Jumbo Non-Conforming Lending Philosophy
Successful jumbo non-conforming lending is based on considerable
experience and judgment in dealing with unique borrowers who do
not fit into prescribed categories. The primary focus is lender
protection and a justified economic reward that considerably exceed
the risks. The best protection for the lender is the borrower's
equity and ability to make the monthly payments, and competent,
aggressive servicing. The risk/reward ratio is further enhanced,
whenever possible, by raising the margins to compensate for uncertainties
which a reasonable and prudent jumbo non-conforming lender would
consider to be acceptable because of the manner in which a loan
has been structured and the relative assurance of collectibility.
Section 1: UNDERWRITING RATIOS AND EQUATIONS
A. MAXIMUM COMBINED LOAN TO VALUE RATIOS (CLTV)
The LTV represents the ratio of The Ocean Pacific Capital to the
(divided by) estimated Market Value (or purchase price) of the subject
property.
The LTV for purchase money financing will be calculated using the
lesser of the purchase price or estimated appraised value.
The maximum Loan-to-Value for any single property will not exceed
90 %. However, there will be certain borrowers who qualify for a
loan-o-value of more than 90 % (but in no event more than (100%)
because of other favorable factors. (e.g. additional collateral
is provided)
The Maximum loan amount and CLTV for all eligible properties depend
upon property type, estimated market value, occupancy status and
state and loan program availability of the subject property.
When calculating the maximum loan amount, identify the above parameters
set forth in Attachment A and apply the corresponding ratio.
B. LENDABLE EQUITY
The maximum equity is determined by applying the maximum applicable
Loan-to-Value percentage to the market value/purchase price. See
the following formula:
a) Market Value or Purchase Price whichever is lower: $
b) Multiply by the applicable maximum LTV percentage(s): x LTV%
c) Equals Qualified Equity (subtract Line b from Line a):
1. The maximum mortgage amount will be rounded down to the nearest
$1,000 increment.
C. PROPERTIES OWNED LESS THAN 2 YEARS
On approvals, LTV will be calculated using the lesser of the purchase
price plus any verified real property improvements or the estimated
market value.
Approvals on properties owned less than I year, LTV will be calculated
using the estimated appraised value plus any verified real property
improvements.
D. PROPERTIES UNDER NEW CONSTRUCTIONS
If the subject property is new construction on land owned by the
client, Ocean Pacific Capital will calculate the LTV by combining
land value plus cost of construction.
Section 1: UNDERWRITING RATIOS AND EQUATIONS
1. If the land is owned less than 2 years, use the purchase price
of the land; request HUD-1
statement.
2. If the land is owned > 2 years, use the estimated market
value of the land per the appraiser.
3. Request a copy of the construction contract.
4. Appraisal should be performed when home is at least 90% complete.
5. Final Inspection performed by the appraiser indicating subject
property is 100 % will be required.
6. Certificate of occupancy will be required at closing.
E. ROUNDING OF CALCULATED VALUES
1. When calculating monthly obligations and income, it is necessary
to round positive income values
down, and to round obligations or negative income values up, to
the nearest whole number.
2. When calculating DTI or CLTV ratios, it will always be necessary
practice to round the ratios up
to the nearest whole number.
3. When calculating maximum equity and qualified mortgage amounts,
it will always be necessary
to round the values down to the nearest thousand.
D. DEBT TO INCOME RATIOS – (DT)
1. To compute the debt-to-income ratio, it is necessary to first
determine Total Monthly Debt and Income.
Total Monthly Debts equal:
The monthly house expense (Ocean Pacific qualifying Mtg. payment)
(plus) The monthly miscellaneous expenses (including R/E rental
losses) (plus) The monthly revolving and installment debt payments
Total Monthly Income equals:
Income from qualifying sources (less) Negative income adjustments
(e.g. investment interest) (less) Expenses directly related to
the generation of income (e.g. employee business expenses)
Section 1: UNDERWRITING RATIOS AND EQUATIONS
2. The Debt-to-Income Ratio is equal to:
Total Monthly Debts divided by Total Monthly Income.
3. The minimum net spendable income per dependent (NSID) is $1,000.
The maximum number of dependents to be charged to one family will
be six per family.
Section 2: UNDERWRITING DOCUMENTATION
A. DOCUMENTATION REQUIRED FOR APPROVAL
The following minimum documentation must be submitted to the U/W
Dept.:
1. Application
2. Residential Mortgage Credit Report
3. Verification of mortgages or loans, when appropriate.
4. Employment/Income Verification - Copies of two years signed
(or stamped prepared by
Accountant with EIN) tax returns will be obtained except for lite
documentation or alternative
documentation loans. (see Section 16)
5. Verification of Deposits.
6. Residential Appraisal Report.
7. Preliminary Title Report (if a survey exception appears on
the PTR and the Title Co. will not
remove the item without a survey, then a copy of a certified survey
will be required).
8. Letters of Explanation (if needed).
9. Completed Underwriting Worksheet, Credit Worksheet, and Income
Analysis Worksheet (if
applicable).
10. Transmittal Letter.
ADDITIONAL DOCUMENTATION FOR PURCHASES ONLY
11. Completed Source of Funds Statement.
12. Radon test report. Only if required to be supplied by seller,
in the purchase agreement.
13. Termite/Pest Inspection (where applicable), Structural Engineer's
Report, and Well and Septic
Systems Certifications are only required if required to be supplied
by seller in the purchase
agreement or strongly recommended by the appraiser.
14. Agreement Of Sale, Sales Contract, Purchase and Sales Agreement,
or Escrow Instructions,
including amendments.
15. Final inspection prepared by appraiser and certificate of
occupancy is required for all new
constructions.
16. Final inspection prepared by Appraiser for all new constructions.
Certificate of
occupancy is required.
Section 2: UNDERWRITING DOCUMENTATION
B. EXPIRATION OF DOCUMENTATION
Credit documents (Appraisal, Title Report, Credit Report (in file),
VOC's, VOE's, VOD's, etc.) must not
be more than 120 days old on the date the loan is closed. However,
if the property is new construction,
the documents may be up to 180 days old on the date the loan is
closed. When the age of the documents
is greater than we allow, then the processing file must be updated
and re-underwritten. Any exceptions
require the approval from an authorized OPC officer.
C. LOAN PURPOSE
Purchase Money Transactions - Any mortgage transaction in which
the proceeds are used to finance the
purchase of the subject property.
No-Cash-Out Refinance Transactions - Any mortgage transaction
in which the proceeds are limited to the
sum of the unpaid principal balance of the existing mortgage(s)
secured by the subject property only, plus
associated closing costs, points, and other funds.
Cash Out Refinance Transactions - Any mortgage transaction which
is not a purchase and exceeds the
above parameters for a no-cash out refinance transaction.
Section 3: UNDERWRITING INTEREST RATES
IMPORTANT INTEREST RATES AND CORRESPONDING GUIDELINE APPLICATIONS
A. Key Interest Rates
a. 6 month LIBOR
b. 1 month LIBOR
c. Fixed 3 Year
d. 30/5 Fixed
e. Neg Amortization
f. 3/27 Variable
g. 5/25 Variable
QUALIFYING INTEREST RATE
B. The proposed Ocean Pacific Capital 300 payment should be calculated
by multiplying the mortgage amount by the qualifying interest
rate, and then dividing by 12 to determine the monthly payment.
Ocean Pacific Capital Qualifying Interest Rate – Computed
at Actual State Rate (never to be less than 7%) except a fixed
programs.
C. Securities Margin Interest Rates.
An interest rate charged to a debt secured by marketable securities.
D. Adjustable Rate Mortgage Interest Rate
Used to calculate mortgage payments, which contact adjustable
rate provisions.
Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION
A. CREDIT HISTORY
The credit history is to be considered in determining the borrowers
financial history.
Residential Mortgage Credit Report will be required with all mortgage
applications and OPC will also
obtain an in-house credit report. When the consumer reporting
agency has incomplete information or when
it discovers information that indicates the possible existence
of undisclosed credit (see credit inquiries) or
public records, the borrower(s) must provide the additional information
that is needed to provide a quality
report.
B. CREDIT REPORT REQUIREMENTS
a) CREDIT REPORT SOURCES OF INFORMATION: It is expected that all
information in the client's credit report will be obtained from,
or verified by, sources other than the client. When co-borrowers
have individually obtained credit, separate repository inquiries
are necessary. The results of both reports may be combined in
one residential more credit report if the report clearly indicates
that this has been done.
b) CREDIT REPORT REQUIRED TIME PERIOD OF INVESTIGATION: The consumer
reporting agency must present all data in a format that is understandable
and easy to read. The credit report must contain all discovered
credit and legal information that is not considered obsolete under
the Fair Credit Reporting Act. The collected information should
not be changed - although it is permissible to:
1. delete duplicate information,
2. to translate codes to "plain" language, and
3. to make appropriate adjustments to resolve conflicting information
to
4. ensure the clarity of the report.
The following types of changes are unacceptable:
1. deletion of trade lines pertaining to borrower's bankruptcy,
2. the addition of a payment amount not required by the creditor
to that creditor's trade line, or
3. the restriction of information collection to a shorter time
period than that Ocean Pacific Capital requires (generally, seven
years).
The credit report must indicate the dates that accounts were last
updated with the creditors. Each account with a balance must have
been checked with the creditor within 90 days of the date of the
credit report.
Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION
C. CREDIT REPORT PRESENTATION AND DELIVERY:
The credit report must be an original report or a computer generated
transmission report, with no erasures, Whiteouts, or alterations.
It must include the full name, address, and telephone number of
the consumer reporting agency. The original credit report must
be delivered to the office of the party who requested it. (The
credit report may be delivered to lenders by any means that are
acceptable under the Fair Credit Reporting Act or other similar
regulations such as through the U.S. postal system, by messenger,
over a facsimile machine, or through other automated means.) The
name of the party who requested the credit report must be shown
on the report. If another party paid for the report, that party's
name must also be shown, unless the lender ordered the report
and the billed party has a documented agent or corporate relationship
with the lender. All inquiries made in the previous 90 days must
be shown on the report.
D. CREDIT REPORT PUBLIC RECORDS INFORMATION:
Credit reports may include available public record information
a disclose whether any judgments, foreclosures, tax liens, or
bankruptcies were discovered. Adverse items should be reported
in accordance with the Fair Credit Reporting Act.
Consumer reporting agencies must be diligent in obtaining public
records information to ensure that their information sources provide
the type of information that meet Ocean Pacific Capital requirements.
Public records information must be obtained from two sources.
Any combination of the following sources will satisfy this requirement:
a. national repositories of accumulated credit records,
b. direct searches of court records by the consumer reporting
agency's
c. employees, or
d. record searches made by other public records search firms.
Specific sources of public records information must be disclosed
in the, credit report. When the reporting agency discovers information
that indicates that the borrower might not have disclosed all
information that should be found in the public records, it must
perform additional research to verify whether those records do
exist.
E. CREDIT REPORT ACCOUNT HISTORY REPORTING REQUIREMENTS:
For each debt listed, the credit report should provide the:
a. creditor's name,
b. the date the account was opened,
c. the amount of the highest credit,
d. the current status of the account,
e. the required payment amount,
f. the unpaid balance,
g. and a payment history.
Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION
F. SIGNIFICANT ACCOUNTS NOT REPORTED ON THE CREDIT REPORT:
If the credit report does not contain a reference for each significant
open debt on the application, the lender may require a separate
written verification for each unreported debt. The lender may
also consider it necessary to verify separately accounts listed
as "will rate by mail only or "need written authorization".
