Announcement 19-0002: Carrington Advantage Program Underwriting Guideline Updates

Overview

Carrington Mortgage Services, LLC (CMS) is pleased to announce the following Underwriting updates (highlighted in red):

Carrington Flexible Advantage / Investor Advantage Matrices

Document

Old Requirements

Updated Requirements

Flexible Advantage and Flexible Advantage Plus Matrices

Illinois Restrictions

ARM loans are not permitted in Cook, Cane, Peoria, and Will counties.

Illinois Anti-Predatory Lending Databases

ARM loan restriction is eliminated.

Primary Residence: Completion of the Illinois Anti-Predatory Lending Databases is required for subject properties in Cook, Cane, Peoria, and Will counties. A Certificate of Exemption or Certificate of Compliance is required to record the loan.

Investor Advantage Matrix

Illinois Restrictions

ARM loans are not permitted in Cook, Cane, Peoria, and Will counties.

Investor Advantage:

Illinois ARM loan restriction is eliminated.

Carrington Investor Advantage Underwriting Guidelines

Old Requirements

Updated Requirements

Added new section: PACE, HERO and other Energy Efficiency Loans:

Liens for Property Assessed Clean Energy (PACE) or Home Energy Renovation Opportunity (HERO) and other energy efficiency loans may not remain on title.

Loans used to finance energy improvements such as PACE or HERO loans may be paid off and included in the new mortgage as follows: loans with seasoning of 12 months or longer may be refinanced as a Rate/Term transaction. Loans with seasoning of less than 12 months must be refinanced as a cash-out transaction. Seasoning is measured from the recording date of the energy improvement loan to the Note date of the new refinance loan transaction.

   

Carrington Investor Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Investor Advantage Forms

For the Investor Advantage Program, the following forms are required:

  • Business Purpose & Occupancy Affidavit (all borrowers are required to sign prior to closing to declare that the property is, or will be, for commercial business or investment purpose only). 2 copies are required:

– 1 signed at application and another signed AND notarized at closing.

  • Guaranty (if applicable)
  • 1-4 Family Rider/Assignment of Rents (FNMA Form 3170)

Investor Advantage Forms

For the Investor Advantage Program, the following forms are required:

  • Business Purpose & Occupancy Affidavit (all borrowers are required to sign prior to closing to declare that the property is, or will be, for commercial business or investment purpose only). 2 copies are required:

o   The initial disclosure provided is for informational purpose only and does not need to be signed

o   The disclosure generated with closing documents must be signed AND notarized

  • Guaranty (if applicable)
  • 1-4 Family Rider/Assignment of Rents (FNMA Form 3170)

Age of Appraisal and Appraisal Updates

Properties must be appraised within the 12 months that precede the date of the note and mortgage.

When an appraisal report will be more than 4 months old on the date of the note and mortgage, regardless of whether the property was appraised as proposed or existing construction, the appraiser must inspect the exterior of the property and review current market data to determine whether the property has declined in value since the date of the original appraisal. This inspection and results of the analysis must be reported on the Appraisal Update and/or Completion Report (Form 1004D), with interior and exterior photos.

Age of Appraisal and Appraisal Updates

Properties must be appraised within the 240 days that precede the date of the note and mortgage.

When an appraisal report will be more than 4 months old on the date of the note and mortgage, regardless of whether the property was appraised as proposed or existing construction, the appraiser must inspect the exterior of the property and review current market data to determine whether the property has declined in value since the date of the original appraisal. This inspection and results of the analysis must be reported on the Appraisal Update and/or Completion Report (Form 1004D), with exterior photos.

Non-Warrantable CondominiumsSingle Entity Ownership

Single entity ownership in project up to 20%.

Non-Warrantable Condominiums – Single Entity Ownership

Single entity ownership in project up to 30%.

Credit Report > Inquiries

A signed letter of explanation from the borrower or creditor is required for all inquiries within the most recent 90 days to determine whether additional credit was granted as a result of the borrower’s request.

