Announcement 18-0005: Carrington Advantage Underwriting Guideline Updates

Carrington Flexible Advantage Underwriting Changes

Document

Old Requirements

Updated Requirements

Flexible Advantage/ Advantage Plus Guidelines

General Refinance Requirements

Properties Listed for Sale

To be eligible for either a rate/term or a cash-out refinance, the subject property must be taken off the market on or before the application date. The borrower must also confirm in writing the reason for the prior listing and intent to occupy the subject property.

For cash-out transactions, if the subject property was listed for sale in the 6 months prior to the application date, a 10% LTV reduction from the maximum available for the specific transaction is required.

The lesser of the most recent list price or the current appraised value should be used to determine loan- to-value for both

General Refinance Requirements

Payoff in Less Than 12 Months

CMS may refrain from making a loan if it obtains any information that indicates that the borrower may pay off the loan in fewer than 12 months, whether such payoff is anticipated by refinance, sale of the property or otherwise.

Properties Listed for Sale

To be eligible for either a rate/term or a cash-out refinance, the subject property must be taken off the market on or before the application/submission date. The borrower must also confirm in writing the reason for the prior listing and intent to occupy the subject property.

For cash-out transactions, if the subject property was listed for sale in the 6 months prior to the application/submission date, a 10% LTV reduction from the maximum available for the specific transaction is required.

The lesser of the most recent list price or the current appraised value should be used to determine loan- to-value for both rate/term or cash-out transactions.

Cash-Out Refinance

Seasoning

For all cash-out refinance transactions:

• A minimum of six (6) months must have elapsed since the most recent title transfer or mortgage transaction (either the original purchase transaction or subsequent refinance) on the subject property. For title transfers the recording date to note date is used to calculate the six (6) months. For mortgage transactions the note date to note date is used to calculate the six (6) months.

See also Determining Loan-to- Value for calculating LTV.

For cash-out refinance transactions where the property is currently vested in a trust, the borrowers must have owned the property in the name of a trust for at least six (6) months prior to closing.

There is no waiting period if the borrower was legally awarded the property through divorce, separation, or dissolution of a domestic partnership. See also Inherited Properties and Property Buyouts.

Cash-Out Refinance

Seasoning

For all cash-out refinance transactions:

• At least one borrower must have been on title a minimum of six (6) months prior to the new note date, and
• A minimum of six (6) months must have elapsed since the most recent mortgage transaction (either the original purchase transaction or subsequent refinance) on the subject property. Note date to note date is used to calculate the six (6) months.

See also Determining Loan-to- Value for calculating LTV and Continuity of Obligation.

For cash-out refinance transactions where the property is currently vested in a trust, the borrowers must have owned the property in the name of a trust for at least six (6) months prior to closing.

There is no waiting period if the borrower was legally awarded the property through divorce, separation, or dissolution of a domestic partnership. See also Inherited Properties and Property Buyouts

Flip Transactions

When the subject property is being resold within 365 days of its acquisition by the seller and the sales price has increased more than 10%, the transaction is considered a “flip”. To determine the 365-day period, the acquisition date (the day the seller became the legal owner of the property) and the purchase date (the day both parties executed the purchase agreement) should be used.

Flip transactions are subject to the following requirements:

• All transactions must be arm’s length, with no identity of interest between the buyer and property seller or other parties participating in the sales transaction
• No pattern of previous flipping activity may exist in the last 12 months. Exceptions to ownership transfers may include newly constructed properties, sales by government agencies, properties inherited or acquired through divorce, and sales by the holder of a defaulted loan
• The property was marketed openly and fairly, through a multiple listing service, auction, for sale by owner offering (documented) or developer marketing
• No assignments of the contract to another buyer
• If the property is being purchased for more than 5% above the appraised value, a signed letter of acknowledgement from the borrower must be obtained
• An additional appraisal product is required. See Appraisal Review Process

Flip transactions must comply with the HPML appraisal rules in Regulation Z. The full Reg Z revisions can be found at: http://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/appraisals-higher-priced- mortgage-loans/. A second appraisal is required in the following circumstances:

• Greater than 10% increase in sales price if seller acquired the property in the past 90 days
• Greater than 20% increase in sales price if seller acquired the property in the past 91-180 days

Flip Transactions

When the subject property is being resold within 365 days of its acquisition by the seller and the sales price has increased more than 10%, the transaction is considered a “flip”. To determine the 365-day period, the acquisition date (the day the seller became the legal owner of the property) and the purchase date (the day both parties executed the purchase agreement) should be used.