G. MORTGAGES AND SIGNIFICANT 013LIGATIONS VERIFICATION
It is important that mortgage payment histories be obtained as
they give a good indication as to future mortgage obligations
will be paid. This also applies to previous mortgages, which were
refinanced or satisfied in the past six (6) months.
If applicable, a minimum of three (3) written Payment History
Requests are required.
1. For all VOC's (including VOM's), a verbal verification confirming
the payment history for the past 12 months is an acceptable substitute
for a written verification. However, a written VOM or VOC, must
be mailed during the prescreen process prior to submitting loan
file to Ocean Pacific Capital.
The verification process should confirm the following:
outstanding principal balance,
the payment history for the last 12 months,
the present status of the mortgage (i.e. current or past due),
and the monthly payment.
The minimum number of VOC requests must include the VOM's on the
primary residence and subject property, if appropriate. A VOM
or VOC is not required if the account appears on the credit report
and a satisfactory current 12 month payment history is exhibited.
If the credit report does not exhibit a mortgage payment history
or exhibits a history over an inadequate period of time necessary
to demonstrate a consistent and satisfactory payment history (less
than 12 months), and a written or verbal VOC/ VOM can not be obtained
then the following documentation may be acceptable:
a. a year-end mortgage statement (provided it includes a payment
receipt history), and
b. if several of the most recent months payment history are not
reported, then copies of up to six (6) months canceled checks
(more if deemed necessary). The borrower's canceled checks must
be legible, identify the mortgage services for mortgage holder)
as the payee.
Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION
Be aware that many mortgage companies will not provide a payment
history. In these cases, and where the credit report exhibits
three 30-day or more late payments on any credit sources, more
than three (3) Rating Requests will be required.
A VOC must be sent for any obligation listed on the application
which does not show up on the credit report, whenever the outstanding
balance exceeds $10,000.
H. DEROGATORY INFORMATION:
1. All major indications of derogatory credit (undisclosed debts,
Judgments, bankruptcies, etc.) must be investigated. In many cases,
a statement from the client may provide a sufficient explanation
of the reason for the derogatory information. The client statements
must be reviewed to determine that the explanation is satisfactory
and that it is consistent with the, other credit information,
because these statements often new questions or understandings
about the client's creditworthiness, careful judgment must be
used when evaluating them. If necessary, additional documentation
may be required.
2. DEROGATORY CREDIT EXPLANATIONS: When the credit history has
been unsatisfactory, it may be necessary to obtain an explanation.
The following guidelines should be used:
a. A verbal explanation may be acceptable when the client exhibits
not more than two 30-day late payments on installment debts in
the past 24 months or three 30 day late payments on revolving
debts.
b. A written explanation will be required for any 30-day mortgage
late payments that occurred in the last 12 months.
c. A written explanation is required if there are consistent
15-day mortgage late payments exhibited on VOM or mortgage statement
on either the primary or subject property.
d. A written explanation is required for all significant installment
and revolving late obligation payments. Significant late payments
would be exhibited by two (2) or more 30-day installment late
payments or, three (3) or more 30-day revolving late payments
within the past 12 months.
NOTE: In all cases, prudent judgment should be used when determining
special situations, not identified above, in which an explanation
may be required. All aspects f the loan file should be used in
the analysis to arrive at a decision.
Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION:
3. LIMITED OR NO CREDIT HISTORY: In cases where the client has
limited or no credit history, the approval decision should depend
predominately on the quality of the collateral, amount of equity
in the subject property and the client's ability to repay the
debt. It may be necessary to request verifications of rent from
the landlord, utility payments, etc.
4. INQUIRIES REQUIREMENTS: Verbal explanation of credit "Inquiries"
whether an account has been established should be obtained and
documented in the comment section of the loan file under the following
circumstance: If the client exhibits excessive inquiries a reasonable
explanation should be obtained prior to continuing with the processing
of the loan request.
I. BANKRUPTCY
If the loan application and/or credit report states the client
has filed bankruptcy within the last two (2) years, a written
explanation from the client concerning the circumstances related
to the bankruptcy is required in addition to verification that
the bankruptcy was dismissed.
If the bankruptcy was filed within the last twelve (12 ) months,
and the application is to be considered for approval, then the
bankruptcy must have been dismissed fully and the client has demonstrated
an ability to manage financial affairs satisfactory to Ocean Pacific
Capital. Although specific situations may very, we generally consider
an elapsed time of at least three (3) months between the dismissal
of the bankruptcy and the mortgage application as sufficient time
to re-establish credit. A shorter elapsed time (but not less than
1 month) is justified if the lender is able to document that extraordinary
circumstances caused the bankruptcy and that the client's current
situation is such that the events that led to the bankruptcy are
not likely to recur. In all cases, the lender must have sufficient
documentation for its decision that the borrower is creditworthy.
If the client does not satisfactorily meet the above parameters,
then the application should be considered for denial.
J. FORECLOSURE
In most instances, a mortgage foreclosure will be considered
on an exception basis. A written explanation from the client concerning
the circumstances related to the foreclosure is required and we
will consider approving the mortgage provided we confirm that
the client has demonstrated an ability to manage his/her financial
affairs.
K. GARNISHMENTS
A garnishment will require a satisfactory written explanation
from the client concerning the circumstances; and the debt must
be paid in full before or at closing.
L. ATTACHMENTS
An attachment will require a satisfactory written explanation
from the client concerning the circumstances, and debt must be
paid in full at or before closing.
Section 4: OBLIGATIONS - CREDIT HISTORY & VERIFICATION
M. TAX LIENS
Tax liens will be considered a guideline exception, and, may
result in denial or an approved amount less than the maximum mortgage.
Tax Liens must be paid off or subordinated.
N. JUDGMENTS
Judgments will be considered a guideline exception, and must
be paid or subordinated at or prior to closing.
Section 5: OBLIGATIONS - CALCULATIONS
A. CALCULATION REQUIREMENTS
1. TYPES OF OBLIGATIONS:
installment loans, revolving charge accounts, auto leases, lines
of credit, real estate loans, housing expenses - (monthly principal
and interest payment, taxes, issuance), homeowners association
dues, co-op/condo maintenance, leasehold expense) rent on residence
cash flow losses from investment real estate taxes on land investment
lots alimony, maintenance and/or child support partnership future
capital contributions. demand and time notes payable stock pledges
and any other debts of a continuing nature.
* only if the debt (interest) payments are not considered investment
interest expense (see margin expense section) and declared as
such on the client's federal tax returns.
2. Total Monthly Debts are calculated as follows:
PI= Principal & Interest (Ist mortgage payment - only applicable
if it is not the subject property securing the mortgage)/T1 =Taxes
& Insurance)
Monthly Housing Expense (primary residence only when not the
subject property- pin) + Monthly Miscellaneous Payments (incl.
all other debt and expenses) = Total Monthly Debts (excluding
OPC payment) + Monthly ML estimated payment
= Total Monthly Debts
3. For each debt the following should be determined: unpaid balance,
terms, and the borrower's payment history.
Section 5: OBLIGATIONS- CALCULATIONS
4. SHORT TERM
a) Monthly installment debt where the remaining payment period
does not exceed ten (10) payments may be excluded as an obligation
unless substantial enough (15% or more of gross income) to impair
the borrower's ability to meet monthly obligations over the next
ten (10) months.
b) If a revolving credit account payment is indicated on the
credit report (or application, if applicable) and the monthly
payment is such that the expected number of remaining payments
is ten (10) or less, then calculate the monthly payment by applying
5% to the outstanding balance. Revolving accounts with these types
of circumstances are = to be considered as a short term obligation
and thus excluded from the debt service calculation.
c) Payments on any accounts with balances equal to or less than
$250.00 should not be included as a debt.
d) Any loss or debt calculated that is $10 or less is not to
be included on the Underwriting
Worksheet.
5. OPEN CREDIT ACCOUNTS
a) All accounts labeled "O" (open account) payable
in full within 30 days, are to be considered short term obligations,
and are not to be included as a debt as long as the client exhibits
sufficient cash to satisfy debt.
6. LONG TERM
a) All monthly debts (payments) with a remaining payment period
of o= ten (10) months must be considered as long term debts.
b) Revolving Account (outstanding balances less than $10,000)
On revolving accounts (typically Visa, MasterCard, Discover and
department store accounts) where there is an outstanding balance,
the monthly payment amount is calculated equal to 5 % of the balance,
unless a different payment amount can be documented in the credit
report or from a copy of the monthly statement provided by the
client. However, if the balance disclosed on the application is
greater than the outstanding balance on the credit report, then
the monthly payment should be calculated by using 5 % of the higher
balance.
c) INSTALLMENT ACCOUNTS: All accounts labeled 'I" on the
credit report should be charged the payment exhibited on the credit
report or VOC. If a payment is not exhibited and the terms are
not disclosed calculate a payment by amortizing the original balance
at 12 % over 48 months.
Section 5: OBLIGATIONS-CALCULATION
d) Home equity lines of credit should be calculated by amortizing
the face amount of the line at Prime + 3% over 10 years never
to be less than 10%).
Large Lines Of Credit:
If the client has a personal line of credit with a face value
of over$50,000 which is believed = to be used for ongoing self-employed
businesses, then apply the formula for a Home Equity Line of Credit
(amortize the face value over 10 years at Prime + 3%, but never
to be less than 10%).
If the client has a personal line of credit with a face value
of over $50,000, which is used for an ongoing self-employed business,
then calculate the monthly obligation as an interest only payment.
The interest rate will be Prime + 3%, but never less than 11%.
The payment should then be included-as a negative adjustment to
the income calculated on the Income Analysis for that business.
NOTE: The scheduled payment reported by the credit agency should
be used if it is greater than the calculated payment.
e) Time and Demand Notes Payable
Time and Demand Notes Payable are to be calculated by amortizing
the Outstanding Balance at an interest rate of Prime + 3% (never
to be less than 11%) over a (5) five year term.
f) Auto Lease
When the client has financed the purchase of an automobile with
a lease, the monthly payment must be included in Total Obligations
unless the client demonstrates that the payment is being made
by his/her employer.
Even if there are less than 10 payments remaining on the term
of the lease, the monthly payment must be included in Total Obligations
because:
a) it may be assumed that at the end of the lease term the client
will turn in the automobile for a lease on a new automobile (same
payments assumed), or
b) if the client intends to keep the automobile, then the residual
value assumed will be necessary to be refinanced. Since the terms
of the residual value cannot be ascertained, nor the terms of
used automobile financing, it will be easier to use the existing
obligation as the continuing monthly payment.
Section 5: OBLIGATIONS- CALCULATIONS
7. Auto Allowance Offset to Auto Obligation
Auto allowance reimbursement by a company, can be used to only
offset the correlating lease or installment loan payment. Verbal
confirmation must be received, verifying the obligation is a lien
against the specific auto used for business purposes and verification
of the auto allowance must be obtained from an authorized company
representation.
8. Rent Expense
If the clients rent their primary residence this obligation must
be included in the Housing Expense section of the Total Obligations.
a) a copy of the signed lease, or
b) copies of 3 months recent
canceled rent checks, or
c) copies of 3 months bank statements exhibiting the payments
d) VOC
Section 6: OBLIGATIONS- MORTGAGE CALCULATIONS
A. Adjustable (Variable) Rate Mortgage or Trust Deed (ARM) Calculation
1. When the primary residence or second home, which IS NOT the
subject property, is financed by an ARM mortgage, then the monthly
P&I payment must be calculated us' the formulas described
below.
