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					                  Section 2.90 – The FHA 203(b) Loan Program

In This Product   This product description contains the following topics.
Description
                   Overview ........................................................................................................... 2 
                       Features & Benefits ........................................................................................... 2 
                       Product Summary.............................................................................................. 3 
                       Helpful Websites ............................................................................................... 4 
                       HUD Home Ownership Centers ........................................................................ 5 
                       HUD Section of the Act and ADP Codes........................................................... 5 
                   Related Bulletins ............................................................................................... 6 
                   Loan Terms ....................................................................................................... 7 
                       Assumptions ...................................................................................................... 7 
                       Loan Term ......................................................................................................... 8 
                       Maximum Loan Amount and LTV ...................................................................... 9 
                       Transactions Affecting Maximum Mortgage Calculations ............................... 11 
                       Minimum Down Payment ................................................................................ 15 
                       Maximum # of FHA Loans per Borrower ......................................................... 15 
                       Maximum Number of Financed Properties and Borrower Exposure ............... 16 
                       Prepayment ..................................................................................................... 17 
                       ARM Change Dates ........................................................................................ 17 
                       ARM Parameters ............................................................................................. 18 
                       Truth-in-Lending ARM Disclosure ................................................................... 19 
                   FHA Jumbo ..................................................................................................... 20 
                   Eligible Transactions ....................................................................................... 24 
                   New Construction ............................................................................................ 26 
                   Ease-In Payment Reduction Feature .............................................................. 41 
                   Energy Efficient Mortgage (EEM) Program ..................................................... 45 
                   Refinances ...................................................................................................... 46 
                   Cash-Out Refinances ...................................................................................... 48 
                   No Cash-Out with an Appraisal (Rate/Term Refinance) ................................. 50 
                   Streamline Refinances .................................................................................... 52 
                   Secondary Financing ...................................................................................... 59 
                   Geographic Restrictions .................................................................................. 66 
                   Occupancy/Property Types ............................................................................. 67 
                   Eligible Borrowers ........................................................................................... 78 
                   Income............................................................................................................. 85 
                   Liabilities and Qualifying Ratios .................................................................... 107 
                   Credit Requirements ..................................................................................... 116 
                   FHA Social Security Number Validation ....................................................... 131 
                   Cash Requirements ...................................................................................... 133 
                   Contributions by Interested Parties ............................................................... 149 
                   HUD Allowable Closing Costs ....................................................................... 152 
                   Mortgage Insurance ...................................................................................... 154 
                   Appraisal Requirements ................................................................................ 162 
                   Prohibition of Property Flipping ..................................................................... 184 
                   Automated Underwriting System (AUS) Issues ............................................ 188 
                   Rate, Points & Lock-Ins ................................................................................. 211 
                   Application, Disclosures and Consumer Compliance ................................... 211 
                   MLCS Loan Setup and Processing ............................................................... 215 
                   Workflow........................................................................................................216 
                   Closing and Loan Settlement Documentation............................................... 221 



Section 2.90                                                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                                                      Page 1 of 230
Broker Seller Guide
Overview


Features &      Features and benefits of the FHA mortgage include the following:
Benefits
                                Features                                      Benefits
                Fixed Rate or 5 and 7 Year non-             Greater flexibility in accommodating a
                convertible ARMS are available.             borrower’s needs or preferences.
                FHA Jumbo loans available.                  The surge in higher conforming loan
                                                            amounts is a great opportunity to help
                                                            make homeownership more affordable
                                                            for the borrower.
                Seller can pay up to 6% of sales price      Borrower needs less cash for the
                toward closing costs, prepaids, and         transaction.
                interest buydowns.
                Ratios of 31/43% for loans requiring        More borrowers can qualify for an FHA
                traditional underwriting.                   loan.
                100% gift allowed for down payment          Gift funds are considered as borrowers
                with no money from buyer required.          own funds to apply toward the required
                                                            3.5% investment.
                AUS Underwriting is permitted on FHA        AUS allows for less documentation and
                loans.                                      easier borrower qualification.
                No reserves are required on 1-2 unit        Borrowers need less cash to qualify.
                properties.
                100%    FHA     financing   through         Allows more borrowers to purchase
                FHA/SunTrust Approved Non-Profits.          home without having established
                                                            savings.
                No income       limit   restrictions   in   Borrowers are not limited to wages
                qualifying.                                 under a set amount for their area.
                Cash out refinances may be permitted        Borrowers may use FHA’s easier
                up to a 85% LTV.                            qualifying guidelines with less equity
                                                            remaining in their homes.
                Streamlined Refinances with and             Less cost to borrowers.
                without appraisals.
                FHA loans are assumable by credit-          More attractive for future resale if the
                qualified buyers.                           borrower plans to relocate or move up
                                                            to a larger home in the future.

