MSI will not accept a loan in a Declining Market Area for which the borrower is paying more than the list price, regardless of the underwriting or insuring entity.

Additional restrictions based on product or transaction type may apply.


http://www.ofheo.gov/default.aspx




Disaster Policy

See Underwriting/Disaster Policy for details on MSI Disaster Policy, for all loans, including FHA and VA.

FHA Streamline Refinance Loans Without Appraisals For any FHA Streamline Refinance Without an Appraisal affected by a

Declared Disaster, MSI requires a minimum 2075 Drive-By Appraisal to confirm/validate that the property has not been negatively affected by the disaster. • The 2075 is mandated by delivery requirements; and MSI retains

the right to request the 2075 at our sole discretion. o MSI may require the 2075 for a minimum of 90 days after the

incident date. Or a CDAIR (Catastrophic Disaster Area Property Inspection Report.

Down Payment Assistance

MSI will accept Down Payment Assistance (DAP or DPA) Programs, to current FHA guidelines for the applicable product under these additional MSI guidelines: DPA/DAP must be from a government entity (federal/

state/municipality). Reserved for FHA borrowers who do not own any other real estate at

time of closing. AUS TOTAL scorecard approval required. Borrowers using a DAP cannot pay over the list price. LTV is calculated on the lesser of the sales (list) price or the appraised

value. • CLTV may not exceed 105%; TLTV may not exceed 105.00%. • If the DPA is subordinated and listed as a lien on the property, it

must be included in the calculation for CLTV/TLTV. Tax credit may not be given as cash back to the borrower; principal

reduction permitted. The DAP may not restrict the transfer of servicing rights of the first

mortgage closed by MSI. DAP/DPA may be a subordinate lien

• MSI requires the complete terms of the subordinate liens and any payment obligation must be included in the housing obligation.





FICO Scores All borrowers must have at least 1 valid FICO score to be eligible for MSI.

Borrower Score – determine each borrower’s useable FICO If the borrower has 3 valid scores, use the middle score

• If there are 3 valid scores, and 2 are duplicates, use the duplicate score.

If there are 2 valid scores, use the lowest score. If there is only 1 valid score, use that score.

Loan Score – Use this score to qualify (meet the product FICO guidelines) the loan More than 1 borrower, use the lowest Borrower Score Only 1 borrower, use the Borrower Score Note: If the repository generates the credit score, MSI deems it to be a “valid” score.

REV (3/08/16) Minimum FICO Requirements 620 FICO for FHA loans, regardless of AUS TOTAL Scorecard

Approval/Refer, with the exception of the following: • 660 for High Balance Cash Out Refinance loans. • See the following “sub-set products” for FICO relief: Government

FICO 580 - 619 Low Fico Product on rate sheet. . 620 for all VA loans including VA IRRRL. See VA IRRRL – MSI Overlays

for additional restrictions and guidelines. See Government FICO 580 - 619 for additional restrictions and guidelines, 1 unit purchase only.

Underwriting Tip: Now that Government Streamline Refinances require evidence of FICO scores, an underwriter cannot ignore if there are Bankruptcies or other derogatory credit present on the Tri-Merge or other Credit document. Good credit risk principles demand that: If the borrowers have demonstrated a disregard for credit, as

evidenced on the report, MSI will not accept the loan. If the borrowers have had a Bankruptcy within the past two years, the

loan is ineligible for MSI. If a property was included, a 3 year waiting period is required with re-established acceptable credit history.





Government FICO 580 – 619

This “sub product” is available as long as it is priced on the Rate Sheet. • .

Acceptable Transactions: • FHA/VA Purchase. ONE unit only. • FHA No Cash Out Refinances; VA IRRRL refinances are not

permitted. • AUS Approval required. • FHA Streamline Refinance without an Appraisal

o Minimum 6 months payment history required; 0X30 in most current past 6 months.

o If the loan is an HPML, it must be documented and underwritten as a full credit qualifying No Cash Out Refinance.

All loans must be ATR/QM Compliant. (Rebuttable Presumption permitted to specific end investor guidelines. Underwriter to determine.)

Loans with secondary financing, existing or new are not permitted. 1 Unit Primary Residence only. Fixed Rate Only

• FHA 30/25/15 year Terms permitted. • VA 30 year only.

Fee Simple only, no Leaseholds. • Loan must close in the name of a natural person, no Trusts. • Land Contract/Contract for Deed/Articles for Deed loans are not

permitted. . Qualifying Ratios:

• VA DTI may not exceed 45% and acceptable residual requirements must be met.

• FHA DTI may not exceed 50%. Full Documentation of income and assets for a full two year history.

• Signed 4506-T and tax transcripts required. Gift funds are permitted to current FHA/VA guidelines. Manual Underwriting is not permitted.





Government FICO 580 – 619, Continued

Credit: All loans must meet the more restrictive of FHA/VA/MSI unless noted below: • No non-traditional credit/no credit. Borrowers must have valid

FICO scores on the Credit Report. • Minimum 2 valid Tradelines. See Trade Lines – MSI Minimum

Requirement-FHA and VA for additional details. o Refinance loans must provide full 12-months housing payment

history evidencing no 30-day lates. If owned for less than 12 months, the entire mortgage history evidencing no 30 day lates.

• Judgments and tax liens must be paid in full, and a release obtained.

• Collections: Any collection amount (single or aggregate for all borrowers for any reason, excluding medical) that equals $5,000 or more must be paid in full prior to or at close or 5% of the balance in the qualifying ratios.

• Any medical collection >$5000 must be remedied or 5% of the balance to be included in the qualifying ratios.

• Will accept a lower repayment schedule with a creditor less than 5% of the balance, if an executed agreement for repayment is provided.

• Any repossession or unpaid, unfulfilled lease agreement must be remedied and paid to zero balance.

• Any charge off not reflecting a zero balance must be remedied unless borrower can evidence a 1099 was issued to borrower and debt cannot be sold as a collection.

o A letter of explanation for all/any collection(s)/charge-off is required, accepted by the Underwriter. • Bankruptcy/Foreclosure must meet the current MSI/FHA/VA

guidelines; specific product sub-sets may have more restrictive guidelines. See Bankruptcy and Short Sales/ Foreclosure for additional details.

• All Disputed Accounts must be resolved and a new credit report received and rescored.





Government FICO 580 to 619

This “sub product” is available as long as it is priced on the Rate Sheet. Acceptable Transactions:

• FHA or VA Purchase • FHA Full Credit Qualifying No Cash Out Refinances. • FHA Streamline

MSI will publish a price adjustment on the Rate Sheet for this option. If the option is not priced, it is not available.

The loan must receive an AUS approve/accept. All loans must be ATR/QM Compliant. (Rebuttable Presumption

permitted to specific end investor guidelines. Underwriter to determine.)

Standard loan amounts only, no High Balance. FRM, single family primary residence only. Loan must receive an AUS approve/accept. DTI:

• FHA maximum is 50.00%, regardless of AUS approve/accept. Loan must close in the name of a natural person, no Trusts. Non-Traditional Credit not permitted. Note : All loans must meet the more restrictive of FHA/VA/MSI published guidelines in addition to the requirements stated herein.





Gifts-FHA

REV 02/05/16

MSI requires that family gift donors be a documented immediate family member. • An immediate family member is any person related by blood, legal

proceedings, marriage or adoption (e.g. parent or step-parent, sibling, aunt/uncle, child (adoptive or natural), etc.

MSI reserves the right to request documentation that evidences the family relationship.

Gifts must meet also meet all FHA requirements and guidelines. To meet Anti-Money Laundering and current FHA requirements [er

the 4000.1 Handbook: • The Donor must provide evidence of the Source of Funds for the

gift. The donor’s statement showing the withdrawal along with evidence of the deposit to the borrower’s account or trailed if paid to any other party (settlement agent, realtor, attorney.) This includes Certified Funds or a direct wire; the donor statement evidencing the withdrawal must be provided

• If the donor borrows the funds, evidence of an acceptable source, and not from a party to the transaction, is required.

• Copy of account statement(s) showing sufficient funds to fund the gift and any necessary letters of explanation to meet FHA gift guidelines.

• The Mortgagee and Affiliates are prohibited from providing the gift funds unless the terms of the loan are equivalent to those available to the general public.

Gift funds on 3-4 units are not permitted. Borrowers using gift (or grant) funds for down payment are not

eligible if the total debt (back) ratio exceeds 50%. Provider may require a lower DTI per their program parameters.

Gift of Equity

For a Gift of Equity, the following definition of acceptable family members are: Child, parent, or grandparent

• A child is defined as a son/daughter; stepson/stepdaughter. Legally adopted son or daughter, including a child who is placed with the Borrower by an authorized agency for legal adoption and a foster child.

• A parent includes stepparents or foster parents; grandparents include step-grandparents and foster grandparents.

Spouse Brother, Stepbrother Sister, Stepsister Uncle, and Aunt Note: For Gift of Equity “in-laws” are not considered an acceptable family member by FHA.







HUD Repo MSI will accept HUD repo/reo as long as all repairs are completed prior to loan /closing disbursement. See Underwriting/REO/Rep Properties for full details. MSI will not accept HUD repos in connection with FHA Good

Neighbors, Teacher or Police Officer Next Door, $100-Dollar-Down initiative.

Income Documentation

REV (9/14/15)

MSI reserves the right to request additional documentation of income (copies of paystubs, W-2’s and 1040’s) that supersede the limited documentation relief provided in the AUS findings.

Self-Employed Income FHA requires a P&L if more than 1 calendar quarter has passed since

the date of the most recent calendar or fiscal year-end tax return was filed by the borrower.