2. A variable rate first mortgage monthly payment should be calculated
at the one-year Treasury ARM Index plus four hundred seventy five
(275) basis points (never to be less than 7%). However, should
the client's current mortgage rate of interest be higher than
the index rate, then that interest rate should be used to determine
the monthly mortgage obligation.
Adjustable Rate Mtg Payment Formula:
Outstanding Balance amortized at the OPC ARM Index Rate
over the remaining term.
NOTE: If the outstanding balance and/or remaining term cannot
be determined it will be acceptable to amortize the original principal
balance over the original term using new Ocean Pacific Capital
ARM Index Rate.
3. For rental investment properties, it will not be necessary
to make adjustments to the interest expense deduction, if the
revenues and expense are claimed through Schedule E Part I or
Part II (partnerships) of the 1040 tax returns.
Possible exceptions to this rule may be if a home equity loan
is applicable, if a loan had recently been placed against a property
and would not appear on Schedule E or the mortgage has been refinanced
increasing the mortgage expenses previously reported through schedule
E.
4. For rental properties where a lease analysis is being used
to calculate income (loss); if the applicable mortgage is known
to be an ARM, then the monthly P&I payment must be recalculated
and applied to the lease analysis using the formulas described
above. If the applicable mortgage interest rate terms are unknown,
then it will not be necessary to ascertain the interest rate terms.
The disclosed or verified payment will be acceptable for lease
analysis purposes.
B. OPENED-END CONVENTIONAL MORTGAGES (Excluding Revolving Mtg's)
If a VOM on the primary residence or second home (which is not
on the subject property) exhibits an open-end mortgage lien with
a maximum principal amount (that is greater than the outstanding
balance) which could be advanced to the borrower, then that amount
should be used in the monthly obligation payment calculations.
Section 6: OBLIGATIONS- MORTGAGE CALCULATIONS
C. GRADUATED PAYMENT MORTGAGE (GPM)
If a VOM on the primary residence or second home (which is not
the subject property) exhibits a GPM, a copy of the note should
be obtained from the client. The client's DTI ratio must be computed
using the maximum known monthly mortgage payment that would be
in effect in the next 5 years. If it is an FHA/GPM, the maximum
principal balance should be shown on the note. If the mortgage
is a variable rate GPM, then the payment will have to be determined
according to Ocean Pacific Capital guidelines for variable rate
mortgages. This interest rate will be applied to the outstanding
balance over the remaining term, and then the calculated payment
will be adjusted by the stipulated annual increment as disclosed
in the note. The applicable monthly payment will be the amount
calculated for the 5th year after the date of approval.
D. BALLOON MORTGAGE
If a VOM on the primary or second home (which is not on the subject
property) exhibits a balloon mortgage, and the payment date is
3 or more years from the date of approval, then the current monthly
payment can be used. If the balloon mortgage matures in less then
3 years from the time of approval, then the principal balance
of the balloon payment amount must be amortized over a 30 year
term at the Ocean Pacific Capital ARM Index Rate.
Section 7: OBLIGATIONS- MISCELLANEOUS
A. ALIMONY/CHILD SUPPORT
Determine to what extent a client is obligated to pay alimony,
child support or separate maintenance payments.
1. Such payments are a long term monthly obligation, unless there
is evidence of a court-approved reduction or termination. If such
payments terminate in less than one year, they may be excluded
as an obligation.
a) If the future payments are scheduled to periodically increase,
then the highest payment during the next five years is to be used
as the monthly payment.
b) If the future payments are scheduled to periodically decrease,
then the lowest payment during the next three years is to be used
as the monthly payment.
c) Fluctuating payments such as payments based on a percentage
of variable-commission/bonus income must be reviewed carefully.
2. A copy of the signed divorce decree or separation; agreement,
must be obtained.
3. Other alternatives for verifying alimony obligations are to,
obtain the most recent two year's tax returns; or the most recent
year's tax return, supplemented by a copy of a previous month's
canceled check. The copy must exhibit the bank endorsement stamp.
A bank statement exhibiting the draft will be an acceptable alternative
for a canceled check if the alternative documentation exhibits
increased liability a copy of the signed divorce decree or separation
agreement must be obtained.
4. Child Support expenses are not disclosed on tax returns. If
the client is required to make child support payments, then a
signed copy of the divorce decree or separation agreement, must
be obtained if the divorce decree is unobtainable, then a copy
of the previous three months canceled checks will be required.
The copy must exhibit the bank endorsement stamp.
Bank statements exhibiting three months of child support drafts
wilt be an acceptable alternative for canceled checks.
B. LIMITED PARTNERSHIP
When an client owns an interest in a limited partnership, we
must determine if the client has any obligation to make additional
capital contributions to the partnership.
Section 7: OBLIGATIONS- MISCELLANEOUS
1. If future capital contributions are required, it will be necessary
to obtain a letter from the client which states the amount due,
payment schedule, and a confirmation that the client is, in fact,
a limited partner.
If the client is obligated to pay future capital contributions,
and the final payments are due and payable within 12 months of
the date of application, then the monthly obligation can be excluded
from the total monthly obligation calculations provided that either:
a) the mortgage being granted provides excessive available funds
which are sufficient to permit the payment of such obligation
without incurring new debt.
b) the client has sufficient liquid assets which could be utilized
without resulting in the loss of income in an amount which would
jeopardize the Debt-to-Income Ratio.
Future contributions to any limited partnership that are required
by the client will be included as an obligation in the Debt-to-Income
ratio calculation.
2. If future capital contributions are NOT required, then a written
letter from the client specifying that they are a limited partner
and no payments are due must be obtained.
C. SECURED BORROWING
Secured borrowings may be considered an obligation with a required
monthly payment, and will then be included in Total Debts.
a) Examples of secured borrowings are loans against: 1) life
insurance policies, 2) retirement accounts, etc.
b) Payments or negative cash flow from borrowings for business
ventures or investment accounts (including bank accounts), are
adjusted against income as opposed to being included in Total
Obligations. These obligations will be discussed further in the
Income Section under the headings of Investment Interest Expense
and Margin Expense.
c) Acceptable verification of monthly payments):
VOC or
Signed note or agreement.
d) If the payment schedule cannot be determined, then the monthly
payment should be calculated by amortizing the outstanding balance
at Prime + 2 1/2 % (never to be less than 9%) over 5 years.
e) If the client states there are no required payment, verification
must be obtained to exclude debt (see above verification guidelines).
Section 7: OBLIGATIONS- MISCELLANEOUS
D. CO-SIGNORS OF THIRD PARTY OBLIGATIONS
If the client has co-signed for any loans, then these loans are
to be considered the obligations of the client and included in
Total Obligations.
E. OBLIGATIONS OF A NON-CLIENT SPOUSE
Obligations of a non-client spouse must be included in Total
Obligations unless satisfactory evidence can be submitted to verify
the client is not liable for the particular obligations.
1. When the obligations are held in a joint account and the client
states the accounts are the responsibility of the non-client spouse:
a) the obligation should be included in Total Obligations unless
the tax returns or other documentation indicates the spouse earns
income sufficient to meet the payment requirements of the obligation,
or
b) request additional information such as lenders disclosures
which exhibit the spouse as the sole borrower.
F. LOANS DUE FROM STOCKHOLDERS
Loans due from stockholders can be found on the balance sheet
of the business tax returns or financial statements. If the client
owns 25 % or more of the business, then the debt is not to be
considered in the calculation of Total Obligations. It will be
assumed that the loan to the stockholder Will be synonymous to
an accrued bonus. This assumption is based on the premise the
client has sufficient control over the cash flow of the business
necessary to increase his salary or bonus to compensate for the
satisfaction of the obligation. In all cases be careful to ascertain
1he stability of the income of the business and that the business
profits are sufficient to increase clients salary or bonus without
putting the company at risk.
If the client owns less than 25 % of the business, then the debt
must be included in Total Obligations. If there is no required
repayment schedule or if the payment schedule cannot be determined,
then the monthly payment should be calculated by:
0 Amortizing the outstanding balance at Prime + 3% (never to
be less than 9%) over 5 year
G. LOANS PAID BY BUSINESSES
When the client states certain obligations are paid by a business
and the financial statements or tax returns do not satisfactorily
support the clients claim, then the obligation must be included
in Total Debts. (An example of unsatisfactory evidence would be
if insufficient amounts of, or no interest expense is exhibited
on the income statement, or if the revenues of the business appear
inadequate to pay the obligation.)
If the financial statements or tax returns do support the payment
of this debt, the debt can be excluded provided the client supplies
three months canceled checks.
Section 7: OBLIGATIONS- MISCELLANEOUS
H. OBLIGATIONS INCLUDED IN THE TOTAL INCOME CALCULATION
Obligations from Investment Interest Expense, Margin Expense
and business losses are all considered adjustments to total income.
Section 8: VERIFICATION OF EMPLOYMENT HISTORY
A. EMPLOYMENT STABILITY
1. Employment is not an important factor in determining the acceptability
of the application since most asset based borrowers are not W-2
employees. However, the client's work history will be reviewed.
2. Generally, individuals are unacceptable risks when they:
a) Have repeated job changes without significant, improvement
in their financial status .
b) Have significant unexplained gaps in employment.
3. The client's income must be examined to determine its stability,
adequacy and probability of continuation subject to the requirements
of Equal Credit Opportunity Act (ECOA) regulations.
B. INCOME HISTORY
1. The income of all persons who are contributing to the qualifying
income is subject to the same requirements.
2. When evaluating employment the principal consideration is
adequacy and the second most important consideration is reliability.
Section, 9: VERIFICATION OF EMPLOYEE INCOME
A. EMPLOYEE MONTHLY BASE INCOME
1. Description and verification of Base Income:
a) Salaries or Wages must be verified by either,
1. A written verification of employment (VOE) from the employer,
or,
2. a W-2 and pay-stub supplemented by a verbal VOE (WOE).
3. All VOEs and WOEs should verify:
Date Of Employment
Probability of continued employment
Income
4. If the employer will not verbally confirm the client is presently
employed, then the client must be contacted at the place of employment.
Verbal contact with the client at the place of employment will
be satisfactory evidence of the employment only. after the employer
has stated it is not the policy of the company to verbally disclose
employee information
2. To calculate Salary or Wage income, determine the frequency
of payment. Methods of calculation are as follows:
a) Hourly.
1. Multiply hourly rate by number of hours worked per week, multiply
by 52 for the number of weeks in a year and then divide by 12
for a monthly total.
2. If hours vary, use last years' earnings and year-to-date earnings
and then average.
b) Weekly
1. Multiply by 52 and divide by 12
c) Bi-Weekly
1. Paid every 2 weeks or 26 times per year.
2. Multiply by 26 and divide by 12 for a monthly total.
d) Semi-Monthly
1. Paid twice per month or 24 times per year.
2. Multiply the pay stub amount by (2) two,
Section 9: VERIFICATION OF EMPLOYEE INCOME
e) Monthly
1. Use monthly income as stated on VOE or pay stub.
B. EMPLOYEE MONTHLY SECONDARY INCQME
1. Secondary income from bonuses, overtime or part-time employment
should be recognized as stable monthly income only if-these sources
are typical for the occupation and substantiated by the client's
previous year's earnings, and continuation of this income is probable
a stable two year history must be documented.
2. Description and verification of Secondary Income:
Bonus. Overtime and Part-Time Income must be verified and confirmation
that “continuance is likely” by either:
A written verification of employment (VOE) from the employer,
or, a W-2 and pay-stab supplemented by a verbal VOE (WOE).
3. To calculate Bonus, Overtime and Part-Time Income determine
the frequency of payment. Generally, secondary income should be
averaged over a two year period.
a) Bonuses
1. Exceptions to the required two year average would be if the
client in the past two years held a previous position which was
not bonus eligible.
