Announcement 19-0044: Carrington Advantage Program Guideline Updates

Overview

Carrington Mortgage Services, LLC (CMS) is pleased to announce the Carrington Advantage product (CFA and CFA Plus) underwriting guidelines have been revised with the following changes (highlighted in red):

Carrington Flexible Advantage Guidelines

Old Requirements

Updated Requirements

Consumer Credit Counseling Service (CCCS)

Borrower enrollment in CCCS is allowed when a minimum of 12 months have elapsed on the plan and evidence of timely payments for the most recent 12 months is provided. The CCCS administrator must also provide a letter allowing the borrower to seek financing on a new home while enrolled in the plan.

If accounts included in CCCS plan reflect as charge-off or collection accounts on the credit report, the Underwriter can exclude these balances from the charge-off and collection limits in Collections and Charge-offs. The monthly CCCS plan payment must be included in the DTI calculation.

If a completion date is not shown on the credit report, the borrower is required to submit verification from the counseling agency establishing the date of completion.

Consumer Credit Counseling Service (CCCS)

Borrower enrollment in CCCS is allowed when a minimum of 12 months have elapsed on the plan and evidence of timely payments for the most recent 12 months is provided. The CCCS administrator must also provide a letter allowing the borrower to seek financing on a new home while enrolled in the plan.

If accounts included in CCCS plan reflect as charge-off or collection accounts on the credit report, the Underwriter can exclude these balances from the charge-off and collection limits in Collections and Charge-offs. The monthly CCCS plan payment must be included in the DTI calculation.

If a completion date is not shown on the credit report, the borrower is required to submit verification from the counseling agency establishing the date of completion.

Note: If the CCCS accounts are being paid off through our closing transaction, the 12 months seasoning is not required.

 

Carrington Flexible Advantage Guidelines, continued

Old Requirements

Updated Requirements

Fraud Report and Background Check

All loans must include a third-party fraud detection report for all borrowers, borrowing entities and/or guarantors. Report findings must cover standard areas of quality control including, but not limited to: borrower validation, social security number verification, criminal records, and property information (subject property and other real estate owned). All high-level alerts on the report must be addressed by the Underwriter.

Fraud Report and Background Check

All loans must include a third-party fraud detection report for all borrowers, borrowing entities and/or guarantors. Report findings must cover standard areas of quality control including, but not limited to: borrower validation, social security number verification, exclusionary lists, and property information (subject property and other real estate owned). All high-level alerts on the report must be addressed by the Underwriter.

Business Debt

A business debt is a financial obligation of a business and can be the sole responsibility of the business or be personally secured by the business owner, making that person also liable for the debt. If the debt is reflected on the borrower’s personal credit report, the borrower is personally liable for the debt and it must be included in the debt-to-income ratio.

Debts paid by the borrower’s business can be excluded from the debt-to-income ratio with any of the following supporting documentation:

  • Most recent 6 months canceled checks drawn against the business account; or
  • Tax returns reflect the business expense deduction; or
  • Business bank account statement showing assets remain after funds to close and reserve requirements are with a balance greater than or equal to the balance of the debt.

If the debt is less than 6 months old, the payment must be included in the debt-to-income ratio.

Business Debt

A business debt is a financial obligation of a business and can be the sole responsibility of the business or be personally secured by the business owner, making that person also liable for the debt. If the debt is reflected on the borrower’s personal credit report, the borrower is personally liable for the debt and it must be included in the debt-to-income ratio.

Debts paid by the borrower’s business can be excluded from the debt-to-income ratio with any of the following supporting documentation:

  • Most recent 6 months canceled checks drawn against the business account; or
  • Tax returns reflect the business expense deduction; or
  • Business bank account statement showing assets remain after funds to close and reserve requirements are with a balance greater than or equal to the balance of the debt.

If the debt is less than 6 months old, the payment must be included in the debt-to-income ratio. If a recently opened debt replaced a similar paid-off liability, both liabilities may be used to meet the 6 month requirement provided a continuous payment history exists; for example, a business replacing an automobile liability with a new automobile liability.

 

 

Carrington Flexible Advantage Guidelines, continued

Old Requirements

Updated Requirements

Employment / Income Documentation /Self-Employed Confirmation of Employment Requirements

For self-employed borrowers, the existence of the business must be independently verified by two (2) years of business licenses or a CPA letter through a disinterested third party within 10 business days of closing. The loan file should reflect the documentation secured from these sources. Sources may include: CPA, regulatory agency, or applicable licensing bureau.

Employment / Income Documentation  /Self-Employed Confirmation of Employment Requirements

Verification of the existence of a self-employed borrower’s business for a minimum of 2 years from a third party, such as a CPA, regulatory agency, or the applicable licensing bureau is required. A CPA letter must include the name of the business, the owner(s) of the business, and how long the business has been in existence.

In addition to the requirement above, the underwriter must document verification of the self-employed borrower’s business within 60 days of the note date as follows:

·       Self-employed borrowers with qualifying income from LLCs, Partnerships, S Corporations and Corporations must have a valid Secretary of State internet printout from the state the business was incorporated in showing the business is active and in good standing.

·       Businesses, including sole proprietorships that require licensing must have a valid internet printout from the licensing authority confirming the license is active and in good standing. Examples of common business licenses include, but are not limited to, state or local tax licenses, city business licenses, professional licenses for borrowers in the fields of real estate, construction, law, medicine, etc.