Additionally, if income used to qualify the borrower exceeds the two-year average of tax returns, then an audited P&L or signed quarterly tax returns obtained from the IRS is required, if income is to be utilized for qualifying

Notes: MSI always requires a 2-year history of receipt of the following

income: Bonus, Overtime, Commission and Self-Employment, regardless of AUS/or FHA/VA requirements.

FHA 4000.1 address “expected income”, MIS reserves the right to refuse the use of expected income when evaluating risk on an FHA loan.

Non-Taxable Income: MSI caps the non-taxable gross-up of income at 15%.

Public Assistance and/or Section 8

CLAR (9/23/15)

MSI will accept public assistance and/or Section 8 assistance in accordance with FHA guidelines. However, MSI requires that all housing payments must be made

directly to the servicer by the Borrower; payment plans that provide for the assistance providers to make payments to the servicer to supplement the Borrower’s housing payments are not acceptable under any circumstances.

Lender Certifications for Repairs

See the Underwriting Chapter/Property for MSI policy for FHA loans.





Multiple Mortgages to One Borrower

FHA and VA MSI limits the number of financed properties for an FHA or VA

borrower to 4, including the subject property and any other financed properties, conventional or government.

Owner-Occupied Limitation: MSI can allow a borrower only one owner-occupied property in a 12-

month period. • FHA guidelines dictate that owner-occupants must establish bona

fide occupancy in the home within 60 days after signing the Security Instrument with continued occupancy for 12-months per the Mortgage covenants contained in the document. .

• Therefore, if a borrower requests another owner-occupied FHA or VA mortgage within 12-months of the “current” owner-occupied property, MSI cannot accept the loan.

• The exception would be if the borrower can document that extenuating circumstances exist which are beyond their control (such as a divorce and prior property awarded to ex, disability that requires a different property type, or job transfer in excess of 100 miles as examples )

.)

FHA/More than one FHA Mortgage held by the Borrower If the Borrower is applying for a new FHA mortgage and currently has one or more active FHA mortgages: Refer to 4000.1 for HUD’s requirements to hold 2 FHA loans

simultaneously and an equity requirement for some transactions. See FHA – Conversion of a Principal Residence for additional

requirements.





Net Tangible Benefit

MSI Reasonability Test: Net Tangible Benefit requirement for government refinance loans including FHA Streamlines and VA IRRRL’s:

Note: If state, federal or FHA/VA guidelines have provided a NTB

reasonability test or guideline, the loan must meet those requirements;; MSI will employ the 36-month recoupment test prior to loan close for VA IRRRLs. . • For FHA streamline see Mortgagee Letter 2011-11

New Construction

New construction must meet all requirements of either FHA or VA, as applicable. FHA – follow requirements in the FHA Handbooks and ML-2001-27. VA – follow requirements in the VA Handbook. See VA Appraisal for

important information. See Property Tax Estimation for additional details.

FHA Reminders, MSI Underwriting Tips and MSI Guidelines LTV’s > 90.00%, FHA requires the property to be pre-approved prior

to the start of construction and obtain the required construction exhibits. • If the property is not pre-approved with evidence of the required

inspections, then a final inspection and a HUD approved 10-year warranty is required. See www.msiloans.biz for a List of HUD Accepted insured Ten-Year Protection Plans, as of 9/22/08.

MSI will accept a copy of the Building Permit and Final Certificate of Occupancy (in accordance with Mortgagee Letter 2001-27) in those jurisdictions that issue both a building permit prior to the start of construction and a final certificate of occupancy. • FHA will accept these as evidence of pre-approval and inspections.

Any jurisdiction that does not have a building department that issues both a building permit and a final certificate of occupancy will require a 10-year warranty from a HUD approved carrier. See www.msiloans.biz for the List.

This process does not apply to condominium properties and they do require a 10-year warranty from a HUD approved carrier.

The lender must certify on HUD Form HUD 92900-A, page 3, that the property is 100% complete (both on- site and off- site improvements) and that property meets HUD’s minimum property standards.


http://www.msicorr.com/

http://www.msicorr.com/




New Construction, Continued

FHA New Construction Inspections Important Requirement: FHA requires that all utilities are on and fully functional during a final inspection, otherwise the property is not 100% completed. FHA Compliance Inspection- Required if the local jurisdiction does not

have a building department that issues building permits and a final certificate of occupancy. • When the inspections are performed by an FHA Compliance

Inspector, form HUD-92051, Compliance Inspection Report must be completed and submitted.

• Must be completed for all condos for new construction and any time that the appraiser denotes incomplete items; no other inspections are acceptable.

Local Building Department Inspection- Accepted in lieu of the FHA 3 Inspections when there is a local building department that issues building permits and final certificate of occupancy. • Copy of building permit and Final Certificate of Occupancy (CO)

that meet the requirements of Mortgagee Letter 2001-27. Appraisal –Property final and 100% complete, no inspection required.

• If the property is 100% complete at the time of appraisal and meets the requirement of HUD, including completion of grading, drainage and functional utilities.

• If the property is under construction and not 100% complete at the time of the appraisal: o The appraiser must have a complete set of plans and

specifications and the Builder Certification in order to do the appraisal.

o The appraiser will perform the appraisal and call for a final inspection to be completed and make the following statement on the appraisal report: “Property under construction; complete according to submitted construction exhibits.”

o The final inspection must be the Local Building Department Inspection with CO.





New Construction, Continued

Building on Own Land As excerpted from ML-2004-28 “Contract sales price”, will consist of the sum total of the documented acquisition cost of the property, including:

• (a) the builder’s price, or the sum of all subcontractor costs, materials, etc.;

• (b) cost of the land or, if owned more than six months or was received as an acceptable gift, its appraised value;

• (c) interest and other costs associated with any construction loan obtained by the borrower to fund construction of the property;

• (d) the closing costs to be paid by the borrower; and • (e) reasonable discount points.

This calculation will make it easier to determine if the borrower has made the required 3.5% cash (or its equivalent in land equity) investment into the transaction. Further, the calculated loan-to-value ratio (which is to be the same

value used when seeking a risk classification from FHA’s TOTAL Mortgage Scorecard will reflect the lesser of the price or the appraiser’s value estimate, as it does on other purchase transactions.

FHA Escrow Holdback MSI permits weather-related only For incomplete exterior work which cannot be completed due solely to

weather conditions between the months of October and April, a HUD 92300, Mortgagees Assurance of Completion must be completed and submitted along with a completed, executed Escrow Agreement.

MSI must track the Escrow Holdback and forward the final inspection to the end investor immediately upon completion of the required items. And close out the escrow holdback in FHA Connection.





FHA Non-Occupant Co-Mortgagor

The following requirements for FHA loans apply:

If the non-occupant borrower is … Then … An immediate family member Parent, sibling, grandparent, child (adopted and/or foster)

There are no limitations.

Not an immediate family member The loan is limited to a maximum 75.00% LTV Notes: MSI tracks the number of properties held by non-occupant co-mortgagors to ensure that the guideline is not being

misused. The non-occupant cannot have any other interest in the transaction (real estate broker, seller, builder, etc.)

Property Tax Estimation

It is critical when underwriting government loans (FHA and VA) for the underwriter to accurately estimate property taxes for inclusion in the housing expense. For new construction, it is very important to estimate the tax assessed

on the improved property and not just the vacant land. • Lenders must not predicate the borrower’s monthly escrow

payments on the value of the vacant land when tax authority reassessments are likely to occur within 12 months of mortgage loan closing.

• We cannot use exemptions currently on the property that will not apply to subject borrower(s) We cannot use any exemptions applicable to our borrower(s) that are not in place by the time of closing.

• Tip: To qualify the borrower, MSI will use a tax estimate equal to 1.5% of the appraised value of the property unless Assessor calculation for assessment provided reflects a lesser amount.

Underwriting Tip: For new construction properties where taxes must be estimated: To ensure that the borrowers qualify for the loan (and do not

experience credit issues after closing); MSI underwriters will use the the appraiser’s estimate of taxes on completed property (not vacant land)or 1.5% of the appraised value of the property or the sales price of the property with the documented tax assessors valuation calculation for reassessing property for real estate tax implementation. .





Purchase Price Restriction

MSI will not accept a loan on a property in a declining (or oversupply of 6-months or more) area if the borrower pays more than the list price.

Purchase Agreements – Re-negotiated

Please see the Underwriting Chapter, Property/Purchase Agreement (Contract)-Re-Negotiated for details regarding MSI’s restrictions for re-negotiated purchase contracts. Note: The more restrictive of FHA/VA/MSI guidelines apply.

Qualifying Ratios (DTI)

FHA For FHA loans underwritten by MSI:

• For FICO 620 and above Maximum DTI is 55%, regardless of AUS (unless AUS requires a lower DTI).

• For FICO < 620 – Maximum DTI is 50%, regardless of AUS (unless AUS requires a lower DTI).

• Notes: o Certain situations may require a lower DTI, such as down

payment program provider requirements Maximum FHA DTI is 55%, regardless of AUS approve/accept. Ratios VA>41% must have a minimum of120% of the residual

requirement.





Refinance – FHA Rate –Term

The following matrix is extracted from HUD ML 08-40.

Rate/Term Credit Qualifying Refinance – With Appraisal FHA to FHA or Conventional to FHA

Topic Guidelines Max Mortgage The maximum mortgage is the lower of the maximum LTV limitation or the existing debt

calculation described below, and may never exceed the geographical statutory limit except by the amount of any new UFMIP

Max LTV Limitation 97.75% - calculated against the appraised value • Multiply the appraised value of the property by 97.75%. Any appraisal requirements,

including repairs, must be satisfied before the mortgage is eligible for insurance endorsement.