Removed Inquiries requirements.

   

Carrington Flexible Advantage Underwriting Guidelines

Old Requirements

Updated Requirements

Removed Continuity of Obligation requirements.

Borrowers

Added definition for Co-Signers – Co-signer(s) are personally responsible for the mortgage debt, but have no vested interest on title.

Co-signer(s) are required to sign all closing documents except the security instrument and any related riders.

Vesting and Ownership

Ownership must be fee simple.

Acceptable forms of vesting are:

  • Individuals
  • Joint tenants
  • Tenants in Common

Ownership

Ownership must be fee simple. 

Vesting

Borrower(s) approved on the transaction must have a vested interest to the subject property. CMS will permit co-signer(s) on refinance transactions. The borrower(s) names and marital status (where applicable) must match the 1003 application.

Purchase transactions require a certified copy of a Transfer Deed from the title company or settlement agent transferring title from the seller(s) to the borrower(s) and non-borrowing spouse(s) (when applicable).

Refinance transactions requiring corrections to the borrower(s) and/or non-borrowing spouse(s) vested name and/or marital status to match the 1003 application require a Transfer Deed.

Acceptable forms of vesting are:

  • Individuals
  • Joint tenants

·       Tenants in Common 

Vesting for Non-Borrowing / Non-Title Spouse

A non-borrowing spouse may have a vested interest to the subject property (purchase or refinance) so long as they sign the security instrument and any related closing documents. No other non-borrower party is permitted to have a vested interest to the subject property.

   

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Credit Score Requirements

The primary wage-earner score is used as the Representative Credit Score for each loan. The primary wage-earner may be an occupying or non-occupying co-borrower. The primary wage-earner must have a valid score from at least two (2) of the following three (3) agencies: Experian (FICO), Trans Union (Empirica), and Equifax (Beacon). Only scores from these agencies are acceptable. Additional borrowers on the loan must have at least one (1) valid score of 500 or greater.

To determine the Representative Credit Score for the primary wage-earner, select the middle score when three (3) agency scores are provided and the lower score when only two (2) agency scores are provided.

Credit Score Requirements

The primary wage-earner score is used as the Representative Credit Score for each loan. The primary wage-earner may be an occupying or non-occupying co-borrower. The primary wage-earner must have a valid score from at least two (2) of the following three (3) agencies: Experian (FICO), Trans Union (Empirica), and Equifax (Beacon). Only scores from these agencies are acceptable. Additional borrowers on the loan must have at least one (1) valid score of 500 or greater.

To determine the Representative Credit Score for the primary wage-earner, select the middle score when three (3) agency scores are provided and the lower score when only two (2) agency scores are provided.

Note: if co-borrowers earn the exact same amount (for example, both own 50% of a company) the borrower with the higher credit score should be listed as the primary wage-earner and must have a valid score from at least two (2) of the three (3) agencies listed above.

Added new section: Rapid Rescore

Rapid rescore is a method by which borrowers can raise their credit score quickly by submitting proof of positive account changes (for example, paying down a revolving debt) to the three major credit bureaus.

CMS will use the most recent credit score, including a rapid rescore report, for the primary wage-earner who qualified for the loan program at the current credit score and will adjust the loan pricing based on the most recent credit score.

Carrington Flexible Advantage Program >

Chapter 13 Bankruptcy

There is no seasoning requirement for Chapter 13 bankruptcies when discharged prior to closing. If the Chapter 13 bankruptcy was dismissed, 12-months’ seasoning is required from the date of the dismissal. Full bankruptcy papers may be required.

Carrington Flexible Advantage Program >

Chapter 13 Bankruptcy

For all Credit Grades: There is no seasoning requirement for Chapter 13 bankruptcies when discharged prior to closing. For A and B Credit Grades: If the Chapter 13 bankruptcy was dismissed, 12-months’ seasoning is required from the date of the dismissal. For C Credit Grade: There is no seasoning requirement for Chapter 13 bankruptcies when dismissed. Full bankruptcy papers may be required.