2. Or if, the bonus is paid periodically throughout the year.
In this circumstance, take the year-to-date bonus plus last years'
bonus and average them over the time period involved (minimum
of 15 months verification required). Verification must be obtained
from the employer as to the frequency and continuance of these
periodic bonuses.
3. If the frequency of payment is unknown always consider the
reported year-to-date income as an annual bonus.
4. PROJECTED BONUSES
a) Bonus income projected by the client or employer is not acceptable.
For clients who have recently become bonus eligible the projected
income may be acceptable. The inclusion of this income must, be
approved by an authorized Ocean Pacific Capital Officer.
Section 9: VERIFICATION OF EMPLOYEE INCOME
b) Overtime and Part-Time
1. Must be earned on a consistent basis.
2. Must be averaged over a minimum of 15 months.
B. COMMISSION DERIVED INCOME
1. Income derived from commission should be verified by signed
copies of Federal tax returns, for a period of two (2) years and
a VOE if applicable. Income figures used for qualifying purposes
should:
be averaged over a two year period. in some cases, it may be
appropriate to average the previous years income plus the current
year-to-date income (a minimum of 15 months verification required).
A tax return must still be received to determine applicable employee
business expenses.
employee business expenses should be deducted from the client's
earnings and averaged over 2 years.
NOTE: Many individuals who only earn commissions may consider
themselves independent contractors (self-employed), and report
their business deductions on Schedule C.
C. INCOME DERIVED FROM A TRADE
1. Salary derived through a trade union (plumber, carpenter,
etc.) is to be verified by copies of signed Federal tax returns
or W-2's for two (2) full years, and a year-to-date pay stub.
a) Verification of Employment by the particular union is required.
b) Generally, income of this nature is not earned on a consistent
monthly basis. Therefore, this income should be averaged over
the past 2-year period plus current year-to-date income.
c) It is important that year-to-date earnings agree with hourly/monthly
income stated by employer. If there are any discrepancies, employer
should be questioned and a recent pay stub showing year-to-date
earnings should be obtained.
D. INCOME DERIVED FROM A TEACHERS EMPLOYMENT
1. In cases where the annual salary can not be verified and income
must be calculated thru the paystub, determine the number of months
out of the year the client is actually paid and multiply the base
pay by the applicable months divided by 12.
Section 10: FEDERAL TAX RETURN ANALYSIS
TAX RETURNS
A. 1040 PERSONAL TAX FEDERAL RETURN - Except for lite or alternative
documentation loans (see section 16) Clients are required to provide
most current two years signed Personal Tax Returns (1040) that
have been filed with the IRS)
Description of Financial Disclosures:
Label Verify client's name, mailing address and social security
number.
Filing Status Verify client's marital status
Exemptions Verify the number of dependents. NOTE: Also, look
at fine 6d for dependent children who do not live with client
as this could mean that child support payments are being made.
Line 7 The total of all wages, salaries, fees, commissions (excluding
amounts reported in Schedule Q, tips, bonuses, etc., the client
was paid before taxes.
Line 8a Total taxable interest income received or credited to
client. Refer to line 8b, for any tax-exempt interest income.
Add this amount, if any, to the total on line S.
Line 8b Non-taxable interest income.
Line 9 The total dividends and distribution of money, stock,
or other property that corporations pay stockholders. It is acceptable
to add back capital gain distributions
and nontaxable distributions (Sch. B Lines 6 and 7).
Line 10 Refunds of state and local taxes - not acceptable income.
Line 11 The total of taxable alimony payments received. Note
that child support payments are not taxable and must be verified
by reference to the divorce documents.
Line 12 Income/Loss from a sole proprietorship. Refer to the
attached Schedule C, lines 12 and 13, for the amount of depletion
and depreciation which may be added to the income or loss reflected
on line 31 of Schedule C.
Line 13 Gain/Loss from the sale or exchange of capital assets.
If 14 and 15 this figure shows a loss of $3,000, it is a good
indication that the loss is being carried over from a prior year.
Refer to the attached Schedule D. Generally; income from capital
pins is not acceptable.
Line 16a Total IRA Distributions. This amount may represent a
roll-over transaction or possibly a lump-sum distribution (not
acceptable income, see section 14 page 2).
Section 10: TAX RETURN ANALYSIS
Line l6b Taxable Amount of IRA Distribution (not acceptable income)
Line 17 a&b Other pensions and annuities. Income that is
not fully taxable, distributions from profit sharing, retirement
plans, and individual retirement arrangements. Use amount on fine
17a for income purposes, provided that it is continuing and consistent
in nature.
Line 18 Rents, royalties, partnerships. etc. (Refer to Schedule
E).
a) Rents Schedule E, Part I Line 22): It is important when using
rental income to compare the tax returns to the Real Estate Schedule
on the application.
b) Partnerships Schedule E, Part II, line 34): Since the actual
lose from partnerships and Sub WS' Corp.'s may not be reported
schedules will be required for accurate verification.
c) Sub Chapter “S” Corporations (Schedule E, Part
II, line 34): Occasionally an individual will claim his business
income here so it is important that you always obtain schedules.
Line 19 Farm Income or Loss. Refer to Schedule F. line 16 for
the amount; of depreciation which may be added to the income or
loss reflected on line 36 of Schedule F.
Line 21 Social Security Benefits. This amount may represent
a temporary distribution or possibly a lump-sum distribution.
Use amount on line 21a for income purposes, provided that it is
continuing and consistent in nature.
Line 22 Other income. Examples of other income are as follows:
a. Prizes, awards, gambling winnings.
b. Repayment of medical expenses or other items such as real estate
taxes that were deducted in an earlier year.
c. Amounts recovered on bad debts that were deducted in an earlier
year.
d. Director's fees
These amounts are not to be considered as stable income and should
not be included in monthly income for purposes of computing the
DT1 ratios.
ADJUSTMENTS TO INCOME:
Line 29 If the tax return shows alimony being paid but the client
did not show it on the application, the client should be contacted
and the discrepancy reconciled.
Section 11: VERIFICATION OF SELF EMPLOYED INCOME
A. SELF-EMPLOYEE CLIENT
1. QUALIFICATION AS A SELF-EMPLOYED CLIENT
We define a self-employed client, as any client who owns twenty-five
percent (25 %) or more of a Partnership, S-Corporation, or of
a C-Corporation or is the only owner (sole proprietor/ Schedule
C) of a business.
Income from a business is considered stable if the client has
been self-employed for at least three (3) full years.
2. SELF-EMPLOYED INCOME CONCERNS
Unstable or declining income over a two-year period may indicate
a trend. Therefore previous years tax returns or a current profit
and loss statement should be obtained to help determine whether
a downward trend has been established. Prior to submitting to
Ocean Pacific Capital, an explanation must be obtained. Unstable
or declining income may necessitate a reduced approval amount
or denial. If a substantial increase is reflected in the profit
and loss statement that cannot be sustained, (continue for more
than one year) then only the available income from the tax returns
should be used to determine income for qualification.
B. SELF-EMPLOYMENT INCOME VERIFICATION AND CALCULATIONS
1. INDIVIDUAL- SOLE PROPRIETORSHIP (Schedule C)
a) Copies of individual Federal tax returns (1040's) and all
accompanying schedules signed by the appropriate client or stamped
with the preparing firms name.
b) Income should be calculated by including:
Net Profit or Loss (line 31 in 1991/1992, line 29 in 1990 1040's)
plus Depreciation (line 13) - if significant, requires approval
of authorized Ocean Pacific Capital Officer less 20% non-deductible
Travel 6 Entertainment Expense (line 24C) less "other income",
unless continuance is likely (line 6) equals Annual Self-Employment
Income for qualifying purposes.
c) Monthly income should be determined as follows:
1. If the latest year's income is greater than the previous year,
average the two years.
2. If the latest year's income is less than the previous year,
use the current year only.
Section II: VERIFICATION OF SELF EMPLOYED INCOME
3. A signed six (6) month P&L is required when the current
year's tax return has been filed, and seven (7) months have elapsed
since fiscal year-end.
4. A signed twelve (12) month P&L is required when the current
year tax return has not been filed by April 15 and ' The Request
for Filing Extension" must be submitted with the P&L
statement.
2. GENERAL PARTNERSHIP OR SUBCHAPTER "S " CORPORATION
a) Requires copies of individual (1040's) and partnership (1065's)
or Subchapter S Corporation (1 12OS's) Federal tax returns, and
all accompanying schedules, unless, the business is not the client's
primary source of income.
b) Methods of verification.
1. If the income derived from partnership or Subchapter S corporations
is not an client's primary source of income, it can be used in
the DTI calculation without requiring, 1065, 1120S and K-1 tax
returns. To be considered a non-primary source of income, the
business income must be equal to or less than 30% of total income
reflected on Form 1040.
However, if the amounts disclosed on the 1040 tax return (Sch
E Part II) exhibit a passive loss, then either Form K-1 (page
1 and 2), or the Schedule E supplemental statements will be required
to determine the actual loss. The actual loss, as opposed to the
allowable loss, must be used in the Income Analysis.
2. A six (6) month P&L is required when the current year's
tax return has been filed, and seven (7) months have elapsed since
fiscal year-end.
3. A twelve (12) month P&L is required when the current year
tax return has not been filed within 10 months of fiscal year-end
(or by Sept. 15 if the fiscal year is on a calendar year).
NOTE: The "Request for Filing Extension" must be submitted
with the P&L statement.
c) To calculate Income from General Partnership (1065's) or Subchapter
"S" Corporation (1 120S):
Net income or loss (including Rental Income)
plus Depreciation Amortization and/or Depletion only when the
company exhibits substantial liquid assets and retained earnings
in relation to debts plus Clients share of Pension and Profit
Sharing Plan
Section 11: VERIFICATION OF SELF EMPLOYED INCOME
Plus Clients portion of Officers Salaries, to be verified along
with W-2 for S-Corp or Guarantee Payments, to be verified along
with K-1 form. plus Dividend and Interest consistent for 2 years
and supported by balance sheet less 20% nondeductible expense
for Meals & Entertainment found on Sch M-1 less Net gain income
and Other Income unless it can be considered ordinary income for
that type of business equals Annual Partnership/S-Corp Income
for qualifying purposes
To calculate income from a K-1
Net Income or Loss (including Rental activity)
plus Guarantee payments (Partnership related only)
Monthly, income should be determined as follows:
a) If the latest year's income is greater than the previous year,
then average the two years.
b) If the latest year's income is less than the previous year,
then use the current year only.
c) If a P&L is received and the income is less than the previous
year, then average over the current period only.
d) If a P&L is received and the income is greater than the
previous year, then prudent judgment should be used as to whether
or not to use the income disclosed on the P&L. Generally,
unless an upward trend in income has been established, the income
disclosed on the P&L should not be used in the Income Analysis.
3. PARTNER IN A MAJOR PROFESSIONAL FIRM
a) If an client is a partner in a major professional firm (national
in scope and operates in more than one (1) state, we will consider:
The latest 2 years Schedule K-1
Page I and 2 of the 1040 tax return, signed
Applicable Schedule section of the 1040 tax return, signed
Paystub/W-2, WOE, VOE
4. CORPORATION
a) Two (2) years' Corporate Federal tax returns (I 120's) and
the latest corporate financial statements, if available, are required
if the client owns 25 % or more of the outstanding capital stock.
Section 11: VERIFICATION OF SELF EMPLOYED INCOME
1. A six (6) month P&L is required when the current year's
tax return has been filed, and seven (7) months have elapsed since
fiscal year-end.