                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                                 Page 2 of 230
Broker Seller Guide
Overview, Continued


Product         General Information
Summary         This product description describes SunTrust’s Federal Housing Administration’s
                (FHA’s) mortgage programs for Section 203(b), basic 1-4 family, adjustable rate
                mortgages, and Condominiums. FHA 203(b) mortgages are insured by the
                Department of Housing and Urban Development (HUD). This offers borrowers the
                opportunity to obtain a mortgage when they may not qualify under conventional
                guidelines.

                Reference: See the topic Seller-Paid Interest Payment Reduction / Ease-In
                Payment Reduction Feature subsequently presented in this product description for
                additional information concerning the Seller Paid Interest Payment Reduction
                Feature.

                AUS Guidelines
                • Fannie Mae DU and Freddie Mac LP information can be found under the
                  appropriate topic and subtopic when applicable. AUS System setup and
                  Processing is located in the AUS section of this product description.
                • If “Approve/Ineligible” or “Refer,” reduced documentation may be used if allowed
                  by the findings report and approved by the DE Underwriter.

                Reference: See “FHA TOTAL Scorecard” in the topic “AUS Issues” for additional
                information.

                HUD Handbooks & Mortgagee Information
                This product description contains only a portion of HUD’s various lending Handbooks
                and Mortgagee Letters. It is the responsibility of the SunTrust Wholesale Branch
                Office to ensure that mortgages processed for 203(b) loans meet HUD’s guidelines.


Ineligible      •   FHA 203(b) with repair escrow
Programs        •   FHA 203(k) loans
                •   Energy Efficient Mortgages (EEMs)
                •   FHA Refinance Program for borrowers in negative equity positions.

                Note: These programs have been evaluated by SunTrust but have not been
                embraced.

                                                                            Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                               Page 3 of 230
Broker Seller Guide
Overview, Continued


Helpful         The following list provides links to helpful HUD web sites.
Websites        • Circular Letters for each Home Ownership Center:
                   http://www.hud.gov/offices/hsg/sfh/hoc/hsghocs.cfm
                • FHA Connection: https://entp.hud.gov/clas/index.cfm
                • Housing Keyword Index: http://www.hud.gov/offices/hsg/keywords.cfm
                • This Index allows you to search HUD’s web site using "keywords." From this site
                   you can also access the sites listed below.
                   • Letter "A" - Atlanta Home Ownership Center (lists addresses, phone
                         numbers, etc.)
                   • Letter "D" - Denver Home Ownership Center (lists addresses, phone
                         numbers, etc.)
                   • Letter "P" - Philadelphia Home Ownership Center (lists addresses, phone
                         numbers, etc.)
                   • Letter "S" - Santa Anna Home Ownership Center (lists addresses, phone
                         numbers, etc.)
                   • Letter "M"- Mortgagee Letters
                • HUD Clips (Handbooks & Forms): http://www.hud.gov/offices/adm/hudclips/
                • HUD website: http://www.hud.gov/
                • FHA Maximum Mortgage Limits: https://entp.hud.gov/idapp/html/hicostlook.cfm
                • FHA.gov: www.FHA.gov

                                                                           Continued on next page




Section 2.90                                                                     October 19, 2012
FHA 203(b) Loan Program                                                             Page 4 of 230
Broker Seller Guide
Overview, Continued


HUD Home         •    HUD has consolidated the various local HUD Field Offices into four (4) Home
Ownership             Ownership Centers (HOCs). These HOCs are responsible for the policies and
Centers               procedures that lenders are responsible for applying to the origination,
                      processing, underwriting, closing and insuring of FHA loans.
                 •    The following table shows states that are served by the HOCs:

                        Atlanta,           Philadelphia,             Denver,            Santa Ana,
                        Georgia            Pennsylvania             Colorado             California
                 Alabama               Connecticut            Arkansas              Alaska
                 Florida               Delaware               Colorado              Arizona
                 Georgia               District of Columbia   Iowa                  California
                 Illinois              Maine                  Kansas                Guam
                 Indiana               Maryland               Louisiana             Hawaii
                 Kentucky              Massachusetts          Minnesota             Idaho
                 Mississippi           Michigan               Missouri              Nevada
                 North Carolina        New Hampshire          Montana               Oregon
                 Puerto Rico           New Jersey             Nebraska              Washington
                 South Carolina        New York               New Mexico
                 Tennessee             Ohio                   North Dakota
                 Virgin Islands        Pennsylvania           Oklahoma
                                       Rhode Island           South Dakota
                                       Vermont                Texas
                                       Virginia               Utah
                                       West Virginia          Wisconsin
                                                              Wyoming

                 •     All communication from the HOCs can be accessed through the Internet.