   

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Housing Events > Carrington Flexible Advantage Program > Credit Grade C

There is no seasoning requirement for a Housing Event under the Credit Grade C. It must be completed prior to loan closing with no outstanding deficiency balance remaining. A signed, detailed letter of explanation from the borrower providing the reason for the event must be obtained. If the explanation indicates an inability to make prior housing payments, the Underwriter must consider the reasonableness of the new housing payment in comparison to the prior housing payment.

Housing Events > Carrington Flexible Advantage Program > Credit Grade C

There is no seasoning requirement for a Housing Event under the Credit Grade C. It must be completed prior to loan closing with no outstanding deficiency balance remaining.

Child Support, Alimony or Maintenance Obligations

Monthly alimony, child support or separate maintenance fees should be current at time of application and must be included in the borrower’s debt-to-income ratio. File should contain supporting documentation as evidence of the obligation, such as a final divorce decree, property settlement agreement, signed legal separation agreement, or court order. If payments are past due, the arrearages must be brought current prior to loan.

If 10 or fewer payments remain, see Installment Debt to determine if the obligation may be excluded from the DTI calculation.

Child Support, Alimony or Maintenance Obligations

Monthly alimony, child support or separate maintenance fees should be current at time of application and must be included in the borrower’s debt-to-income ratio. File should contain supporting documentation as evidence of the obligation, such as a final divorce decree, property settlement agreement, signed legal separation agreement, or court order. If payments are past due, the arrearages must be brought current prior to loan closing or must be repaid through an active repayment plan and included in the DTI calculation.

If 10 or fewer payments remain, see Installment Debt to determine if the obligation may be excluded from the DTI calculation.

Undisclosed Debts

If asset statements provided reflect payments made on obligations not listed on the credit report or 1003, additional information must be obtained to determine if the liability should be included in the borrower’s debt- to-income ratio.

If the obligation does not belong to the borrower, supporting documentation is required. If there is a non- borrower also on the account, a signed letter of explanation from the borrower is sufficient.

If the borrower is the obligor on the debt, an account statement and pay history should be obtained to review the account for acceptability. The payment must be included in the debt ratio.

Undisclosed Debts

If asset statements provided reflect payments made on obligations not listed on the credit report or 1003, additional information must be obtained to determine if the liability should be included in the borrower’s debt- to-income ratio.

If the obligation does not belong to the borrower, supporting documentation is required. If there is a non- borrower also on the account, a signed letter of explanation from the borrower is sufficient.

If the borrower is the obligor on the debt, an account statement should be obtained to review the account for acceptability. The payment must be included in the debt ratio. Proof the debt is no more than 30 days past due is required at closing.

 

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Employment/ Income Documentation >

Pay Stubs and W-2s

Pay stubs and W-2s should be typed or computer generated. They should provide the borrower’s full name, address, employer name, year-to-date earnings, and rate of pay.

CMS will consider handwritten pay stubs as long as the borrower can provide the most recent two years of tax returns along with the W-2s and tax transcripts.

If pay stubs reflects garnishments (child support, IRS, etc.) or any loan deductions, additional information will be required to determine if a monthly payment should be included in the debt-to-income ratio calculation.

W-2s should reflect a nine-digit Employer ID Number (EIN). Also, Social Security and Medicare withholding should be calculated at the appropriate rates on the W-2s and pay stubs.

Federal Income Tax Returns

For some types of income, federal income tax returns (personal and/or business) are required. See Self-Employed Income for detailed requirements.

Employment/ Income Documentation >

Pay Stubs and W-2s

Pay stubs and W-2s should be typed or computer generated. They should provide the borrower’s full name, address, employer name, year-to-date earnings, and rate of pay.

CMS will consider handwritten pay stubs as long as the borrower can provide the most recent two years of tax returns along with the W-2s and tax transcripts.