Flip transactions are subject to the following requirements:

• All transactions must be arm’s length, with no identity of interest between the buyer and property seller or other parties participating in the sales transaction
• No pattern of previous flipping activity may exist in the last 12 months. Exceptions to ownership transfers may include sales by government agencies, properties inherited or acquired through divorce, and sales by the holder of a defaulted loan
• The property was marketed openly and fairly, through a multiple listing service, auction, for sale by owner offering (documented) or developer marketing
• Transactions involving newly constructed properties require a second appraisal
• No assignments of the contract to another buyer
• If the property is being purchased for more than 5% above the appraised value, a signed letter of acknowledgement from the borrower must be obtained
• An additional appraisal product is required. See Appraisal Review Process

Flip transactions must comply with the HPML appraisal rules in Regulation Z. The full Reg Z revisions can be found at: http://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/appraisals-higher-priced- mortgage-loans/. A second appraisal is required in the following circumstances:

• Greater than 10% increase in sales price if seller acquired the property in the past 90 days
• Greater than 20% increase in sales price if seller acquired the property in the past 91-180 days

Asset Depletion

Asset Conversion may be used to determine qualifying income under the Carrington Flexible Advantage Plus Program only. Cash-out transactions are not permitted. See the Carrington Flexible Advantage Plus Program Matrix for credit score and LTV restrictions.

Borrowers must have the lesser of (a) 1.5 times the loan balance or (b) $1mm in qualified assets, both of which must be net of down payment, loan costs and required reserves to qualify.

Qualified Assets can be comprised of stocks, bonds, mutual funds, vested amount of retirement accounts and bank accounts. If a portion of the qualified assets are being used for down payment, closing costs, or reserves, those amounts must be excluded from the balance before analyzing a portfolio for income determination. Please note: Restricted stock and margined accounts are not considered qualified assets and are not eligible.

The following assets are considered Qualified Assets and can be utilized to calculate income:

·       100% of checking, savings, and money market accounts

·       70% of the remaining value of stocks & bonds

·       60% of retirement assets

·       6-month seasoning of assets required

The income calculation is as follows:

Monthly Income = Net Qualified Assets / 120 Months

Asset Depletion

Asset Conversion may be used to determine qualifying income under the Carrington Flexible Advantage Plus Program only. Cash-out transactions are not permitted. See the Carrington Flexible Advantage Plus Program Matrix for credit score and LTV restrictions.

Borrowers must have the lesser of (a) 1.5 times the loan balance or (b) $1mm in qualified assets, both of which must be net of down payment, loan costs and required reserves to qualify.

Qualified Assets can be comprised of stocks, bonds, mutual funds, vested amount of retirement accounts and bank accounts. If a portion of the qualified assets are being used for down payment, closing costs, or reserves, those amounts must be excluded from the balance before analyzing a portfolio for income determination. Please note: Restricted stock and margined accounts are not considered qualified assets and are not eligible.

The following assets are considered Qualified Assets and can be utilized to calculate income:

·       100% of checking, savings, and money market accounts

·       70% of the remaining value of stocks & bonds

·       60% of retirement assets (70% for borrowers of retirement age that do not have a 10% withdrawal penalty)

·       6-month seasoning of assets required

The income calculation is as follows:

Monthly Income = Net Qualified Assets / 120 Months

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

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

Appraisal Review Process

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

The following transactions require one of the aforementioned review products:

• Loan amounts ˃ $453,100
• Cash-out > $100,000
• Non-arm’s length transactions
• Flip transactions

All refinances under the Investment Property Program 

The following transactions require a field review or Clear Capital CDA (or like product):

• LTV > 80%
• Loan amounts from $1,000,000 - $2,000,000

Existing CMS policies should continue to be followed for guidance on ordering discretionary appraisal review products if there are concerns with the original appraisal report. CMS reserves the right to request additional appraisal products at our discretion based on review of the appraisal and loan file.

The following transactions may require a 2nd full appraisal:

• HPML property Flip transactions

Existing CMS policies should continue to be followed for guidance on ordering discretionary appraisal review products if there are concerns with the original appraisal report.

Appraisal Review Process

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

The following transactions require one of the aforementioned review products:

• Loan amounts ˃ $453,100
• Cash-out > $100,000
• Non-arm’s length transactions
• Flip transactions

All refinances under the Investment Property Program 

The following transactions require a field review or Clear Capital CDA (or like product):

• LTV > 80%
• Loan amounts from $1,000,000 - $2,000,000

Existing CMS policies should continue to be followed for guidance on ordering discretionary appraisal review products if there are concerns with the original appraisal report. CMS reserves the right to request additional appraisal products at our discretion based on review of the appraisal and loan file.

The following transactions will require a 2nd full appraisal:

• HPML property Flip transactions
• Newly constructed properties

Existing CMS policies should continue to be followed for guidance on ordering discretionary appraisal review products if there are concerns with the original appraisal report.

Flexible Advantage/ Advantage Plus Matrices

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 2 years.

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

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

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 3 NSF checks in the most recent 12-month period are allowed with explanation from the borrower.

Note: Overdraft coverage is 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

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 2 years.

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

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

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 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.

Ÿ  W-2 Wages: Additional income deposited into the bank statements but derived from a source other than the self-employed business may not be included in the bank statement average. W-2 earnings must be documented as per the requirements in Wage-Earners along with a processed 4506-T verifying the W-2 earnings only.

Ÿ  Rental Income: Obtain the most recent lease agreement(s) for rental properties and proof of receipt at the current lease rate using a cancelled check or bank statement. Calculate the qualifying rents by using 75% of the current lease minus the full PITIA.

NA

Rent Loss Insurance

Not Required