Existing Debt Calculation

Add together the amount of the existing first lien, any purchase money second mortgage, any junior liens over 12 months old, closing costs, prepaid expenses, borrower paid repairs required by the appraisal, discount points, and then subtract any refund of UFMIP if applicable. • If any portion of the funds of an equity line of credit in excess of $1000 was advanced within

the past 12 months the line of credit is not eligible for inclusion in the new mortgage. The amount of the existing first mortgage may include the interest charged by the servicing

lender when the payoff will not likely be received on the first day of the month (as is typically assessed on FHA-insured mortgages). The amount also may include any prepayment penalties assessed on a conventional mortgage. • In determining the existing debt as part of the mortgage amount calculation, the mortgagee

may include accrued late charges and escrow shortages. Prepaid expenses may include the per diem interest to the end of the month on the new loan,

hazard insurance premium deposits, monthly mortgage insurance premiums, and any real estate tax deposits needed to establish the escrow account regardless whether the mortgagee refinancing the existing loan is also the servicing lender for that mortgage.

Additional Underwriting Criteria

Subordinate liens, including credit lines, regardless of when taken, may remain outstanding (but subordinate to the FHA-insured mortgage and to MSI limits).

MSI will not permit the placement of any new subordinate financing on cash out refinances. At closing, the borrower may not receive cash back in excess of $500.00 for rate/term refinances.

. FHA streamline No cash back allowed on FHA streamline refinances. If the cash to close requirement is less

than 1 month mortgage payment due, verification of funds is not required. .





FHA Refinance Per ML 2011-11, the following guidelines apply to all FHA refinance loans.

FHA Refinance MSI Overlays Matrix Topic FHA – All Refinances

All FHA Refinances Mortgagor Occupancy of Former Investment Properties

REV (9/14/15)

If the borrower has occupied the former investment property a full 12 months or more prior to the date of the case number assignment of the new refinance mortgage – the borrower is eligible for maximum financing at the same level as an owner-occupant borrower.

If the borrower has occupied the former investment property less than 12 months prior to the case number assignment date of the new refinance mortgage – the borrower is eligible for Rate/Term refinancing only, no streamline allowed, with an LTV not to exceed 85.00%.

3-4 Unit Properties Refinance of 3-4 unit properties must meet the same guidelines as a purchase of a 3-4 unit property as outlined in HUD Handbook 4155.1.2.B.4.

3 and 4 unit debt service ratio must still be met on an FHA refinance.





Refinance – FHA

The MSI overlays are included in the FHA Refinance Overlays Matrix.

FHA Refinance Topic

All FHA Products – Rate/Term and Cash Out - Minimum FICO

MSI requires a minimum 620 FICO for FHA loans, unless a higher FICO is required by a specific product subset. 580 to 619 is lower sub-set product offering. Please register with appropriate product code from the rate sheet. . .

Current Status of Mortgage

For all FHA Refinance Transactions (including Streamlines), in addition to any other credit or mortgage history requirements: The mortgage being refinanced must be current for the month prior to the month in which they close.

(If closing April 8, the March payment must be made within the month of March; the mortgagor must make the April payment in April, it can be included in the payoff amount.) See ML 2011-11 for full details.

Net Tangible Benefit See FHA Net Tangible Benefit Matrix,. CLTV

All FHA loans must meet the MSI CLTV limits outlined in the product parameter matrices (See FHA –

“Standard” Maximum Loan Amounts and Loan Parameters – MSI FHA High Balance 30 Year – FRM & ARM.

MSI does not permit FHA cash out refinance loans to obtain new secondary financing, and existing secondary financing must meet the published CLTV limits.

See Existing Debt Calculation in Rate/Term Credit Qualifying Refinance –l. For all no cash out FHA refinance loans, if there is a subordinate loan on the subject, the entire lien

must be re-subordinated (if the lien is a HELOC, the entire credit line must be included) and calculated within the CLTV/TLTV of the subject.

LTV Calculation For all loans owned ≤ 12-months, base the LTV on documented sales (acquisition) price except when the appraised value is declining. • If the value is declining or over supply-6 months, validated by the appraiser, MSI requires recent

comps within 90-days of the appraisal. Additional Borrowers

Occupant borrowers may be added to the new loan. (Non-Occupant borrowers/co-signers may not

be added to qualify for a cash out refinance.) The new borrowers must have a clear CAIVR (no alerts/defaults) for the loan to be eligible. Note: Substituting borrowers is never acceptable. At least 1 original borrower from the previous

mortgage must remain on the new mortgage and each borrower must be an owner-occupant. Properties Listed for Sale

Properties that have been listed for sale within the past 3-months are not eligible for cash out refinance. Calculate the timing from the date the property is removed from the MLS to the oldest document in

the loan file (application date) Rate/Term Prepayment Restriction

For Rate/Term Refinance loans: MSI does not permit more than 2% of the prepayment amount on the current loan to be included in

the new mortgage loan proceeds. 3-4 Unit Properties For 3-4 unit properties, the loan must meet FHA debt service ratios where the rental income must be

able to “carry” (“cover”) the mortgage payment. • Borrower must have a minimum 3 months reserves (full payment) after close for purchase

transactions. .





Refinance-FHA/MSI Overlays Matrix, Continued

FHA Refinance MSI Overlays Matrix Topic MSI Overlay

All FHA Products – Cash Out (Back) Requirements Cash Back Requirements

Minimum 620 FICO for all Cash Out Refinance, regardless of AUS. Borrower must provide a written reason for the cash out. No late payments on the housing history for past 12 months. Max 0x 30 in last 12 months.

Maximum LTV/CLTV Maximum LTV for cash out refinance is 85.00%. Maximum CLTV for cash out refinance is 85.00%. (Applies to re-subordinated secondary

financing; MSI does not permit new secondary financing.) Occupancy Requirements

For all FHA Cash Out loans, MSI requires the following: The subject property must have been owned by the borrower as his or her principal residence

for at least 12 months preceding the date of the case number assignment. The borrower must document that at least one borrower on the new loan has resided in the

subject property as a primary residence for a minimum of 12 months. (However, each borrower on the new loan must be an owner-occupant; non-owner occupants are not permitted for cash-out refinance.) • IRS transcripts for the previous year may be used to document occupancy. o MSI reserves the right to request any other documentation (in lieu of or in addition to

the IRS Transcripts) that validates the owner-occupancy of the subject property. • The last 12-months chain of title must not reflect any recording or any documentation

that would indicate that the borrower(s) have not occupied the subject property as a primary residence.

If the property was acquired within the last 12-calendar months, a cash out refinance for a primary residence may still be made, however: • The loan must clearly document that the subject is the borrower(s) primary residence

and • If the property was inherited, the borrowers must document that the subject property is

the primary residence. An Occupancy Affidavit (see the MSI Web Site/Forms) must be signed by all borrowers at

closing.







All FHA Products – Cash Out (Back) Requirements Acceptable Payment History

REV (9/14/15)

For all FHA Cash Out (Back) Transactions The refinancing mortgagee must document that the mortgagor has an acceptable payment

history. The payment history is acceptable if the mortgagor: • Is current with a current payoff letter for the month due at closing and • Has made all payments on the mortgage being refinanced within the month due for the

previous 12 months. For mortgages with more than 6 months and less than 12 months of payment history, the

mortgagor must have made all payments when due. • Mortgages with less than 12 months of payment history (occupancy) are not eligible for a

cash-out refinance. Cash Out Transaction-Pay off of Land Contracts

The following transactions are limited to an LTV/CLTV of 85.00% (maximum LTV for Cash Out Refinances): Loan transactions which pay off an existing recorded land contract, ( if there is cash out at

closing) are limited to 85% LTV.







FHA Streamline Refinances AUS FHA streamline refinances may not be submitted to TOTAL scorecard in an AUS. DTI For Credit Qualifying Streamlines:

• You must fully document the income and assets in accordance with MSI/FHA requirements. (Full Documentation and manual underwriting)

• The maximum ratios are: 31/43% Property Type 1-2 Unit Owner/occupied principal residence only. Application

MSI requires that the borrowers provide current employer information on the INITIAL 1003 – for the

submission of data through the MSILOANS Web Site (Fannie Mae 3.2 format) – the income fields must be blank. • MSI will not require income verification, but the name, address and phone number of the current

employer must be stated on the 1003. MSI does not require an income figure on the FINAL 1003.

• Must perform a verbal VOE prior to loan close.within 10 business days. . HPML FHA non-qualifying streamlines are not permitted to be HPML loans

• If HPML, the loan must be manually underwritten with fully documented income and assets.

Income See INCOME for full details. Proof of current paystub with subject address for occupancy evidence required.

Assets If assets are needed to close, the lender must verify and document those assets. Bank statements covering the most full 60 day period. If cash to close is equal to or less than 1

month mortgage payment due, asset verification is not required. . Borrowers MSI will accept an Inter Vivos Revocable Trust for FHA Streamline Refinances. See the Retail

Underwriting Guide/Inter Vivos Trust for details. Borrowers -Adding Proof of Social Security number is required for each borrower on a streamline refinance. MSI is

responsible for documenting validity of the borrower’s social security number. See Social Security Number for details.

If co-borrower is being added, they must be “cleared/approved” through CAIVRs along with verification of Social Security number.