                       Reference: See the subtopic “Helpful Web Sites” within this topic for internet
                       links to individual HOCs.

                 •    The information provided in this product description MAY NOT include all HOC
                      policies that may vary from standard FHA guidelines. It is the responsibility of
                      the Wholesale Broker to determine the guidelines specific to their location.


HUD Section of   The table below provides the HUD codes for the Section of the Act and the
the Act and      applicable ADP code for each product.
ADP Codes

                     Section of the                  Description                       ADP Code
                          Act                                                           for DE
                        203(b)        Basic Home Mortgage Insurance                       703
                        203(b)        ARM                                                 729
                        203(b)        Interest Rate Buydown                               796

                        203(b)        Condominium                                         734
                        203(b)        Condominium ARM                                     731
                        203(b)        Condominium Interest Rate Buydown                   797




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                                 Page 5 of 230
Broker Seller Guide
Related Bulletins


General         Related bulletins are provided below in PDF format. To view the list of published
                bulletins, select the applicable year below.

                •   2012
                •   2011
                •   2010
                •   2009




Section 2.90                                                                     October 19, 2012
FHA 203(b) Loan Program                                                             Page 6 of 230
Broker Seller Guide
Loan Terms


Assumptions     Loan Origination Dates
                A loan that is financed by HUD may be assumed provided it meets HUD’s
                requirements. The primary consideration for assumptions is the date of the original
                FHA loan. If the original loan was originated:
                • on or after December 15, 1989 the following guidelines must be met:
                    • any person assuming an FHA insured mortgage must be found creditworthy
                        by HUD or a DE lender,
                    • the credit worthiness review requirement extends for the life of the mortgage.
                    • the assumptor must be an owner occupant, and
                    • private investors are prohibited from assuming insured mortgages that are
                        subject to the restrictions of the 1989 Act.
                • between December 1, 1986 through December 15, 1989 the following guidelines
                   must be met:
                    • credit qualification is not required, unless the seller requests release of
                        liability, and
                    • seller can usually request release of liability if five (5) years have lapsed
                        since the date of transfer (assumption), providing the assumptor has
                        maintained a satisfactory payment history.
                • originated prior to December 1, 1986, HUD has no restrictions.


                                                                             Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                               Page 7 of 230
Broker Seller Guide
Loan Terms, Continued


Assumptions,    Investment Property
(continued)     • An investor that assumes a high ratio mortgage originated by an owner-occupant
                   pursuant to a HUD Conditional Commitment (or VA CRV), or an appraisal signed
                   by a DE underwriter on or after February 5, 1988 but prior to December 15,
                   1989, must bring the outstanding mortgage balance down to a 75% LTV ratio if
                   the borrower wants to be released from personal liability on the mortgage note.
                • The original appraised value or current appraised value may be used to
                   determine LTV.
                • Commitments issued after December 15, 1989 may not be assumed as
                   investment property except under certain conditions.

                Second Homes
                • HUD conditional commitments issued on or after February 5, 1988 but before
                   January 27, 1991 must bring the outstanding mortgage down to 85% LTV.
                • Commitments issued after January 27, 1991 may not be assumed as second
                   homes, except under the hardship provisions.
                • The original appraised value or current appraised value may be used to
                   determine LTV.

                Release From Liability
                The lender is required to release all parties from liability when the assuming
                borrower is found creditworthy. The following two (2) forms are utilized for an FHA
                assumption:
                • Request for Credit Approval of Substitute Mortgagor (HUD form 92210), or
                    similar form used by the lender, which does not formally release the original
                    borrower from personal liability on the mortgage note, and.
                • Approval of Purchaser and Release of Seller (HUD form 92210.1), or other
                    similar form used by the lender, which constitutes a formal release of liability.

                Secondary Financing
                The repayment terms must be clearly defined and included in the underwriting
                analysis.