2. A twelve (12) month P&L is required when the current year
tax return has not been filed within 10 months of fiscal year-end
(or by Sept. 15 if the fiscal year is on a calendar year). The
"Request for Filing Extensions - must be submitted with the
P&L statement.
b) To calculate Income from Corporation 11 120): NOTE - Income
may only be included if the client owns more than 50% of the outstanding
capital stock.
Net income or loss including Rental Income) Less any dividend
income reported on Individual Tax Returns, Sch B. plus Depreciation
Amortization and/or Depletion when the company exhibits substantial
liquid assets and retained earnings in relation to debts, plus
Clients portion of Officers Salaries, to be verified along with
W-2 for S-Corp or: less 20% non-deductible expense for Meals &
Entertainment found on Sch M-1 less Capital or Net gains and Other
Income unless it can be considered ordinary income for that corporation
equals Annual Corporate Income for qualifying purposes
c) Monthly income should be determined as follows:
1. If the latest year's income is greater than the previous year,
average the two years.
2. If the latest year's income is less than the previous year,
use the current year only.
3. If a P&L is received and the income is less than the previous
year, then
average over the current period only.
4. If a P&L is received and the income is greater than the
previous year then prudent judgment should be used as to whether
or not to use the income disclosed on the P&L. Generally,
unless an upward trend in income has be established, the income
disclosed on the P&L should not be used in the income Analysis.
Section 12: VERIFICATION OF ADDITIONAL INCOME
A. ADDITIONAL INCOME CONSIDERATIONS
1. Generally, future, not historical income is considered in
evaluating the creditworthiness of the
client.
B. SOURCE OF ADDITIONAL INCOME AND 120CUMENTATION REQUIREMENTS
1. Alimony
All borrowers who elect to have alimony included, as income should
submit a signed copy of
the Divorce Decree or Separation Agreement so that the amount
awarded and the duration can be verified. If the amounts exhibited
on two years of tax returns and the application are consistent,
then no further documentation will be required, unless the alimony
income represents 25 % or more of total income.
2. Child Support
All borrowers who elect to have Child Support included as income
will be required to submit a
signed copy of the Divorce Decree, or Separation Agreement papers
so that the amount
awarded and the duration can be verified (review age of dependents).
3. Social Security
Social security income can be verified by:
? Award letter
? Two years 1099R/W2-P
? 1-year 1099R supplemented by a current benefit check
? Two years tax returns
For items 2-4, if there is a 20% variance during a two-year period,
then a verbal confirmation from the client identifying the amount
of any lump sum distribution will be required.
4. Retirement - Pension, Annuities, etc.
Pension and annuity income can be verified by:
? Award letter
? Two years W-2 P
? 1 year W-2P supplemented by a current benefit check
? Two years tax returns
For items 2-4, if there is a 20% variance during a two year period,
then a verbal confirmation from the client identifying the disparity
will be required (ie. the amount of any lump sum distribution)
and additional documentation may be required.
5. Disability Awards
An award letter from an insurance carrier or employer stating
the coverage (i.e., short or long term), the duration and amount
is needed and additional documentation may be required.
Section 12: VERIFICATION OF ADDITIONAL INCOME
Note: When retirement income represents 25 % or more of total
qualifying income an award
letter will be necessary.
a. Short-Term Disability - If the client is covered under short-term
disability, a letter must be obtained from the employer showing
that the client will be re-employed in the future at a given salary.
b. Long Term Disability - If the client is covered under long-term
disability, the full amount is considered.
6. Trust Deeds/Mortgages and other Long Term Note Receivable
A copy of the Promissory Note and recorded Deed of Trust are required
if applicable. In order to be considered as effective income for
repayment of the mortgage debt or long term note receivables,
the payments must continue for at least three (3) years. The entire
payment (principal and interest) is to be considered as "income"
for purposes of computing debt-to-income ratios.
7. Trust/Inheritance
A copy of the trust agreement or a statement from a lawyer or
executor stating monthly amount and duration is required. If Schedule
E exhibits consistent amounts for two years along with the amount
disclosed on the application, then no further documentation will
be required. If this income represents 25 % or more of total income,
then the additional documentation will be required
8. Capital Gains
The inclusion of income from capital gains may be included if
it associates with the client occupation and it must be from the
same source (e.g., securities) for three (3) years. If from securities
a copy of the client's latest brokerage statement should be reviewed
and reference should be made to the balance sheet data on the
application form. This income must be supported by current activity
and assets.
9. Dividends and Interest
A 2-year average will be taken from the Federal tax returns, provided
the interest earning assets still exist. If the most recent year's
dividend and interest income has decreased significantly from
the prior year, consideration should be given to using only the
most recent year. Where an client has submitted a copy of their
CMA account, the estimated annualized income (Dividends and Interest)
indicated thereon may be averaged with the preceding year's dividend
and interest income.
10. Potential IRA or Keogh Plan Income
Monthly income from these accounts may be included assuming withdrawal
of principal and interest (assuming the OPC Opportunity Cost Index
Rate) over a period of fifteen (15) years, for clients who will
reach the age of 59 ½ in the year in which the loan is
being processed.
11. Limited Partnership Distribution
If a client requests that distributions from a limited partnership
be considered for income purposes, we will require a letter from
the general partner that the limited partner will be receiving
regular distributions. The letter must include the amount and
the expected duration. Generally, the K-1 should demonstrate a
positive capital account if this income is to be considered.
This income may only be included if consistent for 2 years.
The use of this income will require the approval of the Loan Committee.
Section 13: VERIFICATION & CALCULATION OF RENTAL INCOME
A. QUALIFYING RENTAL INCOME
1. If the SREO has shown an interest in any real estate owned
less than 100%, the Income
Analysis should only reflect the client's portion of the income
and liability. Note; See the
Obligation Section for divided responsibility (ownership) of the
Primary Housing Expense.
2. The net cumulative total from all properties reported on Sch
E are to be considered as a single source of cash flow. A gain
will increase total monthly income and a loss will increase total
monthly debts.
3. If the rental properties listed on the application are included
in the past year's Federal tax return, lease agreements are not
required. If rents have increased, however, and the additional
income is necessary to qualify the client, copies of the signed
lease agreements must be obtained. An increase in rents can usually
be expected to be associated with a proportional increase in expenses
other than depreciation. This scenario should be reviewed carefully.
4. The cash flows generated by partnerships (1065) or Sub-Chapter
"S" Corporations (1120S), which are involved solely
in the rental of real estate, are to be treated as a business
income or loss, as opposed to a rental property income or loss.
In these cases, a net loss should decrease total monthly income
and a net gain should increase total monthly income.
B. VERIFICATION OF RENTAL INCOME
1. Rental income can be verified by either:
a. Most recent years' Schedule E and/or supporting 1040 schedules.
b. For properties purchased during or after the most recently
completed tax year signed
leases.
2. Adjustments to tax return reported income/loss:
a. If the client states a rental property has been sold and needs
to reduce the Schedule E loss in order to qualify, then a copy
of the fully executed sales contract or a copy of the HUD-1 Settlement
Statement will be required.
C. RENTAL INCOME/LOSS CALCULATIONS
1. Income disclosed on the 1040 Tax Return SCHEDULE E Analysis
a) Calculation:
Residential
Net Income/Loss (Line 23)
+ Depreciation Expense
+ Amortization Expense (if applicable)
= Cash Flow (annually)
Section 13: VERIFICATION & CALCULATION OF RENTAL INCOME
Commercial
Net Income/Loss
+ Depreciation Expense
+ Amortization Expense (if applicable)
+ Interest Expense
- Principal and Interest Expense
= Cash Flow Annually
b) The individual property totals do not have to be listed separately.
c) Any adjustments (properties sold, inclusion of non-recurring
items, etc.) can be exhibited in the standard Schedule E Income
Analysis calculation, comments on the nature of the adjustments
should be stated.
2. Income disclosed by LEASE AGREEMENTS
a) When dealing with lease agreements, gross rental income is
to be discounted by:
1. Maintenance factor of 10% of gross.
2. Vacancy factor of 10% of gross.
3. Reserve for replacement of 5% of gross.
4. Principal interest, taxes and insurance.
b) If the subject rental property is an owner-occupied 2-4 unit
dwelling, then the adjustments to gross rental income are to be
discounted by:
1. the 10% vacancy factor only.
2. The full PM is to be exhibited in the Primary Housing Expense
Section of the
Underwriting Worksheet.
Calculation:
Gross Monthly Rental Income
- 25% of Gross Rental Income (see 2a above)
- monthly Principal & Interest Payment
- monthly Taxes & Insurance
= net monthly rental income/loss
D. OWNERSHIP OF OTHER REAL ESTATE SPECIAL CONSIDERATIONS
1. Home Equity Mortgages
a) Home equity lines of credit on Rental Properties (exhibited
on Sch E of the 1040 Tax Return)
1. If it appears the equity fine deducted was an active account
during the full year and the total allowable interest expense
has been deducted, then a monthly payment need not be calculated
separately from the standard rental
Section 13: VERIFICATION & CALCULATION OF RENTAL INCOME
income analysis. It will be permissible to assume the interest
expense is deducted through Sch E.
2. If it appears the equity line was recently opened or not fully
utilized, it may be necessary to calculate the estimated annual
interest and net the full expense against the Income Reported.
Remember to add back any portion, which may have been deducted.
Section 14: ADJUSTMENTS TO TOTAL INCOME
A. Investment Interest Expense (Inv.1nt-ExW
1. Inv. Int. Exp. can be found reported in several areas of the
tax return. For example: Line 11 of Sch. A, Form 4952, Supplemental
Schedules, K-1 's, Sch. E Part 11 and even in some rare occurrences
Sch. E Part 1.
Inv.lnt.Exp. must be charged against total monthly income.
Form 4952 Line I is the correct amount to determine total Inv.lnt.Exp.
before taking into consideration any adjustments.
B. Margin Expense
1. If margin expense is reported on a current Security Account
statement or tax returns the monthly payment must be calculated
to offset Total Income. (NOTE: Margin Expense will usually be
included in the Investment Interest Expense total.)
C. Employee Business Expenses (Reimbursed and Un-reimbursed)
1. Forms 2106
a) The amounts on Line 8 (positive amounts) from both column
A and B are to be combined to calculate Total Employee Business
Expense.
b) Negative amounts on Line 8 indicate additional income which
The OPC Group considers unacceptable.
2. If Form 2106 is not available, then Schedule A Line 20 can
be used to determine Total Employee Business Expense.
a) The amount on Schedule A may represent an amount exhibiting
an adjustment for the 20% deduction on Meals and Entertainment
Expense.
Formula: Schedule A amount divided by 80%.
1. If Form 2106 is not submitted, but a supplemental statement
is included and the amount of Meals and Entertainment Expense
can be broken out, then only this amount need be increased by
the 20% deduction.
3. Depreciation Expense reported as an Employee Business Expense
is not to be excluded from Total Employee Business Expense.
4. Generally average business expenses over 2 years and include
it as a negative adjustment to income, unless the current year
is significantly greater then average only that year.
Section 15: NET WORTH
A. NET WORTH
1. Accumulation of net worth, particularly in the form of liquid
assets, is a strong indication of creditworthiness. A borrower
who accumulates net worth solely from earnings and savings demonstrate
a strong ability to manage his or her financial affairs. If the
net wroth is in a liquid form, it can be used to service the debt
to pay unexpected debts that may occur, or to protect against
short-term interruptions of income. Therefore, large liabilities
may be offset by liquid assets.