·       In jurisdictions where the Secretary of State and/or state or local licensing authority does not offer an internet verification of the corporation, business, and/or professional license, the underwriter must obtain a TLO report on the business. In the event that a TLO report is unavailable, the underwriter may rely on a CPA letter but must document their attempts to obtain an independent verification of the business in the loan level conversation log.

 

 

Carrington Flexible Advantage Guidelines, continued

Old Requirements

Updated Requirements

Self-Employed Income / Tax Return Requirements

If the borrower has filed an extension for the current year due, they must provide a copy of the extension request and the prior two years self-employed tax returns if qualifying using Full Documentation of income, or prior one year self-employed tax return if qualifying using 1-Year Alternative Income Documentation. The prior tax return(s) must include a history of filing for the same business.

The following circumstances will require the borrower to utilize the bank statement option:

  • Filing past the allowable extension period
  • Filing the last 2 (or more) years of self-employed tax returns after the application date if qualifying using Full Documentation of income, or prior one year self-employed tax return if qualifying using 1-Year Alternative Income Documentation

Ineligible Property Types

  • Manufactured Homes
  • Co-operative Units
  • Condotels or Condo Hotels
  • Leaseholds
  • Log Homes
  • Rural Properties
  • Farms or Hobby/Working Farms
  • Properties subject to Rent Control regulations
  • Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)
  • Properties with active oil, gas, or mineral drilling, excavation, etc.
  • Builder Model Leaseback
  • Non-Conforming zoning regulations that prohibit rebuilding
  • State-approved medical marijuana producing properties

Ineligible Property Types

  • Manufactured Homes
  • Co-operative Units
  • Condotels or Condo Hotels
  • Leaseholds
  • Log Homes
  • Rural Properties
  • Farms or Hobby/Working Farms
  • Properties subject to Rent Control regulations
  • Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)
  • 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
  • State-approved medical marijuana producing properties

Hawaiian Lava Zones

Only mortgage loans secured by properties that are located within lava zones 3 through 9 on the island of Hawaii are eligible. Properties in lava zones 1 and 2 are not eligible due to the increased risk of property destruction from lava flows within these areas.

Hawaiian lava flow maps and other information are available online at the U.S. Geological Survey Hawaiian Volcano Observatory website.

 

Carrington Flexible Advantage/Advantage Plus Matrices

Old Requirements

Updated Requirements

Cash-out Refinance

For all cash-out refinance transactions: a signed letter from the borrower disclosing the purpose of the cash-out must be obtained. 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 6 months must have elapsed since the most recent mortgage transaction on the subject property (either the original purchase transaction or subsequent refinance).  Note date to note date is used to calculate the 6 months.

There is no waiting period if the borrower was legally awarded the property through divorce, separation, or dissolution of a domestic partnership.

Cash-out Refinance

For all cash-out refinance transactions: a signed letter from the borrower disclosing the purpose of the cash-out must be obtained. 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 6 months must have elapsed since the most recent mortgage transaction on the subject property (either the original purchase transaction or subsequent refinance).  Note date to note date is used to calculate the 6 months.

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

Note: Properties removed from a Trust or LLC are not required to meet the seasoning requirements if the property moves from the Trust to the owner of Trust or the LLC to the owner of LLC. Minimum fifty-percent (50%) ownership of the LLC is required.

There is no waiting period if the borrower was legally awarded the property through divorce, separation, or dissolution of a domestic partnership.

Eligible Sources of Assets

Acceptable sources of funds are bank deposits (checking/savings), marketable public traded securities (70% of account value), loans secured by borrower’s assets, sale of real estate, funds borrowed secured by real estate, trust funds (60% of borrower’s undistributed share), cash value/surrender value of life insurance (60% of the cash value), retirement accounts using 60% of available/vested balance (SEP-IRA, 401K), business assets provided borrower is 100% owner of the business, and depleting the assets from the business account will not have a negative impact on the viability and cash flow of the business.

Eligible Sources of Assets

Acceptable sources of funds are bank deposits (checking/savings), marketable public traded securities (70% of account value), loans secured by borrower’s assets, sale of real estate, funds borrowed secured by real estate, trust funds (60% of borrower’s undistributed share), cash value/surrender value of life insurance (60% of the cash value), retirement accounts using 60% of available/vested balance (SEP-IRA, 401K), borrower’s real estate commission, business assets provided borrower is 100% owner of the business, and depleting the assets from the business account will not have a negative impact on the viability and cash flow of the business.

 

 Carrington Flexible Advantage Plus Matrix Only

Old Requirements

Updated Requirements

Income Table: Asset Depletion

·      FICO ≥ 680 and ≤ 80% LTV (Full Documentation Matrix)

Income Table: Asset Depletion

·       FICO ≥ 680 and ≤ 80% LTV (Full Documentation Matrix)

·      Purchase and Rate/Term Refinance Only

Asset Depletion

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. Refer to Carrington Flexible Advantage Underwriting Guidelines for additional information.

Asset Depletion

Asset Conversion may be used to determine qualifying income. Cash-out transactions are not permitted. 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. Refer to Carrington Flexible Advantage Underwriting Guidelines for additional information.

Contacts

Please contact CorrespondentRM@carringtonms.com with any questions.

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