                Cash Contributions
                • Cash contributions from the seller to facilitate an assumption are not acceptable.
                • The existing mortgage balance must be reduced by the amount of the
                   contribution.
                • The seller, however, may pay the assumptor’s normal closing costs (processing
                   fee and credit report) with no reduction to the mortgage.


Loan Term       Fixed Rate
                10, 15, 20, 25 or 30 years

                ARMs
                30 years only




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                                Page 8 of 230
Broker Seller Guide
Loan Terms, Continued


Maximum Loan    General Information
Amount and      • Generally, the maximum insurable mortgage is the lesser of:
LTV                • FHA’s statutory loan limit for the area (typically a county or metropolitan
                       statistical area, MSA), or
                   • the applicable loan-to-value limit.
                • Loan amount limits vary by program, property location and the number of units
                   within the dwelling. They apply to both purchase transactions and refinances.
                • A percentage of the Fannie Mae/Freddie Mac maximum loan limits are used to
                   establish the FHA loan limits.
                • FHA’s “floor” loan limits for 1-4 unit properties is based on 65% of the conforming
                   loan limits as established by the Federal Government.

                                               2011 FHA Mortgage Limits
                             Units             Floor Limits     Maximum Ceiling Limits
                             1 Unit                $271,050              $729,750
                             2 Units               $347,000              $934,200
                             3 Units               $419,425             $1,129,250
                             4 Units               $521,250             $1,403,400

                •   FHA uses its own data to set the maximum limit in each area. Loan amounts
                    exceeding the “floor” limits are accepted for those counties where FHA has
                    published higher loan limits.
                •   A complete listing of FHA mortgage limits for all areas is available through the
                    HUD website on the FHA Mortgage Limits web page.

                    Notes:
                    • The FHA Mortgage Limits web page may be used to determine the
                       maximum loan amount allowed for the location of a specific property. It can
                       also be used to look up FHA mortgage limits for your area or several areas,
                       and then list them by state, county, or Metropolitan Statistical Area.
                    • Use the chart below to determine what to choose from the dropdown box
                       labeled “Limit Year” on HUD’s website. The results of your search will
                       determine the available maximum county loan limits.

                          If the loan was      ...and the Case Number was    ...then choose the below
                              locked...                 assigned...            “Limit Year” on HUD’s
                                                                                      Website.
                     Before Jan. 19,        Anytime                         Oct. 1, 2011 –
                     2012                                                   Nov. 17, 2011
                     On or After            Nov. 18, 2011 – Dec. 31, 2011   Nov. 18, 2011 –
                     Jan. 19, 2012                                          Dec. 31, 2011
                     On or After            On or After Jan. 1, 2012 –      CY2012
                     Jan. 19, 2012          Dec. 31, 2012

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                  Page 9 of 230
Broker Seller Guide
Loan Terms, Continued


Maximum Loan           Base Loan
Amount and             • Maximum LTVs are determined using the “base” loan amount.
LTV, (continued)       • The “base loan” is the maximum loan amount prior to adding any financed
                          mortgage insurance premium. The type of transaction will determine the
                          calculation of the base loan amount.
                       • The table below reflects the allowable LTV/TLTV or other methods used in the
                          maximum mortgage calculations.

                               Occupancy               Stage of Construction               LTV / TLTV
Purchases              Owner Occupied                Proposed and Existing          96.5% / 105%
                       Owner Occupied                Under Construction or Less     90% / 105%
                                                     than 1 Year                    Maximum financing allowed
                                                                                    if Pre-approved*

                                                                                    *See “New Construction”
                                                                                    for acceptable pre-approval
                                                                                    documentation.
                       Second Homes **                                              85% / 105%
                       Investment **                                                75% / 105% 1 Unit
                                                                                    85% / 105% 2–4 Units

** Note: Second Homes and Investment properties are eligible for FHA financing only under limited
circumstances. Refer to each subtopic within the “Occupancy/Property Types” topic for additional
information before offering FHA financing for these property types.


                                 Type of Refinance 1                              LTV / TLTV
Refinances             Credit Qualifying Streamline Refinance       STM to STM Transactions
                       with an Appraisal                            97.75% / 105%

                                                                    Non-STM to STM Transactions
                                                                    97.75% / 100%
                       Credit Qualifying Streamline Refinance       STM to STM Transactions
                       without an Appraisal                         97.75% / 105%

                                                                    Non-STM to STM Transactions
                                                                    97.75% / 100%
                       Rate/Term Refinance                          97.75% / 97.75%
                       Cash Out Refinance                           85% 2,3 / 85%2,3 1-4 unit properties
1
    See the topic “Refinances” for further information.
2
    Other limitations may apply; see the subtopic “Cash-Out Refinances” in the topic “Refinances” for additional
    information.
3
    Cash-out refinance transactions for properties located in the state of Florida are limited to a LTV/TLTV
    of 80.00%.