2. Verification of Liquid Assets:
Documentation is required to verify that the borrower has sufficient
cash and/or marketable securities to complete the mortgage transaction,
to support any income credited or to support the overall lending
decision.
Acceptable Verification:
a) completed verification of deposit
b) current two months bank statements
c) current months security account statement
Any indicated of borrowed funds must be investigated - i.e.:
recently opened account, a recently received large deposit, a
current balance significantly greater than the average balance
reported.
3. Add other net worth components.
Section 16: LITE DOCUMENTATION
A. LITE DOCUMENTATION/ALTERNATIVE DOCUMENTATION GUIDELINES
1. OPC will accept 12 months bank statements as supporting documentation
in evaluating a borrower's capacity to pay. This will be used
as one of many factors in credit evaluation decisions by the OPC
Loan Committee
2. In evaluating cash flow as evidence of capacity to pay, other
factors, such as equity in the subject property; quality and stability
of income; credit previously repaid; likely repayment source(s);
additional collateral and guarantees being provided; the existence
of subordinate debt; credit usage and credit quality will be analyzed
and evaluated.
3. Cash flow from a personal account will be considered better
evidence of capacity to pay than will cash flow from business
accounts. This is intended to recognize the likely gross to net
implication of business costs. Ocean Pacific Capital will evaluate
gross to net at varying levels based upon judgment of likely costs
of conducting the type of business involved. Acceptable, specific
and documented expense analysis will be encouraged.
4. When multiple bank accounts are offered as evidence of cash
flow, or multiple transaction accounts are known to exist, Ocean
Pacific Capital will require at least a three (3) months history
of each accounts including all pages of the statement, in addition
to first page copies of the nine previous months. Also, Ocean
Pacific Capital will need an analysis that strongly supports a
full understanding of the borrower's cash flow.
For lite documentation, generally the margin will be increased
along with other costs to compensate for the additional perceived
risk.
Further, lite documentation will be used for Self Employed borrowers
only. Business must have been in existence at least one (1) year.
Borrower must provide a year to date profit and loss statement
along with 12 months bank statements. Income is taken from application
as stated by borrower and must be reasonable for the line of business/profession.
Attachment A
Ocean Pacific Capital
Residential Real Estate
Jumbo Non-Conforming Lending
Program Parameters
Availability:
* One to four unit Real Property/properties
Purpose:
* Purchase
* Rate and Term Refinance
* Cash-out Refinance
Documentation:
* Appraisal from Approved Ocean Pacific Capital Appraisal List
* Signed FNMA Form 1003 Loan Application
* Tax returns personal/corporate or other acceptable form of
verification to prove ability to debt service (section 16)
* Bank Statements-time to time as requested
* VOE's
* VOD's
* Residential Mortgage Credit Report
LTV: * 90 percent maximum. 100 percent for certain borrowers
who qualify for a larger loan-to-value because of other favorable
factors (e.g. additional collateral)
Note Terms: * Adjustable Rate Mortgages
* Non Amortizing
* Term five to ten years
* Index One of Sixth Month LIBOR
* Margin: 2 to 5 percentage points above the index - Margin is
determined based,, upon, overall risk assessment
* Default Interest - I percent per month of principal balance
and accrued interest
* Late charge - 10 percent of the monthly payment amount
* Prepayment penalty, - maximum allowed by law
* Late charge at maturity equal to maximum amount permitted by
applicable law I
* Life cap is fully indexed rate plus 5 percent of the start rate
Ownership: * Individual * Partnerships
* Family Trusts * Corporation
* Land Trusts * Revocable Trusts
* Limited, Liability Companies
Loan Size: * $200,000-00 to $10,000,000.00
Acceptable Occupancy Status: * Primary Residences, Second Homes,
and Investment Properties
Accept-able Property Types: * Single Family, Investment Property,
Condo, PUD, Multi (14 units),
Acceptable Lien Position: * First lien or junior lien position
which will be predominately 2nd trust deeds
Qualifying Rate: * Note Rate
DTI: * No ratios
Qualifying Mortgage
Payment Formula: * Loan amount times (x) note rate divided, by
12 Determination Formula: Time of Closing: two to four weeks (The
faster the closing the larger the margin) Collateral: Additional
collateral will require, smaller margins.
Credit Assessment: Demonstrated, ability to repay or designated
future source of income for monthly, payment&
(which can, include loan guarantor(s)).
Subchapter 3.2 Representations and Warranties
101 Representations and Warranties
With respect to each Mortgage Loan as of each Closing Date, the
Seller represents to note holder that:
i. The information set forth in the Mortgage Loan Schedule is
true and correct in all material respects;
ii. As of the Closing Date, the Mortgage Loan is not delinquent
in payment more than 29 days and the Mortgage Loan has not been
dishonored; the Mortgage Loan has never been delinquent in payment
for more than 59 days and has not more than once been delinquent
in payment for more than 30 days; there are no material defaults
under the terms of the Mortgage Loan; the Seller has not advanced
funds, or induced, solicited or knowingly received any advance
of funds from a party other than the owner of the Mortgaged Property
subject to the Mortgage, directly or indirectly, for the payment
of any amount required by the Mortgage Loan;
iii. To the best of the Seller's knowledge, there are no delinquent
taxes or other outstanding charges affecting the related Mortgaged
Property, which would permit a taxes authority to initiate foreclosure
proceedings against the Mortgaged Property;
iv. The terms of the Mortgage Note and the Mortgage have not
been impaired, waived, altered or modified in any respect, except
by written instruments contained in the Mortgage File, the substance
of which waiver, alteration or modification is reflected on the
Mortgage Loan Schedule. No instrument of waiver, alteration or
modification has been executed, and no Mortgagor has been released,
in whole or in part, except in connection with an assumption agreement
which assumption agreement is part of the Mortgage File and the
terms of which are reflected in the Mortgage Loan Schedule;
v. The Mortgagor has not asserted that the Mortgage Note and
the Mortgage are subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury, nor,
to the best of Sellers knowledge, will the operation of any of
the terms of the Mortgage Note and the Mortgage, or the exercise
of any right there under, render the Mortgagee unenforceable,
in whole or in part, or subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury and to
the best of the Seller's knowledge, no such right of rescission,
set-off, counterclaim or defense has been asserted by any person
other than the obligor with respect thereto;
vi. All the buildings upon the Mortgaged Properly are required
to be insured by a generally acceptable insurer against loss by
fire, hazards of extended coverage and such other hazards as are
customarily included in extended coverage in the area where the
Mortgaged Property is located, pursuant to Standard Hazard Policies
conforming to the requirement of Section 26 Chapter 6. Seller
has not been notified of any cancellation of such Standard Hazard
Policies and accordingly believes they are in effect. On the date
of origination such Standard Hazard Policies contained a standard
mortgagee clause naming the Seller or the originator of the Mortgage
Loan and their respective successors in interest as mortgagee
and, to the best knowledge of the Seller, such clause is still
in effect and all premiums due thereon have been paid. If the
Mortgaged Property is located in an area identified by the Federal
Emergency Management Agency as having special flood hazards under
the National Flood Insurance Act of 1968, as amended, such Mortgaged
Property is covered by flood insurance. The Mortgage obligates
the Mortgagor there under to maintain all such insurance at Mortgagor's
cost and expense, and on the Mortgagor's failure to do so, authorizes
the holder of the Mortgage to maintain such insurance at Mortgagor's
cost and expense and to seek reimbursement therefore from the
Mortgagor;
vii. At the time of origination of such Mortgage Loan, all requirements
of any federal, state or local law including, without limitation,
usury, truth-in-lending, real estate settlement procedures, consumer
credit protection, equal credit opportunity or disclosure laws
required to be complied with by the Seller as the originator of
the Mortgage Loan and applicable to the Mortgage Loan have been
complied with in all material respects;
viii. The Mortgage has not been satisfied as of the Closing Date,
canceled or subordinated, in whole, or rescinded, and the Mortgaged
Property has not been released from the lien of the Mortgage,
in whole or in part (except for a release that does not materially
impair the security of the Mortgage Loan), nor has any instrument
been executed that would effect any such release, cancellation,
subordination or rescission;
ix. Ownership of the Mortgaged Property is held in fee simple
(except for Mortgage Loans as to which the related land is held
in a leasehold which extends at least 10 years beyond the maturity
date of the Mortgage Loan). Except as pen-nitted by the fourth
sentence of this Subsection (ix), the Mortgage is a valid, subsisting
and enforceable first or junior lien on the Mortgaged Property,
including all buildings on the Mortgaged Property and all installations
and mechanical, electrical, plumbing, heating and air conditioning
systems affixed to such buildings, and all additions, alterations
and replacements made at any time with respect to the foregoing
securing the Mortgage Note's original principal balance. The Mortgage
and the Mortgage Note do not contain any evidence on their face
of any security interest or other interest or right thereto. Such
lien is free and clear of all adverse claims, hens and encumbrances
having priority over the first lien of the Mortgage subject only
to (1) the lien of non-delinquent current real property taxes
and assessments not yet due and payable, (2) covenants, conditions
and restrictions, rights of way, easements and other matters of
the public record as of the date of recording which are acceptable
to mortgage lending institutions generally, or which are specifically
referred to in the lender's title insurance policy delivered to
the originator of the Mortgage Loan and either (A) which are referred
to or otherwise considered in the appraisal made for the originator
of the Mortgage Loan, or (B) which do not in the aggregate adversely
affect the appraised value of the Mortgaged Property as set forth
in such appraisal, and (3) other matters to which like properties
are commonly subject which do not in the aggregate materially
interfere with the benefits of the security intended to be provided
by the Mortgage or the use, enjoyment, value or marketability
of the related Mortgaged Property. Any security agreement, chattel
mortgage or equivalent document related to and delivered in connection
with the Mortgage Loan establishes and creates a valid, subsisting
and enforceable lien and priority security interest on the property
describes therein;
x. The Mortgage Note is not subject to a third party's security
interest or other rights or interest therein;
xi. The Mortgage Note and the related Mortgage are genuine and,
to the best of the Seller's knowledge, each is the legal, valid
and binding obligation of the maker thereof, enforceable in accordance
with its terms subject to bankruptcy, insolvency and other laws
of general application affecting the rights of creditors. To the
best of the Seller's knowledge, all parties to the Mortgage Note
and the Mortgage had the legal capacity to enter into the Mortgage
Loan and to execute and deliver the Mortgage Note and the Mortgage.