Borrowers – Deleting

Individuals may be deleted from the title on a streamline refinance only following an assumption of a mortgage in which: • The transferability restriction (due on sale clause) was not triggered, such as in a property

transfer resulting from a divorce or by devise or descent • The assumption or recorded quit claim of interest occurred more than 6-months previously, and • The remaining owner/occupant can demonstrate that he/she has made the mortgage payment

timely during this time







FHA Streamline Refinances FICO

(2/05/15) Minimum FICO is 620 for standard FHA Streamline Refinance loans. See lower fico product

subset down to 580 fico. Please register with accurate product code. . • This fico requirement must be fulfilled by a tri-merge credit report for all borrowers on the

loan. . • See the Underwriting Tip in FICO Scores for additional assistance and for lower sub-set

product FICO scores. Credit The borrowers must each have a t least 1 valid Credit Score.

All judgments must be paid/satisfied prior to or at closing. The Underwriter must review the entire credit report to “validate” that the borrower demonstrates

responsible use of credit and sound financial judgment in accordance with FHA requirements. • MSI retains the right to deny the refinance if acceptable credit responsibility is not

demonstrated. Payoff Statement A current (non-expired) Pay-off Statement from the Servicer must be included in the loan file.

Escrow credits from the current servicer are allowed to be reflected. Borrower must acknowledge in writing use of their escrow account funds for the subject transaction. .

Maximum CLTV If subordinate financing is in place, the maximum CLTV permitted by MSI is 105%. • For Streamline Without an Appraisal: The CLTV is based on the original appraised

value of the property. Loan Amount Streamline Without Appraisal

(Per FHA Clarification)

The maximum insurable mortgage for streamline refinances without an appraisal cannot exceed the outstanding principal balance • MINUS the applicable refund of the UFMIP, • PLUS the new UFMIP that will be charged on the refinance, • PLUS two month’s annual MIP may be included IF reflected on the Payoff.

Notes: The outstanding principal balance

• may include interest charged by the servicing lender when the payoff is not received on the first day of the month, but

• may not include delinquent interest, late charges or escrow shortages. Cash Back Cash back to the Borrower is not permitted under any circumstances on an FHA Streamline

Refinance.







Loan Term The maximum streamline refinance mortgage term is the lesser of: 30 years, OR The remaining term of the current mortgage plus 12 years. Note: Lower loan terms are eligible (15-10 or 20 years, as long as priced) as long as the 5% Net Tangible Benefit is met; if the NTB is not met, the loan must be a full credit qualifying loan.

Property Value State Restrictions

FHA Streamline Without Appraisal are not eligible in the states of AZ and NV.

Occupancy REV 2/6/16

MSI permits only owner-occupied properties for all FHA Streamline Refinances. • The borrower must occupy the property. Borrower must provide a current utility bill or

current income documentation reflecting the subject property address to evidence occupancy. If income documentation (current paystub reflecting name and address) is provided as evidence, it will not be utilized in any qualifying capacity but merely for occupancy evidence.

• 4506 T to be executed at closing that can be utilized to authenticate the address history reflected on the signed 1003.

Seasoning On the date of the FHA Case Number Assignment:

• The mortgagor must have made at least six payments on the FHA-insured mortgage that is being refinanced, and

• At least six full months must have passed since the first payment due date of the refinanced mortgage, and

• At least 210 days have passed from the closing date of the mortgage being refinanced.

For example, if the FHA case number on the mortgage being refinanced was closed on or before December 1, and if mortgagor’s first payment on that mortgage was due on January 1, the mortgagee may request assignment of an FHA case number for the refinancing mortgage no earlier than July 1.

Mortgage History

For mortgages with a 12-months payment history or greater, the borrower must have: • No 30-day or greater mortgage lates in the most recent 12 months.

If the current mortgage is less than 12-months: • A copy (or copies) of the HUD-1(s) must be included to substantiate history of

ownership. • All payments on the mortgage must have been made within the month due (No 30-day

lates). • The borrower must have a minimum of 6-months payment received history (payments

applied) to be eligible for streamline. • If the borrower has less than 6-months payment seasoning/history on the loan, the loan

must be documented and underwritten as a credit qualifying FHA refinance (with appraisal). (In compliance with ML 09-32 and all applicable state Net Tangible Benefit guidelines.)

Previous Note-Provide Copy

For all streamline loans, a copy of the Borrower’s previous Note to validate the type of loan the borrower previously held must be included in the underwriting submission. • The Note may be the Borrower’s un-signed copy; however, the Note details must match



the payment details on the credit report and/or pay off. A copy of the borrower’s current monthly statement must also be provided to support the current

monthly MIP payment.







Net Tangible Benefit

REV (9/14/15)

The Net Tangible Benefit (NTB) must be calculated on the principal and interest and MIP, (P&I&MIP). The mortgagee must determine that there is a net tangible benefit to the mortgagor as a result

of the streamline refinance transaction, with or without an appraisal. “Net tangible benefit” is defined as: • A 5 % reduction to the P&I of the mortgage payment plus the annual MIP, or • Refinancing from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage.

Notes: Reduction in term: The net tangible benefit test is met if:

• The new mortgage term is reduced, and • The new interest rate does not exceed the current interest rate, and • The combined principal, interest, and MIP payment of the new mortgage does not exceed

the combined principal, interest, and MIP payment of the new mortgage by more than $50.00.

Also, when refinancing to a hybrid ARM, mortgagees must treat the new hybrid ARM as a fixed rate mortgage.

See Net Tangible Benefit.

FHA Net Tangible Benefit Matrix From To Fixed Rate

New Combined Rate To 1-Year ARM

New Combined Rate To Hybrid ARM

New Combined Rate Fixed Rate (FRM) At least 0.5 percentage

points below the prior Combined Rate.

At least 2 percentage points below the prior Combined Rate.


Any ARM with less than 15 months to the Next Payment Change Date

No more than 2 percentage points above the prior Combined Rate.

At least 1 percentage point below the prior Combined Rate.


Any ARM with ≥ 15 months to the Next Payment Change Date

No more than 2 percentage points above the prior Combined Rate.



Notes: A net tangible benefit is a reduced Combined Rate, a reduced term, and/or a change from an ARM to a FRM that results in

a financial benefit to the Borrower. • Combined Rate refers to the interest rate on the mortgage plus the MIP rate.







FHA Streamline Refinances – Non-Credit Qualifying INCOME

Income Type Documentation Requirements W-2 Wages Verbal VOE to MSI specifications, completed no earlier than 10 business days prior to loan

closing. See Full/Alt Doc for details. Self-Employed Verification of borrower’s business documented by one of the following:

A CPA letter, Evidence of Quarterly Tax Payments or Copy of current unexpired business license.

Important Notes: Lower Fico Sub-set product If the completed loan application indicates income is from an “other income” source, documentation supporting that source

of income is required in the loan file. The listing below provides some examples of “other income and acceptable documentation. This list may not be all

inclusive. The DE Underwriter may accept documentation not listed herein provided it identifies and supports the “other income”.

Alimony/Maintenance Child Support

Copy of the Divorce Decree, a Settlement Agreement or Court payment Record

Annuity Most current institutional statement. Interest/Dividends Document showing ownership of interest bearing account or copy of the current statement

showing interest income. IRA/Keogh Most current bank statement or letter from administrator.

Net Tangible Benefit See Net Tangible Benefit,. Note Income Copy of the Note and/or most current statement showing income.

Pension/Retirement Most current bank statement or benefit award letter or most current W-2/1099 Rental Income Copy of current lease. See MSI restrictions, Rental Income Social Security

Income Award Letter or most current deposit statement.

Trust Income Copy of trust agreement or trustee’s statement. VA Benefits Award letter or most current deposit statement.





FHA Streamlines Without Appraisal Over Current Statutory Limits

MSI does not offer FHA Streamline Without Appraisal Over Current Statutory Limits: The new loan amount may not exceed the current statutory limits if

the original loan was originated when statutory loan limits were higher than current.

Rental Income

MSI requires that all rental income be properly supported by documentation prior to using it as qualifying income. MSI will accept the following as acceptable documentation.

For Subject Property For Other Property (Including Former Primary to Rental) A Fannie Mae 1007 completed by the

Appraiser to document (support) market rents. When applicable, the rents must be

documented on tax returns or if received less than 12-months, a copy of each lease and documentation of receipt of the security deposit and the most current last month’s rent.

Copy of tax returns showing rental income for a minimum of 12 months.

IF the rental income is not included on the tax returns for a minimum of 12 months, the borrower must provide: • A Fannie Mae 1007 completed by a licensed Appraiser to

document market rents for each property not documented for a minimum of 12 months, and

• A copy of each lease(s) and documentation of receipt of the security deposit and the most current last month’s rent.





Retirement Accounts

When using retirement accounts to meet reserve requirements (IRA, 401-K, etc.) MSI requirements are: Maximum 60% of the total vested amount may be used to satisfy

reserve requirements. Documentation evidencing the ability to access or withdraw money

from the retirement account at any time is required.

Secondary Financing

Permitted in accordance with current FHA/VA requirements. Purchase transactions must meet the more restrictive FHA or MSI

guidelines. See Loan Parameters - FHA – “Standard” Maximum Loan Amounts.

Cash out and Streamline Refinance does not permit adding new subordinate financing. The CLTV for existing subordinate financing may not exceed MSI guidelines.

Cash Out Refinance: • No new subordinate financing. • • FHA does not permit the CLTV for cash out refinance to exceed

85.00% (Existing subordinate financing must be satisfied or reduced to ensure the remaining CLTV does not exceed 85.00%).





Security Bars Security Bars (also known as burglar bars):

The appraiser must specifically comment and follow state and local requirements with respect to properties using security or “burglar” bars.