Minimum Loan           None.
Amount

                                                                                        Continued on next page


Section 2.90                                                                                   October 19, 2012
FHA 203(b) Loan Program                                                                         Page 10 of 230
Broker Seller Guide
Loan Terms, Continued


Transactions    Various transaction types or relationships may affect the allowable LTV or other
Affecting       methods used in the maximum mortgage calculations.
Maximum
Mortgage        Identity of Interest Transactions
Calculations    • Identity of Interest Transactions are transactions between family members,
                    business partners or other business affiliates. Identity-of-interest transactions
                    are restricted to a maximum LTV of 85%. However, maximum financing above
                    85% is permissible under the following circumstances:
                • family member purchasing another family member’s principal residence,
                • employee of builder purchasing home from builder,
                • current tenant purchasing home she has rented for at least six (6) months
                    predating the sales contract, (with lease or other written evidence), and
                • sales by corporations purchasing an employee’s home and reselling to another
                    employee.

                Notes:
                • For identity-of-interest transactions, a family member includes a child, parent,
                   grandparent, (biological, foster or step), sister, step-sister, brother, step-brother,
                   legally adopted son or daughter, a child who is a member of the borrower’s
                   household due to placement by an authorized agency for legal adoption, aunt,
                   and uncle.
                • For identity of interest transactions, a full appraisal is required and must include
                   verification of the purchase price, last sale date, and recent listing of the subject
                   property regardless of the feedback provided in the AUS messaging.

                Non Occupying Co-Borrowers
                • Non-occupant co-borrower transactions are restricted to a maximum LTV of
                   75%. However, maximum financing above 75% is permissible under the
                   following circumstances:
                   • borrowers are related by blood, marriage, or law, or
                   • unrelated individuals that can document evidence of a family-type,
                        longstanding and substantial relationship not arising out of the loan
                        transaction, and
                   • the property is a one (1) unit dwelling.
                • Below are other requirements for a non-occupying co-borrower.
                   • All borrowers, regardless of occupancy status, must sign the security
                        instrument and the mortgage note.
                   • If a parent is selling to a child, the parent cannot be the co-borrower with the
                        child on the new mortgage, unless the LTV is 75% of less.
                   • Non-occupant co-borrowers are not permitted on any cash-out transaction.

                References:
                • See “Maximum # of FHA Loans per Borrower” subtopic subsequently presented
                   in this topic for additional information.
                • See the topic “Eligible Borrowers” for additional information.


                                                                                 Continued on next page



Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 11 of 230
Broker Seller Guide
Loan Terms, Continued


Transactions    Three and Four Unit Properties
That Affect     • The maximum mortgage is limited so that the ratio of the monthly mortgage
Maximum            payment (PITI plus Homeowners association dues, if applicable) divided by the
Mortgage           monthly net rental income does not exceed 100%.
Calculations,   • The monthly payment includes principal, interest, taxes, insurance, monthly
(continued)        mortgage insurance, and homeowner’s association dues computed at the note
                   rate. No considerations for buydowns may be given.
                • Net rental is the appraiser’s estimate of fair market rent from all units, including
                   the unit the borrower will occupy, less the FHA allowance for vacancies and
                   maintenance (or 25% if the local FHA has not established a separate allowance).
                • The projected rent may be considered only as gross income for qualifying
                   purposes, and not used to offset the monthly mortgage payment.
                • Three (3) months reserves (PITI) after closing are required on all transactions.
                   The LTV/TLTV may not exceed 85% on a cash-out refinance transaction.

                Building on Own Land
                • Maximum financing is available if the borrower receives no cash from the
                    settlement. LTV limits are applied to the lesser of
                    • the appraised value, or
                    • the documented acquisition cost, which includes the following:
                          • builder’s price, or the sum of all subcontractor’s bids, materials, etc.,
                          • cost of the land (value may be used if land was owned more than 6
                             months or was received as an acceptable gift),
                          • interest and costs from the construction loan obtained by the borrower
                             to fund construction of the property, and
                          • closing costs and reasonable discount points paid by the borrower.
                • Equity in the land may be used for the borrower’s entire down payment.
                • If the borrower receives cash at closing exceeding $250, the loan is limited to
                    85% of the sum of the appraised value plus closing costs.