The Mortgage Note and the Mortgage have been duly and properly
executed by such parties. Unless otherwise provided on the Mortgage
Note, the proceeds of the Mortgage Loan have been fully disbursed
and there is no requirement for future advances thereunder, and
any and all requirements as to completion of any on-site or off-site
improvements and as to disbursements of any escrow funds therefore
have been complied with;
xii. Immediately prior to the transfer and assignment to the Company,
the Mortgage Note and the Mortgage were not subject to an assignment
or pledge,' and the Seller had good title to and was the sole
owner thereof and had full right to transfer and sell the Mortgage
Loan to the Company free and clear of any encumbrance, equity,
lien, pledge, charge, claim or security interest, including, to
the best knowledge of the Seller, any lien, claim or other interest
arising by operation of law;
xiii. The Mortgage Loan is covered by an ALTA lender's title
insurance policy or other generally acceptable form of policy
or insurance acceptable to FNMA or FBLMC, issued by a title insurer
acceptable to FNMA or FBLMC and qualified to do business in the
jurisdiction where the Mortgaged Property is located, insuring
(subject to the exceptions contained in (ix) (1) and (2) above)
the Seller, its successors and assigns, as to the appropriate
priority lien of the Mortgage in the original principal amount
of the Mortgage Loan. Seller is the sole insured of such lender's
title insurance policy, such title insurance policy has been duly
and validly endorsed to the Company or the assignment to the Company
of the Seller's interest therein does not require the consent
of or notification to the insurer and such lender's title insurance
policy is in full force and effect. To the best of the Seller's
knowledge, no claims have been made under such lender's title
insurance policy, and no prior holder of the related Mortgage
has done, by act or omission, anything which would impair the
coverage of such lender's title insurance policy;
xiv. To the best of the Seller's knowledge, there, is no default,
breach, violation or event of acceleration existing under the
Mortgage or the related Mortgage Note and no event which, with
the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default breach, violation or
event permitting acceleration, except for any Mortgage Loan payment
which is not kindly paid; and the Seller has not waived any defaults,
breach, violation or event permitting acceleration;
xv. There are no mechanics' or similar liens or claims which
have been filed for work, labor or material (and, to the best
of the Seller's knowledge, no rights are outstanding that under
law could give rise to such lien) affecting the related Mortgaged
Property which are or may be liens prior to, or equal or coordinate
with, the lien of the relate Mortgage;
xvi. To the best of the Seller's knowledge, all improvements
subject to the Mortgage lay wholly within the boundaries and building
restriction lines of the Mortgaged Property (and wholly within
the project with respect to a condominium unit) and no improvements
on adjoining properties encroach upon the Mortgaged Property except
those which are insured against by the title insurance policy
referred to in clause (xiv) above and all improvements on the
property comply with all applicable zoning and subdivisions laws
and ordinances;
xvii. The Mortgage Loan was originated by the Seller. Each Mortgage
Note is payable in arrears. The Mortgage contains the usual and
customary provision of the Seller at the time of origination for
the acceleration of the payment of the unpaid Principal Balance
of the Mortgage Loan if the related Mortgaged Property is sold
without the prior consent of the mortgagee there under;
xviii. The Mortgaged Property at origination or acquisition was
and, to the best of the Seller's knowledge, currently is free
of material damage and waste and in good repair and at origination
there was, and to the best of the Seller's knowledge there currently
is, no proceeding pending for the total or partial condemnation
thereof,
xix. The related Mortgage contains customary and enforceable
provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property
of the benefits of the security provided thereby, including, (1)
in the case of a Mortgage designated as a deed of trust by trustee's
sale or judicial foreclosure, and (2) otherwise by judicial foreclosure.
The Seller has no knowledge of any homestead or other exemption
available to the Mortgagor which would interfere with the right
to sell the Mortgaged Property at a trustee's sale or the right
to foreclose the Mortgage;
xx. If the Mortgage constitutes a deed of trust, a trustee, duly
qualified if required under applicable law to act as such, has
been properly designated and currently so serves and is named
in the Mortgage, and no fees or expenses are or will become payable
by Note holder to the trustee under the deed of trust, except
in connection with a trustee's sale or attempted sale after default
by the Mortgagor;
xxi. With respect to the Mortgage Loan, there is an appraisal
on a FNMA-approved form of the related Mortgaged Property signed
prior to the approval of such Mortgage Loan application by a qualified
appraiser, appointed by the Seller, who has no interest, direct
or indirect, in the Mortgaged Property or in any loan made on
the security thereof, and whose compensation is not affected by
the approval or disapproval of such Mortgage Loan; and
xxii. The Seller has no knowledge of any circumstances or condition
with respect to the Mortgage, the Mortgaged Property, the Mortgagor
or the Mortgagor's credit standing that can reasonably be expected
to cause investors to regard the Mortgage Loan as an unacceptable
investment, cause the Mortgage Loan to become delinquent or adversely
affect the value or marketability of the Mortgage Loan.
xxiii. Each loan has been originated, processed, closed and delivered
in compliance with the underwriting and program guidelines and
requirements set forth herein and in the Forward Commitment.
With respect to adjustable rate Mortgage Loans (excluding Open-End
Mortgage Loans):
xxiv. No Mortgage Loan contains "buy down” or "graduated
payment features";
xxv. The Margins on the Mortgage Loans, including the minimum
servicing fee, during their respective terms are at a minimum:
INDEX
Loan Size Prime 6-month LIBOR Treasury
$100,000 - 199,999 .625 2.625 2.875
$200,000 - 299,999 .375 2.375 2.75
$300,000 - 599,999 .125 2.125 2.50
$600,000 - 999,999 0 2.00 2.375
$1,000,000 - 2,000,000 (.125) 1.875 2.25
xxvi. The Mortgaged Property is a single-family (one- to four-unit)
dwelling residence erected thereon, or an individual condominium
unit in a condominium, or and individual unit in a planned unit
development or in a de minimize planned unit development or a
cooperative apartment. No such residence is a mobile home or a
manufactured dwelling, which is not permanently attached to the
land.
With respect to the Fixed Rate Mortgage Loans:
xxvii. No Mortgage Loan contains a temporary "buy down!'
or "graduated payment features";
xxviii. The Mortgaged Property is a single-family (one- to four-unit)
dwelling residence erected thereon, or an individual condominium
unit in a condominium, or and individual unit in a planned unit
development or in a de minimis planned unit development or a cooperative
apartment. No such residence is a mobile home or a manufactured
dwelling, which is not permanently attached to the land.
The representations and warranties set forth in this Section
shall survive the delivery of the respective Mortgage Files. Upon
discovery by either the Company, the Seller, a Qualified Insurer
or note holder of a breach of any of the foregoing representations
and warranties which materially and adversely affects the value
of a Mortgage Loan or the interest of note holder, the party discovering
such breach shall give prompt written notice to the other parties.
Parties shall promptly (and in any even within no more than five
Business Days) request that the Seller cure such breach. The Seller
shall within 90 days from the date the Seller was notified of
or otherwise discovers such breach cure such breach in all material
respects, substitute a Mortgage Loan pursuant to the provisions
of Section 104 Chapter 4 or purchase such Mortgage Loan from note
holder at the Repurchase Price. The Seller shall send a copy of
such notices to Note Buyer. The Repurchase Price for the purchased
Mortgage Loan shall be deposited by the Seller in a note holder
Bank Account and, upon receipt by note holder of written notification
of such deposit in the form of an Officer's Certificate signed
by a Servicing Officer shall promptly authorize note holder, upon
its receipt of a request for release of documents from the Seller
to release to the Seller the related Mortgage File and execute
and deliver such endorsements, instruments of transfer or assignment,
without recourse, as shall be necessary to vest in the Seller,
any interest in any Mortgage Loan released pursuant hereto, and
shall have no further responsibility with regard to such Mortgage
Loan.
102. Additional Representations and Warranties for Open-End Mortgage
Loans
With respect to each Open End Mortgage Loan as of each Closing
Date, in addition to the representations and warranties above,
the Seller represents to note holder that:
i. If the Open-End Mortgage is subject to a first or second mortgage
loan, (a) such first or second mortgage loan does not contain
an obligatory future advance provision, and (b) the Seller has
not received a notice of default of any first mortgage loan related
to a Mortgaged Property which has not been cured by a party other
than the Seller.
ii. The Seller and any agent originating for the Seller have
obtained the necessary licenses and approvals required with respect
to the origination of open-end mortgages.
iii. Any fees charged to the borrower in connection with the
origination of the open-end mortgage by the Seller and agent for
the Seller must comply with all applicable State, Federal and
other laws.
Balance of Mortgage Loans purchased after the 10th day of the
month on the basis of a Cut-off Date, which is the first day of
the following month.
Example 1: A Mortgage Loan is purchased on the 10th of May. The
Purchase Price is base on the outstanding Principal Balance on
May 1st (the Cut-off Date). Seller is paid accrued interest through
May 9th. Seller sends a "good-bye" letter to the Mortgagor
on May 10th, telling the Mortgagor to begin sending payments to
note holder on June 1st. The Mortgagor sends the June 1st payment
and all succeeding payments to note holder
Example 2: A Mortgage Loan is purchased on the 11th of May. The
Principal Balance is calculated on the basis of a June I Cut-off
Date; therefore, the Purchase Price is based on the scheduled
outstanding Principal Balance on June lst. Since the Seller will
receive the June 1st payment and since accrued interest from May
11th, through the end of May belongs to note holder, such accrued
interest is deducted from the Purchase Price. The Seller sends
a "good-bye" letter to the Mortgagor on May 11th, telling
the Mortgagor to begin sending payments to note holder on July
1st. The Mortgagor sends the June lst payment to the Seller, and
the July 1st payment and all succeeding payments to .
If a Mortgage Loan is purchased after the 10th of the month,
the Seller retains one scheduled principal and interest payment
after purchase by note holder. The Seller must act as directed
above if the Seller receives any principal or escrow payment made
in excess of such scheduled principal and interest.
Servicing assigned at closing.
In most instances, Seller will assign to note holder its servicing
rights at the borrowers closing. Notification of such servicing
transfer will be accomplished in a manner comparable to those
steps outlined in Section 202.3. note holder will be responsible
for collecting the first payment.
Section 3: Document Packages
This Section describes the proper assembly of note holder Document
Packages, with detailed listings o required documents. It begins
with a Master List of all documents and then describes whether
the original or copy is required in each Document Package.
301 Document Packages
The Seller will deliver certain Files and Records in the form
of the Document Packages described below to note holder or its
designees. note holder will designate the recipient of the Document
Packages in the Commitment Confirmation.
There are three document packages:
a. The Credit File - to be delivered to note holder or its Designated
Underwriter;
b. The Delivery File - to be delivered to note holder prior to
the Closing Date;
c. The Servicing File - to be delivered to note holder with respect
to Mortgage Loans purchased servicing released.
See Subsection 304 of this Section for a description of the contents
of each File.
302 Document Packages Requirements
All Document Packages must comply with the following standard
requirements:
1. Proper Form.
The Document Package must be acco-fastened at the top of a legal
size manila folder with individual documents arranged in the order
provided in Subsection 304 of this Section.
2. Individual Mortgage Loan Information. In the upper right-hand
comer on the front of the individual Mortgage Loan Document Package,
the Seller must print the Mortgagor Last Name and First Initial(s)
and note holder Loan Number (when provided).
3. Review of Document Packages. Note holder or its designee shall
review each Document Package to verify the following:
A. Completeness and accuracy; and
B. Conformity of the documents to the terms and conditions of
the Seller Guide. Documents that are out of order, unfastened
or generally poorly packaged and presented may significantly delay
proper review, thus possibly delaying Mortgage Loan purchase and
resulting in penalty fees.
4. Individual Loan Numbers.
Once note holder assigns a Loan Number to a Mortgage Loan and
provides the number to the Seller, all succeeding correspondence
relative to such Mortgage Loan must refer to the note holder Loan
Number. The note holder Loan Number also shall appear on the lower
left comer of the first page of each Mortgage Note.
303 Mortgage Loan Documents
The following is a master list of all documents, which must
be delivered with respect to each Mortgage
Loan, designated as L- I through L-20 (left side of the file)
and R-1 through R-39 (right side of the file) to
establish the order of the documents in each Document Package.
Subsection 304 below describes the
particular documents from this list which must be included in
each Document Package.
LEFT SIDE
L-1) DOCUMENT CBECKLIST (for appropriate file)
L-2) COPY OF COMMITMENT CONFIRMATION
L-3) PRIMARY MORTGAGE INSURANCE CERTIFICATE
The certificate must be present if applicable. Verification of
premium payment must be included, if not, the premium will be
deducted at purchase. The certificate must be clear of all conditions.