There must be an emergency release latch for at least one window in each room where the security bars are located, unless local or municipal code states otherwise.

Important Notes/MSI Restriction If there is no alternative escape route for those rooms with security

bars, MSI will require a release latch for one window in the room, regardless of local/municipal code or requirements. • The appraiser must specifically address, in the case where there is

no emergency release latch and the property meets code, that there is a safe, alternative escape route for the room in case of fire or that an emergency release latch is provided for at least one window.

Short Sales/ Foreclosure

A short sale, write-down, deed-in-lieu or pre-foreclosure are viewed the same as a foreclosure and must be considered as the same at time of underwriting. Note: Someone going down 90 days on their mortgage but recovering without legal action is not deemed a foreclosure. FHA

• There must be minimum 3-year waiting period before the Borrower is eligible to request an FHA case number assignment. Ordering the case assignment before eligible with the 3 years will require cancellation and reorder of a new case number assignment.

VA • There must be minimum 2-year waiting period before eligible to

close on a new property. Note date of new loan determines the waiting period.

See the Underwriting Chapter/Short Sales for additional restrictions/guidelines for the purchase of a short sale property.

Purchase Transactions (Purchasing a property involved in a

short-sale situation): • The finalized short sale agreement with final calculated figures

required for accurate calculation of borrower’s qualifying and funds to close.



Social Security Number

Each borrower must have a social security number. MSI is responsible for the validity of the borrower’s social security number. MSI runs a Social Security number trace on each borrower, especially

on loans such as FHA Streamline or VA IRRRL where a credit report is not run. • Many nationally recognized credit bureaus offer this service, even

when a credit report is not ordered.





Temporary Buy down

FHA and VA: Not Permitted due to regulatory issues.

Government ARM Loans: Temporary Buydowns are not permitted for FHA or VA ARM loans.

Trailing Co-Borrower Income

Not permitted for FHA/VA loans

Undisclosed Debt

REV (9/14/15)

Borrowers must provide a satisfactory explanation if significant debt on the Credit Report was not provided on the initial 1003.

Undisclosed mortgage debt: MSI requires the mortgage debt to be added to the credit report, 1003 and a re-run through TOTAL. • Require an acceptable Letter of Explanation as to why the debt

was not disclosed. And loan becomes a manual downgrade with ratio restrictions.

• The added mortgage debt must be current and not have any delinquencies within the past 12 months.

Vacancy Factor

FHA and VA loans: For REO (Other Real Estate Owned) MSI requires a 25% vacancy factor to be used when calculating income/cash flow for rental property owned other than the subject property. If the subject property is a 2-4, MSI will accept the current state

vacancy factors determined by the state and/or appraisal. Please see Rental Income for additional information regarding rental

income.

Water Purification Systems

MSI is not able to accept FHA or VA loans where the property has a “point of entry” water purification system. • A “Point of Entry System” is one that is placed at the main water

line to the subject property installed to “pass” local water viability standards.

Water purification systems installed at “point of use” for taste or to combat water hardness are not considered in this restriction.



Restrictions

Introduction The following specific restrictions apply for all loans approved by MSI.

High Cost and Responsible Lending Restrictions

MSI high cost policy conforms to all Federal, State, County, City, and Agency requirements, including consumer laws. No loan may violate high cost regulations as set forth by the above

mentioned entities. No mortgage loan is subject to the provisions of the Home Ownership

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




Restrictions, Continued

State Restrictions

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

State MSI State-Specific Guidelines All

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

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

with all regulatory, state or local guidelines and/or restrictions. Arizona

(12/02/14) LO must have approval from the Manager to do business in Arizona. Condo –Attached PUD Restrictions: AZ is restricted to a maximum 90.00% LTV, unless further

restricted by the AUS or MI. California

MSI will not lend in the following California Counties:

• Merced; San Joaquin; Stanislaus Florida

(2/05/15) LO must have approval from the Manager to do business in Florida. Properties in Broward & Miami/Dade Counties not permitted. High Balance loans are not permitted.

Nevada No loans on properties located in Clark County Nevada. Ohio

The Seller must warrant that each loan secured by property located in Ohio, irrespective of the originating lender’s exempt status under the Ohio Consumer Sales Practices Act, relies on full verified documentation of the borrower’s financial resources to determine the borrower’s probability of repayment. MSI requires that all supporting documentation used by the originating lender to analyze the probability of repayment at time of origination be included in the delivered mortgage loan file.

Texas Cash Out Refinance loans for primary (homestead) properties are not acceptable for purchase.



Closing

Closing Costs

MSI accepts FHA loans with the following closing costs: 1% origination – restricted to this maximum. YSP FHA “traditionally allowable” fees, which generally include processing

and/or underwriting. • The fees must be customary, traditional and reasonable costs (for

the market) necessary to close the mortgage. MSI's administration fee. MSI will not permit the tax service fee to be charged to the

borrowers. MSI will not permit/accept “application fee” as a fee charged to the

borrowers.

Additional Notes: MSI must follow HUD's guidance, including, but not limited to the

following: • State, local and federal predatory and high cost lending rules

apply. • Seller Contributions are limited to 6%.

o See the Underwriting Chapter regarding Sales Abatements. • Bona fide discount points may not be used to meet the

homebuyer’s minimum investment requirement. • MSI must charge fees uniformly to avoid any issues with

"disparate pricing." • Discount can only appear as a charge paid to the lender in

connection with bona fide/actual reductions to interest rate.

Interest Credit FHA/VA Loans: Permitted based on end investor requirements.

• Max 5 days if permitted.

Photo ID

Reminder Settlement agent will require a copy of the borrower’s photo(s) ID to

authenticate identity and for notarizing any documents at closing.



FHA Loans

Summary FHA loans are eligible under the loan parameters outlined by FHA for the

applicable transaction type: Purchase Refinance

• Rate/Term Credit Qualifying – With Appraisal • Streamline –Without Appraisal and with or without credit qualifying • Cash out – Credit Qualifying With Appraisal




FHA Loans, Continued

Loan Parameters - FHA – “Standard” Maximum Loan Amounts (2/05/15)

Units

Owner Occupied Second Home Investment Maximum

DTI * Maximum Minimum

FICO Maximum Minimum


FICO LTV CLTV LTV CLTV LTV CLTV Purchase 1 - 4 96.50 105.00 620* Not Permitted Not Permitted (5)

Rate/Term Refinance 1 - 4 97.75 97.75 620* Not Permitted Not Permitted (5)

Streamline Refinance (1) – Manual Underwrite Only- See Refinance – FHA. See Minimum FICO Requirements.) 1 97.75 105.00 620* Not Permitted Not Permitted 31/43% *

Cash-Out (C/O) Transactions (Follow FHA/MSI Guidelines. See FHA Refinance Matrix.) 1 -4 85.00 85.00 620 Not Permitted Not Permitted (5)

(*) For Credit Qualify Streamline - Maximum DTI is 43% (ratios 31/43%). . Units Basic “Floor” Limits MSI “Standard” FHA Limits FHA High Cost “Ceiling”

1 $275,665 Applied by location $636,150 (1) 2 $352,950 Areas between floor and ceiling 814,500 (1) 3 $426,625 $984,525 (3) 4 $530,150 $1,223,475 (3)

Notes: (1) Non-Qualifying Streamline Refinance meet FHA guidelines for LTV limits. Streamline Refinance, with/without appraisal must

meet all other MSI/FHA guidelines. See Refinance – FHA. If HPML, must be fully credit qualifying loan. (2) Loan amounts exceeding the MSI “Standard” FHA Limits are considered MSI “High Balance” and must follow those specific

guidelines, see MSI FHA High Balance for details. (3) All 3-4 Unit properties must meet the FHA debt service requirements. (4) 3-4 Unit properties that exceed MSI Standard FHA Limits are considered FHA High Balance and are not eligible for MSI. (5) ; Maximum DTI is 55% with an AUS approval. (6) *See Government FICO 580 - 619 for lower FICO options and additional restrictions.Low Fico product reflected on Rate

sheet. MSI minimum loan amount is $30,000. FHA/ VA Loan amounts less than $30,000 are not eligible. Basic Floor Limits” represent the lowest maximum county limit set nationally by FHA while the “High Cost Ceiling”

represents the highest. MSI considers any FHA loan that exceeds the 2009 Fannie Mae statutory limit for the number of units to be a MSI FHA High Balance loan. See MSI FHA High Balance for details and MSI restrictions.

Check individual county limits for maximum loan amount. Current loans limits may be calculated at https://entp.hud.gov/idapp/html/hicostlook.cfm.

All loans must be closed in whole dollar amounts (e.g. a loan amount of $271,049.50 is not acceptable. Base Loan Amounts cannot exceed the limit set for the individual county. The LTV/CLTV limits for all FHA loans must meet the most current requirements for High and Low cost states outlined by

FHA to ensure that the loan is insurable. The MSI lock system does not validate FHA loan amounts.


https://entp.hud.gov/idapp/html/hicostlook.cfm



FHA Loans, Continued

FHA Purchase Transactions

Effective for all FHA transactions with applications dated on/after 1/01/09, the following down payment requirements apply: Each FHA purchase transaction must meet the down payment

requirements outlined in ML 2008-23. Purchase Transactions are limited to a maximum 96.50% LTV, applied

to the lesser of the appraiser’s estimate of value or the adjusted sales price. • Closing costs may not be used to help meet the 3.50% down

payment requirements. Closing costs may not be considered in the mortgage amount/down payment calculation for purchase money transactions. Seller real estate tax credits cannot be considered in the down payment calculation requirement.

