Non-QM Underwriting Guideline Updates

• Single-Family Residence
• Planned Unit Development Type E (existing)
• Planned Unit Development Type F (new)
• Townhomes
• 2-4 unit Multi-Family Properties
• Modular Homes*
• Condominium (low-rise and high-rise)
• Site Condominium
• Hobby Farms
• Agriculturally Zoned Properties
• Mixed-Use Properties

• Single-Family Residence
• Planned Unit Development Type E (existing)
• Planned Unit Development Type F (new)
• Townhomes
• 2-4 unit Multi-Family Properties
• Modular Homes*
• Condominium (low-rise and high-rise)
• Site Condominium
• Condotels or Condo Hotels
• Non-Warrantable Condominiums
• Hobby Farms
• Agriculturally Zoned Properties
• Mixed-Use Properties
• Leaseholds

• Manufactured / Mobile Homes
• Co-operative Units
• Condotels or Condo Hotels
• Leaseholds
• Log Homes
• Working / Income Producing Farms
• Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)
• Barn conversions or Barndominiums
• Properties with active oil, gas, or mineral drilling, excavation, etc.
• Hawaiian properties in lava zones 1 and 2
• Builder Model Leaseback
• Non-Conforming zoning regulations that prohibit rebuilding
• Illegally zoned properties
• Group homes or boarding houses, including convalescent and/or healthcare homes, Nursing homes, Adult care centers
• State-approved medical marijuana producing properties
• Non-Warrantable Condominiums (case-by case exceptions)

• Manufactured / Mobile Homes
• Co-operative Units
• Log Homes
• Working / Income Producing Farms
• Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)
• Barn conversions or Barndominiums
• Properties with active oil, gas, or mineral drilling, excavation, etc.
• Indian Leased Land
• Hawaiian Homelands
• Hawaiian properties in lava zones 1 and 2
• Builder Model Leaseback
• Non-Conforming zoning regulations that prohibit rebuilding
• Illegally zoned properties
• Group homes or boarding houses, including convalescent and/or healthcare homes, Nursing homes, Adult care centers
• State-approved medical marijuana producing properties

• Single-Family Residence
• Planned Unit Development Type E (existing)
• Planned Unit Development Type F (new)
• Townhomes
• 2-4 unit Multi-Family Properties*
• Modular Homes*
• Condominium (low-rise and high-rise)
• Site Condominium

• • Single-Family Residence
  • Planned Unit Development Type E (existing)
  • Planned Unit Development Type F (new)
  • Townhomes
  • 2-4 unit Multi-Family Properties*
  • Modular Homes*
  • Condominium (low-rise and high-rise)
  • Site Condominium
  • Condotels or Condo Hotels
  • Non-Warrantable Condominiums
  • Leaseholds

• Manufactured Homes
• Co-operative Units
• Condotels or Condo Hotels
• Mixed-Use Properties
• Leaseholds
• Log Homes
• Farms or Hobby/Working Farms
• Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)
• Properties with oil, gas, or mineral rights
• Builder Model Leaseback
• Non-Conforming zoning regulations that prohibit rebuilding
• Illegally zoned properties
• Hawaiian properties in lava zones 1 and 2
• Group homes or boarding houses, including convalescent and/or healthcare homes, Nursing homes, Adult care centers
• State-approved medical marijuana producing properties
• Non-Warrantable Condominiums (case-by case exceptions)

• Manufactured Homes
• Co-operative Units
• Mixed-Use Properties
• Log Homes
• Farms or Hobby/Working Farms
• Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)
• Properties with oil, gas, or mineral rights
• Builder Model Leaseback
• Non-Conforming zoning regulations that prohibit rebuilding
• Illegally zoned properties
• Hawaiian properties in lava zones 1 and 2
• Indian Leased Land
• Hawaiian Homelands
• Group homes or boarding houses, including convalescent and/or healthcare homes, Nursing homes, Adult care centers
• State-approved medical marijuana producing properties

The requirements for Leasehold Mortgages are as follows:

• The term of the leasehold estate must run for at least five years beyond the maturity date of the Mortgage unless the fee simple title vests at an earlier date.
• The loan must be secured by a first lien in the property improvements and the borrower's rights in the leasehold interest in the land.
• The lease estate and the improvements must constitute real property and be subject to the mortgage lien.
• All rents, other payments, or assessments under the lease that have become due must be paid.
• The lease must not be in default under any provision of the lease and the lessor must not have claimed any such default.
• The lease must be recorded in the appropriate land records.
• The lease must allow the lease for it (including the lessee's option to purchase) to be assigned, transferred, mortgaged, and subleased an unlimited number of times either without restriction or on payment of a reasonable fee and delivery of reasonable documentation to the lessor. The lease must not require a credit review or impose other qualifying criteria on any assignee, transferee, mortgagee, or sublessee.
• The lease must provide protection of the lender's financial interests in the event of a condemnation or similar taking proceeding.