This must be completed and signed by the title company or by an
attorney when
allowed by the state.
L-4) COPY OF PRELIMINARY DELIVERY SCHEDULE
Copies of front and back must be present.
L-5) COPY OF PMI CERT'IFICATE
L-6) ORIGINAL TITLE BINDER/COMMITMENT
All pages must be present.
L-7) ORIGINAL HUD-1
L-8) EVIDENCE OF FLOOD and/or EARTHQUAKE INSURANCE
Insurer's or agents certificate. This must be present if applicable.
L-9) ORIGINAL PLAT and/or SURVEY
L-10) RECEIPTS FOR TAXES DUE AND PAID PRIOR TO CLOSING DATE
L-1 1) FEDERAL TRUTH IN LENDING DISCLOSURE
[to be written]
L-12) NOTICE OF RIGHT TO RESCIND
[to be written]
L-13) STATEMENT OF NONCANCELLATION (if applicable)
[to be written]
RIGHT SIDE
R-1) ORIGINAL LOAN APPLICATION, TYPED
The Application must be FNMA or FBLMC Form with original signatures
and date, and the mortgagor(s) must mark "intend to occupy."
The Form must be complete with all income and financial information.
R-2) ORIGINAL LOAN APPLICATION, HANDWRITTEN or PRELIMINARY
The Application must be FNMA or FHLMC Form with original signatures
and date, and the mortgagor(s) must mark "intend to OCCUPY.
to
R-3) ORIGINAL APPRAISAL REPORT(S)
The entire report with all related information. The appraisal
must have original signatures.
Report should include:
a. Original Location Map
b. Original Floor Plan
c. Original Color Photographs
One set only must be present for property and comparables.
d. Original Completion Color Photographs
One set only must be present if photos in R-3c were taken prior
to completion of property.
e. Original Final Inspection Original Final Inspection must be
present if appraisal(s) in R-3 was completed prior to completion
of property or if appraisal states "subject to plans and
specs."
R-4) TERMITE CERTIFICATE
The Termite Certificate must be present if Appraisal Report indicated
it is applicable.
R-5) SEPTIC OR WELL WATER CERTIFICATE
The Septic or Well Water Certificate must be present if Appraisal
Report indicated it is applicable.
R-6) TRANSMITTAL SUMMARY
The Transmittal Summary must be completed using the Mortgage Loan’s
Note Rate or, if the loan is an ARM, the applicable qualifying
rate specified in Chapter 6, Subsection 8.
R-7) ORIGINAL RESIDENTIAL MORTGAGE CREDIT REPORT
The Credit Report must include reasonable, signed and dated explanations
from the mortgagor(s) concerning any late payments and inquiries.
R-8) MORTGAGE PAYMENT/RENT VERIFICATION(S)
R-9) COPY OF PAYMENT FUSTORY FOR PRIOR MORTGAGE LOAN(S)
If prior loan existed, a payment history or a credit report must
be present and must cover at least the most recent 12 months prior
to the Commitment Expiration Date.
R-10) VERIFICATION OF DEPOSIT (VOD)
Original bank statements from the most recent 3 months may substitute
for VOD.
R-11) ORIGINAL VERIFICATION OF EMPLOYMENT (VOE) OR SELF- EMPLOYED
INCOME ANALYSIS
Verification of Employment must include verification of income
and copies of federal income tax returns for prior two years.
R-12) ORIGINAL OR COPY OF PURCHASE CONTRACT
If applicable.
R-13) ORIGINAL TRUTH-IN-LENDING DISCLOSURE STATEMENT
Original TIL must be provided in addition to the ARM disclosure
statements.
R-14) ALL OTHER DOCUMENTS PERTINENT TO UNDERWRITING THE
MORTGAGE LOAN
As applicable, including, but not limited to, divorce decree and
bankruptcy papers.
R-15) ORIGINAL MORTGAGE NOTE
The original Mortgage Note must be properly endorsed, must include
all original modification and/or assumption agreements.
R-16) ORIGINAL ARM DISCLOSURE
The original ARM Disclosure must be signed by Borrower and dated
prior to closing. The disclosure is required in addition to the
Truth-in-Lending Disclosure Statement necessary on all mortgage
loans (see item R-13).
R-17) ORIGINAL DUPLICATE AND COPY OF DEED OF TRUST OR MORTGAGE
All applicable riders (including ARM riders) must be attached.
If a loan is less than 90 days old and the original is being recorded,
submit a certified true and correct copy of the unrecorded original
and see Subsection for instructions on submitting the original.
Must include all original modification and/or assumption agreements.
R-18) ORIGINAL ASSIGNMENT OF DEED OF TRUST OR MORTGAGE
The Assignment must be recorded and in the form prescribed in
Chapter 101.2, Subsection 4.2, naming Merrill Lynch Credit Corporation
as assignee. The Assignment must reflect recording information,
if available.
R-19) ORIGINAL INTERVENING ASSIGNMENT OF DEED OF TRUST OR
MORTGAGE
The Intervening Assignment must be recorded and reflect recording
information, if available.
R-20) ORIGINAL TITLE POLICY
If the final title policy is not available, submit a Title Policy
Binder/Commitment and see Section 103, Subsection 4.2. A short-form
policy or certificate of title may be delivered, if applicable.
R-2 1) ORIGINAL RECORDED POWER OF ATTORNEY
This must be present if applicable. If loan is less than 90 days
old and original is being recorded, submit a certified true and
correct copy of the unrecorded original.
R-22) ORIGINAL OR CERTIFIED COPY OF LAND TRUST, IF APPLICABLE
R-23) COPY OF PAYMENT HISTORY FOR CURRENT MORTGAGE
This must be present if any payments have been made on the current
mortgage loan. Must show application of payments from the first
payment through the most recent payment due. All payments and
premiums due prior to the purchase date must be paid.
R-24) PLAT and/or SURVEY
The Plat and/or Survey must be dated within 6 months of the closing
date, certified by a licensed surveyor or engineer, and suitable
for deletion of survey exceptions under the title policy and for
determining any applicable flood hazard area. Surveys are not
required in California, Arizona, Nevada or other areas where it
is not standard practice, except when title exception requires
it in order to delete exceptions.
R-25) ORIGINAL ESCROW WAIVER LETTER
This must be present if required by state law. If so, must be
signed by the Mortgagor(s).
R-26) ORIGINAL HAZARD INSURANCE POLICY
The policy must include a current paid receipt and the agents
name, address and telephone (if available). The policy must be
endorsed to "note holder or its successors and/or assigns,
at it’s current address. If unavailable, submit an insurance
binder. If the Mortgaged Property is a Condominium or PUD Unit,
a certificate of insurance and copy of the policy covering the
entire Condominium project or PUD may be provided.
R-27) ORIGINAL FLOOD and/or EARTHQUAKE POLICY
If applicable, the flood insurance application with proof of payment
may be used instead of original policy. The Policy must be endorsed
to note holder or its successors and/or assigns, at it’s
current address.
R-28) NEW LOAN TAX INFORMATION SHEET
Complete note holder Form IO. A current paid receipt must be included.
The next tax due date must not be prior to the purchase date.
R-29) ORIGINAL TAX SERVICE CONTRACT
A valid Transamerica Tax Services contract, including evidence
that the tax service company has been notified of the transfer
of servicing to note holder, must be in the file at purchase;
if not, note holder will order the contract and deduct the cost
at purchase. No refunds will be given for any contract, which
was ordered by the Seller but delivered to note holder after purchase.
A tax transfer letter should be sent to note holder.
R-30) PAYMENT DISTRIBUTION CERTIFICATE.
R-31) DELIVERY SCHEDULE
This must contain the information concerning each Mortgage Loan
set forth in delivery schedule.
R-32) MORTGAGE POOL CERTIFICATION OR UNDERWRITING APPROVAL
Written approval of note holder Designated Underwriter, a certificate
of approval signed by the Seller's senior underwriter if the Seller
if approved for delegated underwriting, or a pool certificate
of note holder Designated Underwriter which does not expire for
at least 60 days from the date of submission. Note holder Designated
Underwriters are:
GE
PMI - Platinum Certificate
UGIC
R-33) LETTER TO HAZARD INSURANCE CARRIER
This letter must be written by Seller on Seller's letterhead.
R-34) LETTER (S) TO FLOOD and/or EARTHQUAKE INSURANCE CARRIER(S)
These letters must be written by Seller on Seller's letterhead.
R-35) COPY OF GOODBYE LETTER
This letter must be on Seller's letterhead and must have necessary
disclosures as required by Federal law. Seller should mail the
letter the First Business Day after the Closing Date purchased
by note holder.
R-36) COPY OF FORM 1040 OR BUSINESS RETURNS - 2 YEARS
[to be written]
R-37) ORIGINAL GOOD FAITH ESTIMATE
[to be written]
R-38) PUD/CONDOMINIUM RIDERS
[to be written]
R-39) FORM 4506 - REQUEST FOR TAX RETURNS
[to be written]
R-40) NOTICE OF POTENTIAL TRANSFER OF SERVICING
[to be written]
R-41) FINAL LOAN APPLICATION (signed)
[to be written]
304 Document Packages - Document Order
Each Document Package must be delivered under the applicable
conditions and with documents in proper
order. Documents must be inserted in each Document Package in
the exact order specified, with item L-1 on top of the left side
and item R- I on top of the right side of a manila folder.
1. Credit File
a) Conditions. Seller must submit the Credit File to note holder
or its designee at the location
identified in the Commitment Confirmation no later than the date
specified therein.
b) Document Order.
LEFT SIDE
L-1) Credit File Document Checklist.
L-6) Original title binder.
L-8) Original Flood Certificate.
L-9) Original plat and/or survey.
RIGHT SIDE
R-1) Original loan application, typed and signed, if applicable.
R-2) Original loan application, handwritten or preliminary (signed).
R-3) Original Appraisal Report(s)
R-4) Termite certification, if required.
R-5) Septic or well water certificate, if required.
R-6) Transmittal Summary.
R-7) Original residential mortgage credit report(s).
R-8) Mortgage payment/rent verifications.
R-9) Copy of payment history of prior mortgage loan(s).
R-10) Original verification(s) of deposit (VOD).
R-11) Original verification of employment (VOE) or applicable
Income Analysis, if applicable.
R-12) Original or copy of purchase contract, if applicable.
R-13) Original truth-in-lending disclosure statement igne
R-14) All other documents pertinent to underwriting Mortgage Loan
required by this Seller Guide.
R-36) Copy of Form 1040 or business returns - 2 years.
R-37) Certified true and correct original Good Faith Estimate
(signed).
2. Delivery File
a) Conditions. No later than two (2) Business Days preceding
the Closing Date, the Seller must submit the completed Delivery
File to the location specified in the Commitment Confirmation.
i. All documents must be complete and correct-no white-outs; strike-outs
must be initialed by the appropriate party; no hole punches through
recording information. The information in any one document must
agree with the information in all other documents. All signatures
must be identical to the printed or typed names. Only authorized
agents of the Seller may sign documents for the Seller.
ii. The Seller or the Seller's warehouse bank must submit the
Custodial File to note holder or its Custodian/Trustee at the
location identified in the Commitment Confirmation no later than
the date specified therein.
iii. All original documents sent for recording by the Seller
must be delivered to note holder or its Custodian/Trustee promptly
upon return to the Seller or the Seller's warehouse bank.
iv. If the Custodial File(s) is sent to a Custodian/Trustee designated
by note holder, the Seller must place on the outside of the delivery
package, the Seller's assigned Custodial Account Number. Such
Custodial Account Number shall be provided by
note holder.