If pay stubs reflects garnishments (child support, IRS, etc.) or any loan deductions, additional information will be required to determine if a monthly payment should be included in the debt-to-income ratio calculation.

W-2s should reflect a nine-digit Employer ID Number (EIN). Also, Social Security and Medicare withholding should be calculated at the appropriate rates on the W-2s and pay stubs.

W-2 transcripts may be used in lieu of paper W-2s.

Federal Income Tax Returns

For some types of income, federal income tax returns (personal and/or business) are required. See Self-Employed Income for detailed requirements.

1040 transcripts may be used in lieu of paper 1040s when the breakdown of the individual schedules are not required for qualifying purposes.

Bank Statement Documentation

Self-employed borrowers are eligible for either Personal Bank Statement Documentation or Business Bank Statement Documentation. The following restrictions apply to both documentation types:

Ÿ  Borrowers must be self-employed for at least two (2) years verified by two (2) years of business licenses or a CPA letter.

Ÿ  Business must be in existence for at least two (2) years.

Ÿ  Standard Tradelines and a 12-month housing history are required.

Bank Statement Documentation

Self-employed borrowers are eligible for either Personal Bank Statement Documentation or Business Bank Statement Documentation. The following restrictions apply to both documentation types:

Ÿ  Borrowers must be self-employed for at least two (2) years verified by two (2) years of business licenses or a CPA letter.

Ÿ  Business must be in existence for at least two (2) years.

Ÿ  Standard Tradelines and a 12-month housing history are required.

   

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Bank Statement Documentation, continued

Ÿ  Non-Permanent Resident Aliens and Foreign Nationals are ineligible.

Ÿ  All parties listed on each bank account must be included as borrowers on the loan.

Ÿ  Statements must be consecutive and reflect the most recent months available.

Ÿ  Statements must support stable and generally predictable deposits. Unusual deposits must be documented.

Ÿ  Evidence of a decline in earnings may result in disqualification.

Ÿ  Up to three (3) NSF checks in the most recent 12-month period are allowed with explanation from the borrower. Note: Overdraft Protection Transfers are not considered an NSF.

Ÿ  If bank statements provided reflect payments being made on obligations not listed on the credit report, see Undisclosed Debts for additional guidance.

Bank Statement Documentation, continued

Ÿ  Non-Permanent Resident Aliens and Foreign Nationals are ineligible.

Ÿ  All parties listed on each bank account must be included as borrowers on the loan.

Ÿ  Statements must be consecutive and reflect the most recent months available.

Ÿ  Statements must support stable and generally predictable deposits. Unusual deposits must be documented.

Ÿ  Evidence of a decline in earnings may result in disqualification.

Ÿ  Up to three (3) NSF checks or overdrafts resulting in fees in the most recent 12-month period are allowed with explanation from the borrower. Note: Overdraft Protection Transfers from a linked bank account or line of credit are not considered an NSF.

Ÿ  If bank statements provided reflect payments being made on obligations not listed on the credit report, see Undisclosed Debts for additional guidance.

Ÿ  PayPal business account statements are not eligible. Paypal earnings must be deposited into a business or personal bank account for consideration.

Rental Income

Rental income can be used for qualifying. The following requirements apply:

·       Rental income must be disclosed on the loan application

·       Rental income from a 1-unit primary residence or second homes may not be used

·       Boarder income may not be used

·       Required forms:

o   Single Family Comparable Rent Schedule (FNMA Form 1007)

o   Operating Income Statement form (FNMA Form 216)

o   1-4 Family Rider Assignment of Rents for all investment properties (FNMA Form 3170)

Rental Income

Rental income can be used for qualifying. The following requirements apply:

·       Rental income must be disclosed on the loan application

·       Rental income from a 1-unit primary residence or second homes may not be used

·       Boarder income may not be used

·       Required forms:

o   Single Family Comparable Rent Schedule (FNMA Form 1007)

o   1-4 Family Rider Assignment of Rents for all investment properties (FNMA Form 3170)

     

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Calculating Rental Income from the Subject Property

Rental income from the subject property owned prior to loan application should be calculated using the borrower’s federal income tax returns for the most recent 12-month period (Cash Flow Analysis of Schedule E). Income should be averaged. Net rental losses should be included in ratios as a liability.