FHA Refinance

All FHA refinance loans must meet the more restrictive of MSI or FHA guidelines outlined in ML 2008-40, ML 2009-08, ML-2009-32.

FHA Fixed Rate Mortgage

Fixed Rate Mortgage (FRM) fully amortizing mortgage insured by the Federal Housing Administration (FHA). Occupancy:

• Primary Residence – eligible for purchase and refinance



FHA ARM Loans

Overview Thirty year fully amortizing adjustable rate mortgages (ARM) insured by

the Federal Housing Administration (FHA) with various interest rate caps and margins. Shorter or longer amortization is not allowed.

Occupancy Primary Residence Only

Ineligible Occupancy Types are: • Second Homes • Investment Properties

Qualifying Rate

5/1 ARM; 7/1 ARM Note Rate

Temporary Buy Downs

Not permitted on ARM loans.




FHA ARM Loans, Continued

ARM Summary

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

Fully Amortizing FHA ARM Products Product Margin* Adjustment Caps Conversion

To FRM? Assumable

1st Annual Lifetime 5/1

2.000%* 1 1 5 No Anytime

The interest rate is fixed for the first 60 months and the first adjustment date will be no sooner than 60 months and no later than 66 months after the first payment date, and every 12 months thereafter.

7/1

2.000%* 2 2 6 No Anytime The interest rate is fixed for the first 84 months and the first adjustment date will be no sooner than 84 months and no later than 90 months after the first payment date, and every 12 months thereafter.

First Interest Rate Adjustment Date: Government loans only adjust 4 times per year, (January 1, April 1, July 1, and October 1); therefore the first adjustment date on FHA ARM loans will occur with the adjustment period that follows the initial fixed period. For example, if the initial fixed period ends in February, the first adjustment date will be April 1 and then annually each April after that. Payment Adjustment Date The first payment adjustment date will be the first of the month following the first interest rate adjustment date and every 12 months thereafter. Notes: Index - 1 Year Treasury: The weekly average yield on U. S. Treasury securities adjusted to a constant

maturity of one year. Assumable: Subject to credit approval in accordance with the Note and Security Instrument. Lifetime Cap is the Initial Note Rate + Life Time Cap % - the interest rate for the life of the loan can never

exceed this lifetime cap. * Margin- Always validate the current margin on the daily Rate Sheet. The margin is locked with the loan.

First Adjustment Date

Background: The correct Adjustment Date (ARM Change Date) is critical for sale on the Secondary Market; therefore, MSI must confirm the correct ARM Adjustment date with the end investor prior to closing. • MSI will validate and confirm the correct Adjustment (Change)

Date and Margin PRIOR to drawing documents.



MSI FHA High Balance

Overview

FHA loan amounts exceeding Fannie Mae statutory limits for single family and 2-Units are considered by MSI to be “FHA High Balance” loans and have additional more restrictive requirements. See FHA Mortgagee Letters for FHA details: http://portal.hud.gov/hudportal/documents/huddoc?id=11-39ml.pdf ; http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-40ml.pdf

Guidelines The FHA High Balance loans must meet the more restrictive of FHA and MSI guidelines as outlined in this product suite. Acceptable Sections of the Act are:

• 203(b) • 234 (b) – FHA Approved currently

MSI Loan Limits

Minimum Loan Amount: • $417,001 for single family • $533,851 for 2 units. • 3-4 Unit properties not permitted.

Maximum Loan Amount: • $625,500 for single family • $800,775 for 2-Units • 3-4 units not permitted

Note: To determine the High Balance Limits, go to the following web site:

https://entp.hud.gov/idapp/html/hicostlook.cfm . • For FHA Loans: select “FHA Forward” from the <Limit Type>

field, then select the appropriate date of your case number.

Products Eligibility

The FHA Products eligible for High Balance are: FHA FRM – 30 Year Term Only FHA ARM –5/1 (30-Year Term)

• Validate the current ARM Margin on the daily Rate Sheet-the Margin is locked with the loan.


http://portal.hud.gov/hudportal/documents/huddoc?id=11-39ml.pdf



https://entp.hud.gov/idapp/html/hicostlook.cfm



MSI FHA High Balance, Continued

MSI High Balance Overlays

All High Balance loans must meet the current FHA Requirements and the following additional MSI Overlays.

Topic MSI FHA High Balance Overlays Matrix 3-4 Unit Properties Not Permitted for MSI FHA High Balance Appraisal MSI requires 1 appraisal. AUS

AUS TOTAL Scorecard approve/accept required. No manual underwriting or downgrade permitted. Note: Until the AUS is updated, the DE is underwriter is responsible to ensure that the loan amount meets FHA limits; an AUS “ineligible” for statutory loan limit is the only acceptable reason for ineligibility; include a copy of the FHA Web Site screen to document loan amount.

Serious Derogatory Credit

Bankruptcy or Foreclosure within past 7 years (completion to FHA Case number assignment date) not acceptable, regardless of AUS.

Credit Non-traditional credit is not permitted Declining Markets Must follow current FHA requirements, ML 2008-09 and MSI requirements where more

restrictive. See Declining Markets Policy. Must follow FHA ML 2009-048.

Down Payment Assistance DAP/DPA is not permitted under any circumstances FICO

Minimum 2 FICO scores for each borrower, middle of 3, lower of 2, lowest of borrower

scores used to qualify the loan. Purchase Transaction: 640 Rate/term refinance: 640 Cash-out refinance: 660 Streamline refinance: 680

Mortgage History LP/DU Approve decision: standard FHA policy applies. Non-Occupant Co-Borrower

MSI does not permit non-occupant co-borrowers for High Balance. Co-signers or guarantors are not permitted. All borrowers must occupy the subject

property. Qualifying Rate Note Rate





MSI High Balance Overlays, Continued

Topic MSI FHA High Balance Overlays Matrix Qualifying Ratios LP/DU Approve decision: standard FHA policy applies. Temporary Buy downs Not Permitted FHA High Balance Streamline

Note, if the pricing is not available, the product is not eligible regardless of published guidelines. Requirements (when available) are: Minimum FICO = 680. The Borrower may not have any foreclosures, bankruptcies, or short sales in the most

recent past 4 years. Base loan amount may not exceed the current county limits. Not permitted for properties located in AZ, FL or NV.





Loan Parameters – MSI FHA High Balance 15 & 30 Year – FRM & ARM

Units

Owner Occupied Second Home Investment Maximum Maximum Minimum



FICO LTV CLTV LTV CLTV LTV CLTV DTI Purchase 1 - 2 96.50 96.50 640 Not Permitted Not Permitted (1)

Rate/Term Refinance 1 - 2 97.75 97.75 640 Not Permitted Not Permitted (1)

Cash-Out (C/O) Transactions 1 - 2 85.00 85.00 660 Not Permitted Not Permitted (1)

Notes: (1) See Qualifying Ratios (DTI); Maximum DTI is based on FICO. FHA Streamline Refinances are permitted for MSI FHA High Balance only when pricing is available; please see the Daily

Rate Sheet and FHA High Balance Streamline. 30-year Term only for 5/1 FHA ARM Loan must meet all current FHA guidelines with additional MSI FHA High Balance Overlays Down Payment Assistance Programs not permitted. Temporary buy downs are not permitted. Minimum 2 FICO scores for each borrower, middle of 3, lower of 2, lowest of borrower scores used to qualify the loan. FHA Total Scorecard through DU or LP required, loan must be approve or accept. Cash out transactions – Foreclosure or Bankruptcy not permitted within most recent 7 years, regardless of AUS. 3-4 Units not permitted. Follow current FHA guidelines for declining markets (ML-2008-09) and MSI where more restrictive. See Declining Markets

Policy.



VA Loans

Overview MSI accepts Fixed Rate (FRM) VA loans guaranteed by the Veteran’s Administration. All loans must meet MSI guidelines and those published in the VA Lenders Handbook.

Eligible Borrower

Veteran with valid certificate of eligibility and spouse. POA: Veterans using Power of Attorney must comply fully with the VA

Alive and Well requirements outlined in Lender’s Handbook, VA Pamphlet 26-7, Revised, Change 4, Chapter 9. • See Underwriting/Borrowers/Power of Attorney for additional MSI

requirements. Surviving widow of a veteran with a valid certificate of eligibility

(entitlement). See IRRRL Borrower Rules for additional assistance with determining

eligibility for an Interest Rate Reduction Refinance Loan (IRRRL).

Alive and Well and Not MIA If the loan is being closed using a Power of Attorney (POA); at the time of loan closing/disbursement, MSI must: Verify that the veteran is alive (regardless whether the veteran is still

in the military), and, if on active military duty, not missing in action, and

Make the following certification which must be included in the loan file at time of delivery.

VA may deny guaranty on a loan if the lender fails to property verify the veteran’s status and the veteran was either deceased or MIA at the time the loan was closed.

“The undersigned lender certifies that written evidence in the form of correspondence from the veteran or, if on active military duty, statement of his or her commanding officer (including state of person authorized to act for said officer), affirmatively indicating that the veteran was alive and, if the veteran is on active military duty, not missing in action status on ( date ), was examined by the undersigned and that the said date is subsequent to the date the note and security instruments were executed on the veteran’s behalf by the attorney-in-fact.” See Underwriting/Borrowers/Power of Attorney for additional MSI

guidelines on using POA’s.




VA Loans, Continued

Occupancy

Owner-Occupied Principal Residence. A spouse, civil union partner or a dependent child satisfies the

occupancy requirement for the deployed Veteran. You must follow current VA guidelines. • MSI will accept; however, we may require further evidence of how

the dependent child will occupy. (E.g., grandmother will also occupy as caregiver, etc.)