Note: If the lease provisions are silent or insufficient, the lender may rely on applicable state law or other written agreement that provides substantially the same protections.

• The lease must not include any default provisions that could result in forfeiture or termination of the lease, unless the lease provides the lender with:

• the right to receive notice of any lessee default under the lease, and
• at least 30 days, at the lender's option, to either cure the default, take over the lessee's rights under the lease, or commence foreclosure.

Note: If the property is located in Maryland, it is exempt from this requirement if applicable state law provides for the registration of residential leases with the state and requires the lessor to send written notice of default under the lease to the lender at least 30 days prior to the lessor filing an action for possession.

The lease must not include any provisions that allow the leasehold estate to be extinguished or otherwise impaired by any merger of title between the lessor and lessee without the lender's prior consent.

• Projects comprised of manufactured homes
• Projects with units used for ‘live-work”
• Projects managed and operated as a hotel or motel
• Projects containing the word hotel or motel in the name
• Projects that restrict the owner’s ability to occupy the unit
• Projects with mandatory rental pooling agreements that require unit owners to either rent their units or give a management firm control over unit occupancy
• Projects with non-incidental business operations owned or operated by the homeowners’ association (such as a restaurant, spa, health club, etc.)
• Common interest apartments
• Timeshare or segmented ownership projects
• Continuing Care Retirement Communities or Life Care Facilities

Multi-unit dwelling condos that permit an owner to hold title to more than one dwelling unit, with ownership of all of his or her owned units evidenced by a single deed and financed by a single mortgage

• Projects comprised of manufactured homes
• Projects with units used for ‘live-work”
• Common interest apartments
• Timeshare or segmented ownership projects
• Continuing Care Retirement Communities or Life Care Facilities
• Multi-unit dwelling condos that permit an owner to hold title to more than one dwelling unit, with ownership of all of his or her owned units evidenced by a single deed and financed by a single mortgage

A condominium project that is not approved through the Fannie Mae, FHA, or HOA Certification Review options may be eligible as a non-warrantable condominium project, subject to management review and approval.  Refer to the program matrix for maximum LTVs.  The reason for the project's ineligibility through one of the approval methods must be documented.  Examples of generally accepted non-warrantable condo features include:

• New projects that lack PERS approval but are generally complete with a sufficient number of units sold or under contract for sale
• Projects with investor-owned unit concentrations exceeding 50%
• Projects where a single entity owns more than 10% of the units
• Projects with commercial space exceeding 25%
• Projects with reserve contributions of less than 10% of the annual budgeted HOA dues
• Projects with leased amenities, provided the lease does not impede CMS's lien position
• Projects with insurance deductibles that exceed 5%
• And other non-warrantable reasons

Non-warrantable condo projects will be reviewed to ensure the project is operating with an acceptable budget and in a way that doesn't impede the general marketability of the units. Projects that are significantly under-insured, past due on required building inspection, contain construction defects that pose an immediate threat to the occupants or structural integrity of the improvements, or with limited marketability will not be accepted.

Condotel Projects

Condominium projects that are unable to be warranted due to condotel-like features may be approved as a non-warrantable condo project.  Refer to the program matrix for maximum LTVs.  Non-warrantable condominium projects require management review and approval.  Examples of acceptable condotel-like features include:

• Projects located in resort areas or that contain resort-like amenities
• Projects with a high concentration of short-term rentals
• Projects where the HOA maintains a website or other services to facilitate the listing of available units for rent

Projects that exhibit reduced or limited marketability or any of the following features will not generally be approved:

• • Conversion from a previous motel or hotel use
  • Mandatory rental or pooling of units
  • Restrictions on a unit-owner's ability to occupy

• Timeshare, fractional, or split ownership of units