For properties owned for less than 2 years, rental income should be calculated using the lesser of:

  • 75% of the current lease minus the full PITIA; or
  • Cash flow analysis of the Schedule E from the most recent year’s federal income tax return (if applicable)

Rental income from a new property being acquired through a purchase transaction can be used to qualify, using the lesser of:

  • 75% of the current lease minus the full PITIA (evidence of deposit must be obtained); or
  • 75% of the appraiser’s opinion of rent on appraisal form 1007/216 minus the full PITIA

If no lease exists and rental income is calculated using only the appraiser’s opinion of rent, an additional 3 months PITIA reserves is required.

Calculating Rental Income from the Subject Property

Rental income from the subject property owned prior to loan application should be calculated using the borrower’s federal income tax returns for the most recent 12-month period (Cash Flow Analysis of Schedule E). Income should be averaged. Net rental losses should be included in ratios as a liability.

Rental income should be calculated using the lesser of:

  • 75% of the current lease minus the full PITIA; or
  • Cash flow analysis of the Schedule E from the most recent year’s federal income tax return (if applicable)

The underwriter may determine circumstances warrant utilizing 75% of the current lease agreement despite the rental appearing on Schedule E. In such cases, the underwriter must provide an explanation and justification in the loan file.

Rental income from a new property being acquired through a purchase transaction can be used to qualify, using the lesser of:

  • 75% of the current lease minus the full PITIA (evidence of deposit must be obtained); or
  • 75% of the appraiser’s opinion of rent on appraisal form 1007/216 minus the full PITIA

If no lease exists and rental income is calculated using only the appraiser’s opinion of rent, an additional 3 months PITIA reserves is required.

   

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Rental Income from Other Real Estate Owned

Rental income from another property owned prior to loan application should be calculated using the borrower’s federal income tax returns for the most recent 12-month period (Cash Flow Analysis of Schedule E). Income should be averaged. Net rental losses should be included in ratios as a liability.

For properties owned for less than 1 year, rental income should be calculated using the lesser of:

  • 75% of the current lease minus the full PITIA; or
  • Cash flow analysis of the Schedule E from the most recent year’s federal income tax return (if applicable)

Rental Income from Other Real Estate Owned

Rental income from another property owned prior to loan application should be calculated using the borrower’s federal income tax returns for the most recent 12-month period (Cash Flow Analysis of Schedule E). Income should be averaged. Net rental losses should be included in ratios as a liability.

Rental income should be calculated using the lesser of:

  • 75% of the current lease minus the full PITIA; or
  • Cash flow analysis of the Schedule E from the most recent year’s federal income tax return (if applicable)

The underwriter may determine circumstances warrant utilizing 75% of the current lease agreement despite the rental appearing on Schedule E. In such cases, the underwriter must provide an explanation and justification in the loan file.

Unacceptable Income

  • Gambling winnings (except lottery continuing for 5 years)
  • Educational benefits
  • Stock options
  • Refunds of federal, state, or local taxes
  • Expense account reimbursement
  • Illegal income

Unacceptable Income

  • Gambling winnings (except lottery continuing for 5 years)
  • Educational benefits
  • Stock options
  • Refunds of federal, state, or local taxes
  • Expense account reimbursement
  • Illegal income
  • Income from medical marijuana dispensaries
  • Any business or activity related to recreational marijuana use, growing, selling or supplying of marijuana, even if legally permitted under state or local law.
     

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Reserves

Reserves are measured by the number of months of housing expense a borrower could pay using his or her financial assets. The highest reserve requirement, rather than a cumulative total, should be used when a transaction has multiple required reserves.

Net proceeds from cash-out transactions can be used to meet the reserve requirement. Gift funds may not be considered.