VA Loans, Continued

Loan Parameters – VA REV (01/01/17)

Maximum LTV/Loan Type Maximum Loan Limit Purchase

100% of reasonable value 1 plus VA funding fee $424,100

90% Non-IRRRL and Cash out Refinance

See VA 100% Cash Out and VA Product Codes for this

product subset.

$424,100

Interest Rate Reduction Refinance Loan VA IRRRL – 100.00%

(Per MSI/VA Guidelines)

$424,100 Principal balance of the existing loan

Up to 45 days interest Any late charges and escrow shortages

.50% Funding Fee (if applicable) Up to a 2% discount

All forward closing costs and prepaid expenses. May not exceed VA statutory limits.

The new total loan amount may not exceed the Appraised Value validated by the conventional appraisal.

Notes: 1 Based on the Veteran's available Entitlement as stated on the Certificate of Eligibility. For purchases, the maximum

entitlement is $104,250. MSI requires the Veteran to have the GNMA-required 25% Entitlement. Maximum DTI for VA qualifying loans is 55.00%, regardless of AUS approval. MSI minimum loan amount is $30,000. Loan amounts less than $30,000 are not eligible. Maximum CLTV for VA loans:

• Purchase Transactions = 100.00% • Cash-Out Refinance = 100.00% -Permitted with a minimum FICO 640- • IRRRL = 100.00% To MSI/VA guidelines – no new subordinate financing.

MSI requires a minimum 620 FICO. See Government FICO 580 - 619 for lower FICO options and additional restrictions. Important: All VA loans must meet GNMA loan guarantee (a minimum of 25% coverage and must include the VA Funding Fee in

the limit, if it is financed.) MSI will follow current VA guidelines with the following exception:

• MSI will not accept a loan that exceeds $700,000, regardless of the VA maximum. For more information, see the following VA Notice: http://www.benefits.va.gov/HOMELOANS/documents/docs/2013_county_loan_limits.pdf

Reminder: MSI is not pricing or purchasing VA High Balance loan limits for IRRRL’s.


http://www.benefits.va.gov/HOMELOANS/documents/docs/2013_county_loan_limits.pdf



VA Loans, Continued

VA 5/1 ARM

MSI accepts VA 5/1 ARM loans when they are priced on the daily rate sheet. Loan must be underwritten to MSI/VA guidelines. Loan may be qualified at the Note Rate. Annual adjustments are limited to 1% and the maximum increase in

the interest rate over the life of the loan is capped at 5%. (Caps are 1/1/5).

VA 7/1 ARM (5/30/14)

MSI accepts VA 7/1 ARM loans when they are priced on the daily rate sheet. Standard loan limits only; no High Balance. Loan must be underwritten to MSI/VA guidelines. Loan must have an AUS Approve/Accept. VA IRRRL are permitted. Loan may be qualified at the Note Rate. Annual adjustments are limited to 2% and the maximum increase in

the interest rate over the life of the loan is capped at 6%. (Caps are 2/2/6).




VA Loans, Continued

Closing Costs REV (6/27/16)

All loans must meet the exact VA guidelines for allowed closing costs to the Veteran. Please see the VA Web Site for assistance. See Helpful Web Sites for details. Also see the following circular for the impact of new RESPA rules: http://www.homeloans.va.gov/circulars/26_10_1.pdf Compliance with VA Circular 26-16-11, Itemization of expenses on the TRID CD is required. Any non-allowable VA charge credits must be itemized, lump sum credits are not allowable.

MSI Audit Point – VA Closing Costs

MSI will accept the following VA Closing Costs: Important Note: All allowable costs must be reasonable and customary: 1% Origination Fee Reasonable Discount Points (“Discount” can only be paid in connection with

actual reductions to the interest rate and must be payable to MSI.) VA Appraisal Fee VA Compliance Inspector Fee Second Appraisal when Veteran is Requesting a Reconsideration of

Value (When Lender is requesting a Second Appraisal the Borrower may not pay for the second appraisal. The MSI conventional appraisal for VA IRRRL loans may not be charged to the Veteran.)

Recording Fees Credit Report Fees Pre-Paid Items Hazard and Flood Insurance when required Flood Zone Determination Survey Title Insurance and Title Examination EPA Endorsement Mailing Fees for refinances only when the saved per diem interest cost

to the veteran will exceed the cost of the special handling. VA Funding Fees Mortgage Electronic Registration System (MERS) Fee


http://www.homeloans.va.gov/circulars/26_10_1.pdf



VA Loans, Continued

Condos All condominiums must be VA approved. See the VA Web Site for

approved condos.

Day Care Obligation

Reminder: VA requires the Day Care (child care) Obligation to be considered as a debt in the DTI calculation.

Funding Fee MSI is responsible to ensure that the VA loan has the correct VA Funding

Fee.

Exempt Veterans A Veteran may be exempt from paying a VA Funding fee under certain

circumstances: • To document this exemption, a Verification of VA Benefits (26-

8937) must be completed by the VA, or disability award letter. • Veteran is receiving VA compensation for a service-connected

disability of at least 10%.. • Surviving spouse of a Veteran who dies in service from a service-

connected disability.

Important Note: The Veteran’s Benefits Act of 2004 expanded the definition of Veterans who are in receipt of compensation and thus entitled to a waiver of the VA Funding Fee. Veterans who are rated eligible to receive compensation as a result of

a pre-discharge disability examination and rating will now be considered as receiving compensation as of that date. • This type of rating is a Benefits Delivery at Discharge (BDD). • Veterans still on active duty awaiting discharge, but who wish to

close on the loan before being released from the military




VA Loans, Continued

VA IRRRL – MSI Overlays

(7/02/14)

The following matrix outlines the MSI guidelines that must be followed in addition to the most current VA guidelines. See Financial Reform – CFPB for QM details; all VA IRRRL loans must

comply with the guidelines for Safe Harbor.

VA IRRRL Matrix Topic

Application MSI requires that the borrowers provide current employer information on the 1003.

• MSI will not require income verification, but the name, address and phone number of the current employer must be stated on the 1003 for further contact address and phone number for servicing..

Appraisal No appraisal required. An AVM may be required in certain current declining markets. Schedule of REO on the 1003 must reflect a current value based on consumer’s estimate.

Credit The borrower must have a clear CAIVR. FICO

REV (7/09/15) Each borrower must have at least 1 FICO score and the minimum FICO for VA IRRRL is 620.

• This condition must be fulfilled by a tri-merge credit report. Interest Rate

The new interest rate must be lower than the current rate; unless refinancing from an adjustable

rate to a fixed rate mortgage under VA guidelines. Income REV-(6/27/16)

VA does not require 2106 expenses to be deducted if borrower’s income is 25% or less commission based and/or if the income isn’t utilized for qualifying.

Loan Type IRRRL loans must have a payment schedule that is fully amortizing and the terms may not

permit a balloon payment.




VA Loans, Continued

VA IRRRL – MSI Overlays, Continued

VA IRRRL Matrix Topic

Mortgage History Loan must be current at time of closing for the new loan. No more than 1 x 30-day or greater mortgage lates in the most recent 12 months are permitted

and cannot have occurred within the last 6 months. If the current mortgage is less than 12-months, a copy (or copies) of the HUD-1(s) must be

included to substantiate history of ownership. Mortgage trade-lines to show 12-month mortgage payment received history (payments

applied), the following additional guidelines apply: • The borrower must have a minimum of 6-months payment received history (payments

applied) with the current lender to be eligible for streamline (IRRRL). • If the borrower has less than 6-months payment seasoning/history with the current lender,

the loan must be documented and underwritten as a credit qualifying VA IRRRL. Net Tangible Benefit See Net Tangible Benefit, Old vs. New, payment reduction with recoup within 36 months. Does

not apply to a term reduction or ARM to fixed IRRRL. . Occupancy MSI permits only owner-occupied properties for VA IRRRL. Points & Fees

(7/02/14) Points and fees cannot exceed 3% (calculated from the payoff figure plus the costs less the

funding fee) • The Borrower must recoup the fees within 36 months of loan closing. (old vs. new loan

comparison) Payoff Letter

(7/02/14) The IRRRL may increase the loan balance outstanding on the existing loan, including any

interest, late charges and escrow shortages up to 3% additional costs exclusive of the funding fee (if applicable)..

4506-T MSI requires that each borrower sign/date a 4506-T at closing. Seasoning

(7/02/14) Six months seasoning required from the date the prior loan closed through the closing date of the new loan.

Underwriting All VA IRRRL loans must be manually underwritten. Important: All VA IRRRL’s must meet VA guidelines. See the following Web Site for additional assistance. https://vip.vba.va.gov/portal/VBAH/Home





VA Loans, Continued

LAPP “Appraisals”

See VA Appraisal for details. MSI has very strict rules for using MSI as the LAPP appraiser. Bill payment to the appraiser is the responsibility of the lender that orders the appraisal. Failure to pay the VA appraiser can result in termination of the ability to participate in the program, per VA. .

New Construction

See New Construction for some details. New construction must meet all current applicable VA guidelines. Reminder: VA requires that the property be 95% completed before ordering the appraisal.

IRRRL Borrower Rules

Who can an IRRRL loan be made to? See the matrix below excerpted from VA for details.