Additional reserves are also required when the following situations are present:

  • Multiple Financed Properties: 2 months for each additional property
  • Use of Rental Income Without a Lease: 3 months in addition to standard requirement
  • First-Time Homebuyer: 6 months
  • Limited Tradelines: 6 months
  • No Housing History or Less Than 12 Months Verified: 6 months

The reserve requirement is reduced to 3 months under the Carrington Flexible Advantage Plus and Carrington Flexible Advantage Programs when all of the following requirements are met:

  • Primary occupancy; and
  • LTV ≥ 10% below the maximum available for the transaction; and
  • DTI ≤ 43%.

Reserves

Reserves are measured by the number of months of housing expense a borrower could pay using his or her financial assets. The highest reserve requirement, rather than a cumulative total, should be used when a transaction has multiple required reserves.

Net proceeds from cash-out transactions can be used to meet the reserve requirement. Gift funds may not be considered.

Additional reserves are also required when the following situations are present:

  • Multiple Financed Properties: 2 months for each additional property
  • Use of Rental Income Without a Lease: 3 months in addition to standard requirement
  • First-Time Homebuyer: 6 months
  • Limited Tradelines: 6 months
  • No Housing History or Less Than 12 Months Verified: 6 months
  • Bank Statement Income: 6 months

The reserve requirement is reduced to 3 months under the Carrington Flexible Advantage Plus and Carrington Flexible Advantage Programs when all of the following requirements are met:

  • Primary occupancy; and
  • LTV ≥ 10% below the maximum available for the transaction; and
  • DTI ≤ 43%.

All income types meeting these parameters can receive the reduced reserves.

     

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Gifts of Equity

Gifts of equity on non-arm’s length transactions are allowed. Transactions with gifts of equity are subject to the maximum LTVs available for cash-out transactions, and no minimum borrower contribution is required.

The following requirements apply:

  • Primary residence transactions only
  • Gift of equity is from an immediate family member*
  • Six months of reserves required of borrower’s own funds
  • Non-arm’s length criteria is met
  • Signed gift letter is provided
  • Gift of equity is listed on the settlement statement

* Family Member is defined as follows, regardless of actual or perceived sexual orientation, gender identity, or legal marital status:

  • child, parent, or grandparent;

o   a child is defined as a son, stepson, daughter, or stepdaughter;

o   a parent or grandparent includes a step-parent/grandparent or foster parent/grandparent;

  • spouse or domestic partner;
  • legally adopted son or daughter, including a child who is placed with the Borrower by an authorized agency for legal adoption;
  • foster child;
  • brother, stepbrother;
  • sister, stepsister;
  • uncle;
  • aunt; or
  • son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the Borrower.

·       cousins are NOT considered a family member

Gifts of Equity

Gifts of equity on non-arm’s length transactions are allowed. Transactions with gifts of equity are subject to the maximum LTVs available for cash-out transactions, and no minimum borrower contribution is required.

The following requirements apply:

  • Primary residence transactions only
  • Gift of equity is from a relative
  • Six months of reserves required of borrower’s own funds
  • Non-arm’s length criteria is met
  • Signed gift letter is provided
  • Gift of equity is listed on the settlement statement
   

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Retirement Accounts

Vested funds from individual retirement accounts (IRA/SEP/Keogh accounts) and tax-favored retirement savings accounts (401(k) accounts) are acceptable sources of funds for the down payment, closing costs, and reserves. The lender must verify the ownership of the account and confirm that the account is vested and allows withdrawals regardless of current employment status.

If the retirement assets are in the form of stocks, bonds, or mutual funds, the account must meet the requirements of Stocks, Bonds, and Mutual Funds for determining value and whether documentation of the borrower’s actual receipt of funds is required when used for the down payment and closing costs. When funds from retirement accounts are used for reserves, the funds do not have to be withdrawn from the account.

If the borrower intends to use the retirement account to also satisfy income requirements see also Proof of Continuance.