Parties Obligated on Current (Old) VA Loan Parties to be obligated on new VA Loan Is IRRRL Possible? Unmarried veteran Veteran and new spouse Yes

Spouse alone, unmarried widow of veteran Yes Veteran and spouse including Civil Union Divorced Veteran Alone Yes

Divorced spouse alone without Veteran No Veteran and new (different) spouse Yes Widow of Veteran Alone Yes New Widow of Veteran – not original spouse on loan

No

Veteran Alone Different Veteran who has substituted entitlement Yes Veteran and Non-Veteran, joint loan obligors Veteran Alone Yes

Non-veteran alone No Notes: A Certificate of Eligibility is not necessary for an IRRRL of existing VA loans. However, lenders must validate that the Veteran has an active loan through the Prior Loan Eligibility feature, under the

Eligibility Menu in WebLGY. Lenders must have a VIP number to access the information.

Residual Income

To properly consider residual income, please use the VA Residual Income Tables provided by the VA. See the VA Web Site for assistance. See Helpful Web Sites for details.



VA 100% Cash Out .

MSI Overlays The following matrix outlines the MSI guidelines that must be followed in addition to the most current VA guidelines for 100% VA Cash Out.

VA 100% Cash Out Topic MSI Overlay

Appraisal Full VA Appraisal that meets VA Cash Out Refinance guidelines. Escrow holdback for repairs is not permitted, unless exterior weather related.

AUS All VA 100% Cash Out Refinance loans must be submitted to DU or LP.

• Recommendation must be Approve/Eligible or Accept. Loan Amount Maximum Loan Amount is limited to $417,000, inclusive of the Funding Fee. Credit Non-Traditional Credit not permitted.

Short Sale/Pre-Foreclosure, Foreclosure sale: Minimum of 2 years must have elapsed. DTI Max DTI = 55%; DU/LP Approve/Eligible or Accept Required FICO Minimum FICO is 640. General The loan must meet the residual income requirement per VA for any DTI exceeding 41%.

The residual income should be reflected on the AUS findings with family size accurately entered. Fourteen cents ($,14 cents) a square foot is the current accurate calculation for maintenance/utilities to be entered into the AUS findings.

Occupancy/Property Owner Occupied Primary Only. • Conforming loan amount primary 1-4 Unit.

Mortgage History Loan must be current at time of closing for the new loan. No 30-day or greater mortgage lates in the most recent 12 months are permitted. If the current mortgage is less than 12-months, a copy (or copies) of the HUD-1/Settlement

Statement) must be included to substantiate history of ownership. Mortgage trade-lines to show 12-month mortgage payment received history (payments applied)

Reserves If the property is a 3-4 Unit Primary, the Borrower must have reserves after close of 6 months PITI. • Reserves must be borrower assets; they may not be “obtained” from the cash received

from the refinance. Does not have to be liquid.



VA High Balance

Overview

VA loan amounts exceeding Fannie Mae statutory limits for single family and 2-Unit residences are considered by MSI to be “VA High Balance” loans and have additional more restrictive requirements.

VA 30-year Fixed Rate Mortgages only.

MSI High Balance Overlays

All High Balance loans must meet the current VA Requirements and the following additional MSI Overlays. MSI will follow current VA guidelines with the following exception:

• MSI will not accept a loan that exceeds $700,000, regardless of the VA maximum.

Reminder: MSI is not pricing or purchasing VA High Balance loans for IRRRL’s.

Topic MSI VA High Balance Overlays 3-4 Unit Properties Not Permitted for MSI VA High Balance Appraisal MSI requires 1 appraisal to current VA Guidelines. AUS AUS approve/accept required. No manual underwriting or downgrade permitted.

AUS data entry must be correct and accurate. Bankruptcy/Foreclosure Bankruptcy or Foreclosure within past 5 years (completion to application date) not acceptable,

regardless of AUS. Credit Non-traditional credit is not permitted Certificate of Eligibility 25% minimum coverage.

GNMA coverage must be in force from VA eligibility on COE or additional principal payment must be made to equal 25% coverage. .

Contributions Seller Contributions limited to maximum 4% of the lower of the sales price or appraised value.

EEM MSI does not accept Energy Efficient Mortgages. FICO


scores used to qualify the loan. All Transactions: 660

IRRRL Not Permitted if not priced on the current rate sheet.




VA High Balance, Continued

MSI High Balance Overlays, Continued

Topic MSI VA High Balance Overlays Mortgage History LP/DU Approve decision: standard VA policy applies.

No mortgage lates30-days or more within most current past 12-months. Non-Occupant Co-Borrower

MSI does not permit non-occupant co-borrowers for High Balance. Co-signers or guarantors are not permitted. All borrowers must occupy the subject

property. Purchase Contract Restrictions

No increase in sales price permitted after initial contract and VA appraisal issued.

Qualifying Ratios LP/DU Approve decision: standard VA policy applies. Ratio over 41% must have the minimum 120% residual income requirement.

Retention of Current Principal Residence

Borrower must provide an executed lease, evidence of market rent is required, evidence of deposit of first month’s rent or security deposit evidencing validity of lease is required. Borrower must have 6-months (PITI) cash reserves. (documenting equity of departure residence is not required) If reserves cannot be evidenced then a 30% equity position in departure residence is required.

Temporary Buy downs Not Permitted

Loan Parameters – MSI VA High Balance 30 Year – FRM Only

Maximum LTV/Loan Type Maximum Loan Amount Purchase Money Mortgage

100% LTV plus Funding Fee

>$417,001 to ≤$700,000 Refinance

Notes: 1 Based on the Veteran's available Entitlement as stated on the Certificate of Eligibility, must have 25% GNMA coverage. MSI minimum loan amount is $417,001. MSI maximum loan amount is $700,000

Important: All VA loans must meet GNMA loan guarantee (a minimum of 25% coverage) Loans must be closed/disbursed by the

expiration date of the documents.



VA Jumbo

Overview

VA loan amounts exceeding Fannie Mae statutory limits for single family and 2-Unit residences not subject to county loans limits are considered by MSI to be “VA Jumbo” loans and have additional more restrictive requirements. VA 30-year Fixed Rate Mortgages only. The Borrower must have a minimum 25% equity on the amount that

exceeds the current county limit. See http://www.benefits.va.gov/HOMELOANS/documents/docs/2013_county_loan_limits.pdf .

For cash out refinances, the maximum cash back to the Borrower is $250,000 regardless whether or not the current property has a lien.

MSI VA Jumbo Overlays

All VA Jumbo loans must meet the current VA Requirements and the following additional MSI Overlays. MSI will follow current VA guidelines with the following exception:

• MSI will not accept a Note that exceeds $700,000, regardless of the VA maximum.

Reminder: MSI VA IRRRL Jumbo loans are available ONLY if MSI prices them on the Rate Sheet; currently they are not available.

Topic MSI VA High Balance Overlays Matrix 3-4 Unit Properties Not Permitted for MSI VA Jumbo Appraisal MSI requires a VA appraisal and LNOV to current VA Guidelines. AUS AUS approve/accept required. No manual underwriting or downgrade permitted.

AUS data entry must be correct and accurate. Bankruptcy/Foreclosure Bankruptcy or Foreclosure within past 5 years (completion to application date) not acceptable,

regardless of AUS. Credit Non-traditional credit is not permitted Certificate of Eligibility 25% minimum GNMA guarantee required

GNMA coverage must be in force from VA eligibility on COE and additional principal payment must be made.

Contributions Seller Contributions limited to maximum 4% of the lower of the sales price or appraised value.

EEM MSI does not accept Energy Efficient Mortgages. FICO


scores used to qualify the loan. All Transactions: 660

IRRRL Not Available.


http://www.benefits.va.gov/HOMELOANS/documents/docs/2013_county_loan_limits.pdf



VA Jumbo, Continued

MSI VA Jumbo Overlays, Continued

Topic MSI VA High Balance Overlays Mortgage History LP/DU Approve decision: standard VA policy applies.

No mortgage lates 30-days or more within most current past 12-months (0X30) Non-Occupant Co-Borrower VA does not permit non-Occupant Co-borrowers. Purchase Contract Restrictions

No increase in sales price permitted after initial contract and VA appraisal issued.

Qualifying Ratios LP/DU Approve decision: standard VA policy applies. Ratio over 41% must have the minimum 120% residual income requirement.

Retention of Current Principal Residence

Borrower must provide evidence of a current lease, documented market rent, deposit of first month’s rent or security deposit into bank account. Documenting any equity position on retained previous residence is not required.

Borrower must have 6-months (PITI) cash reserves of prior residence mortgage payment. Does not have to be liquid. If reserves are unavailable documenting a 30% equity position in prior residence will be required. Gifts cannot be used for reserves.

Temporary Buy downs Not Permitted

Loan Parameters – MSI VA Jumbo 30 Year – FRM Only

Maximum LTV/Loan Type Maximum Loan Amount Purchase Money Mortgage

LTV determined by 25% GNMA coverage required

>$417,000 to ≤$700,000 Note: The maximum total loan (Note) amount may

not exceed $700,000 including the VA Funding Fee. Refinance

90% of reasonable value May not exceed the maximum Loan (Note) Amount

Notes: Based on the Veteran's available Entitlement as stated on the Certificate of Eligibility and down payment/equity MSI minimum loan amount is $417,100. Maximum Note (loan) amount is $700,000 (including the VA funding fee; loan

amounts exceeding $700,000 are not eligible for MSI). All VA loans must meet GNMA loan guarantee (a minimum of 25% coverage) and must include the VA Funding Fee in

the limit if applicable, if it is financed in the Note amount.) Remember-for a refinance transaction, the Borrower must have 25% GNMA coverage for the loan (combination of COE

and/or property equity acceptable); this may result in the LTV being less than the maximum. Maximum Cash Back to Veteran is $250,000 regardless whether the property has an existing lien or not.