Retirement Accounts

Vested funds from individual retirement accounts (IRA/SEP/Keogh accounts) and tax-favored retirement savings accounts (401(k) accounts) are acceptable sources of funds for the down payment, closing costs, and reserves. The lender must verify the ownership of the account and confirm that the account is vested and allows withdrawals regardless of current employment status.

If the retirement assets are in the form of stocks, bonds, or mutual funds, the account must meet the requirements of Stocks, Bonds, and Mutual Funds for determining value and whether documentation of the borrower’s actual receipt of funds is required when used for the down payment and closing costs. When funds from retirement accounts are used for reserves, the funds do not have to be withdrawn from the account.

If the borrower intends to use the retirement account to also satisfy income requirements they must qualify at 60% of the retirement assets (70% for borrowers of retirement age that do not have a 10% withdrawal penalty), see also Proof of Continuance.

PACE, HERO and other Energy Efficiency Loans:

Loans used to finance energy improvements such as PACE or HERO loans may be paid off and included in the new mortgage as follows: loans with seasoning of 12 months or longer may be refinanced as a Rate/Term transaction. Loans with seasoning of less than 12 months must be refinanced as a cash-out transaction. Seasoning is measured from the recording date of the energy improvement loan to the Note date of the new refinance loan transaction.

PACE, HERO and other Energy Efficiency Loans:

Liens for Property Assessed Clean Energy (PACE) or Home Energy Renovation Opportunity (HERO) and other energy efficiency loans may not remain on title.

Loans used to finance energy improvements such as PACE or HERO loans may be paid off and included in the new mortgage as follows: loans with seasoning of 12 months or longer may be refinanced as a Rate/Term transaction. Loans with seasoning of less than 12 months must be refinanced as a cash-out transaction. Seasoning is measured from the recording date of the energy improvement loan to the Note date of the new refinance loan transaction.

   

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Uniform Residential Appraisal Report (URAR)

Appraisers are required to use current appraisal report forms that are acceptable to Fannie Mae and/or Freddie Mac. The following appraisal report forms should be used:

  • Uniform Residential Appraisal Form (FNMA Form 1004)
  • Small Residential Income Property Appraisal Report (FNMA Form 1025)
  • Individual Condominium Unit Appraisal Report (FNMA Form 1073)
  • Market Conditions Addendum to the Appraisal Report (FNMA Form 1004MC)
  • Appraisal Update and/or Completion Report (FNMA Form 1004D)
  • Single Family Comparable Rent Schedule for all 1-unit investment properties (FNMA Form 1007)

·       Operating Income Statement for 2-4 unit investment properties (FNMA Form 216)

·       1-4 Family Rider (Assignment of Rents) for all investment properties (FNMA Form 3170)

Uniform Residential Appraisal Report (URAR)

Appraisers are required to use current appraisal report forms that are acceptable to Fannie Mae and/or Freddie Mac. The following appraisal report forms should be used:

  • Uniform Residential Appraisal Form (FNMA Form 1004)
  • Small Residential Income Property Appraisal Report (FNMA Form 1025)
  • Individual Condominium Unit Appraisal Report (FNMA Form 1073)
  • Market Conditions Addendum to the Appraisal Report (FNMA Form 1004MC)
  • Appraisal Update and/or Completion Report (FNMA Form 1004D)
  • Single Family Comparable Rent Schedule for all 1-unit investment properties (FNMA Form 1007)

·       1-4 Family Rider (Assignment of Rents) for all investment properties (FNMA Form 3170)

Age of Appraisal and Appraisal Updates

Properties must be appraised within the 12 months that precede the date of the note and mortgage.

When an appraisal report will be more than 4 months old on the date of the note and mortgage, regardless of whether the property was appraised as proposed or existing construction, the appraiser must inspect the exterior of the property and review current market data to determine whether the property has declined in value since the date of the original appraisal. This inspection and results of the analysis must be reported on the Appraisal Update and/or Completion Report (Form 1004D), with interior and exterior photos.

Age of Appraisal and Appraisal Updates

Properties must be appraised within the 240 days that precede the date of the note and mortgage.

When an appraisal report will be more than 4 months old on the date of the note and mortgage, regardless of whether the property was appraised as proposed or existing construction, the appraiser must inspect the exterior of the property and review current market data to determine whether the property has declined in value since the date of the original appraisal. This inspection and results of the analysis must be reported on the Appraisal Update and/or Completion Report (Form 1004D), with exterior photos.

   

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Minimum Property Standards

All properties must:

  • Be improved real property
  • Be designed and available for year around residential use
  • Contain a kitchen and a bathroom
  • Contain a minimum of 600 square feet of gross living area
  • Be heated by a continuously fueled heat source which is permanently affixed to the real estate. Alternative heat sources are acceptable when marketability has been demonstrated.
  • Average or better than average condition
  • Represent the “highest and best” use of the subject
  • Be free of all health and safety violations
  • NOT be in violation of any housing codes or exhibit items that adversely affect the ownership, habitability, or marketability of the subject property

·       Must have a remaining economic life of 30 years

Minimum Property Standards

All properties must:

  • Be improved real property
  • Be designed and available for year around residential use
  • Contain a kitchen and a bathroom
  • Contain a minimum of 600 square feet of gross living area
  • Be heated by a continuously fueled heat source which is permanently affixed to the real estate. Alternative heat sources are acceptable when marketability has been demonstrated.
  • Average or better than average condition
  • Represent the “highest and best” use of the subject
  • Be free of all health and safety violations
  • Not exhibit items that adversely affect the ownership, habitability, or marketability of the subject property

·       Must have a remaining economic life of 30 years

Appraisal Review Process

CMS permits use of Fannie Mae Collateral Underwriter (CU) in lieu of a Desk Review under certain circumstances for Carrington Flexible Advantage and Carrington Flexible Advantage Plus loan transactions.  If CU returns a score of 2.5 or lower, a Clear Capital Collateral Desktop Analysis (CDA) will not be required. If the CU score is greater than 2.5, then the following requirements are applicable:

All loans with Retail Application Date/Broker Submission Date on and after August 16, 2018:

Collateral Desktop Analysis (CDA) or a Desk Review required for all properties. 

Appraisal Review Process

CMS permits use of Fannie Mae Collateral Underwriter (CU) in lieu of a Desk Review under certain circumstances for Carrington Flexible Advantage and Carrington Flexible Advantage Plus loan transactions.  If CU returns a score of 2.5 or lower, a Clear Capital Collateral Desktop Analysis (CDA) will not be required. If the CU score is greater than 2.5, a CDA is required for all properties.

   

Carrington Flexible Advantage Underwriting Guidelines, continued

Old Requirements

Updated Requirements

Appraisal Review Process, continued

The following requirements apply to all loans with Retail Application Date/Broker Submission Date prior to August 16, 2018:

The following transactions require one of the aforementioned review products:

 

Property Considerations > New Construction

The following are required for all new construction properties:

  • Appraisal Update and/or Completion Report (FNMA Form 1004D) with complete interior and exterior photos reflecting completion, if applicable. Proposed improvements are not allowed.
  • Property taxes are calculated at 1.5% of the sales price for qualification. 1.25% should be used for properties located in CA.

Property Considerations > New Construction

The following are required for all new construction properties:

  • Appraisal Update and/or Completion Report (FNMA Form 1004D) with complete interior and exterior photos reflecting completion, if applicable. Proposed improvements are not allowed.
  • To calculate property taxes for new construction, use the estimated taxes from the builder or escrow/closing agent or the Prequalification Tax Rate Table (refer to guidelines) can be used when other resources do not exist to provide tax information for the subject property county. This table contains recommended percentages; however, actual values should be used whenever possible.

Contacts

Please contact CorrespondentRM@carringtonms.com with any questions.

Carrington thanks you for your business.