                Paying Off Land Contracts or Refinance Properties Subject to Ground Rent
                • If the borrower will use the loan to complete payment on a land contract, contract
                   for deed, or other similar type financing arrangement where the borrower does
                   not have title to the property, the new mortgage may be processed as either a
                   purchase or a refinance transaction with maximum insured financing if the
                   borrower receives no cash at closing.
                • If all loan proceeds are used to pay the outstanding balance on the land contract
                   and eligible repairs, renovations, etc., the appropriate loan-to-value ratio is
                   applied to the lesser of:
                   • the appraised value, or
                   • the total cost to acquire the property plus allowable closing costs and, if
                        treated
                • Equity in the property may be used for the borrower’s entire down payment.
                • If the borrower receives cash at closing exceeding $500, the loan is limited to
                   85% of the sum of the appraised value.
                   Treat cash-out refinances that pay off land contracts or refinance properties
                   subject to ground rents in the same manner as cash-out refinance transactions
                   on properties held in fee simple ownership.

                                                                              Continued on next page
Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 12 of 230
Broker Seller Guide
Loan Terms, Continued


Transactions    Occupancy of Former Investment Property
That Affect     The maximum mortgage amount available for borrowers who reoccupy their former
Maximum         investment property as their primary residence and wish to refinance are subject to
Mortgage        the following restrictions:
Calculations,   • If occupancy of the former investment property was 12 months or more prior to
(continued)         the loan application date, then maximum financing as an owner-occupant is
                    allowed (97.75% for rate/term refinances; 85% for cash-out refinances)
                • If occupancy of the former investment property was less than 12 months prior to
                    the loan application date, then the loan is eligible as a rate/term refinance only
                    with a maximum LTV of 85%.

                HUD Single-Family REO $100 Down Payment

                Reference: See the HUD REO Properties subtopic in the Occupancy/Property
                Types topic subsequently presented for additional information on the maximum
                mortgage amount and minimum down payment calculation.


                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 13 of 230
Broker Seller Guide
Loan Terms, Continued


Transactions    Additions to the Mortgage Amount
That Affect     • An increase in the maximum mortgage amount is permitted only when the
Maximum            appraised value exceeds the sales price; any remaining costs become part of
Mortgage           the borrower’s settlement requirements.
Calculations,   • The increase may not exceed HUD’s basic mortgage limits for the area where
(continued)        the property is located, except for solar energy systems.
                • Allowable additions to the mortgage amount are discussed under the headings:
                • energy-related weatherization items, and
                • solar energy systems.

                Repairs and Improvements
                The table below provides the requirements necessary to add the amount of repairs
                and improvements in the loan amount.

                IF the…                                    THEN the…
                • repairs are required by the              • amount that may be added to the
                    appraiser and the value reflects          sales price before calculating the
                    these requirements,                       maximum mortgage is the lowest of:
                • repairs were not completed prior to         • the amount the value of the
                    the appraisal, and                            property exceeds the sales price,
                • sales contract        or   addendum         • the appraiser’s estimate of repairs
                    identifies   the    borrower    as            and improvements, or
                    responsible for paying for the            • the amount of the contractor’s bid,
                    repairs,                                      if available.

                Reference: See Section 1.03c: Reviewing Sales Contracts, of the Broker Seller
                Guide, for additional information.

                Energy-Related Weatherization Items
                If weatherization items are to be added to the property and paid for by the borrower,
                the cost may be added to both the sales price and the value before determining the
                maximum mortgage amount. Examples of weatherization items are shown below.
                • Thermostats
                • Insulation
                • Storm windows and doors
                • Weather stripping and caulking, etc.

                Solar Energy Systems
                The cost of the solar energy systems may be added directly to the mortgage amount
                (before adding the UFMIP) after applying the LTV ratio limits. Important facts to
                remember when considering adding the solar energy system are listed below.
                • The statutory mortgage limit for the area also may be exceeded by 20% to
                    accommodate the cost of the system.
                • The amount that may be added to the mortgage is limited to the lesser of the
                    solar energy systems replacement cost or its effect on the property’s market value.
                • Both active and passive solar systems are acceptable as are wind-driven
                    systems.

                                                                               Continued on next page


Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 14 of 230
Broker Seller Guide
Loan Terms, Continued


Minimum Down    HUD’s Requirement
Payment         • The minimum down payment is 3.50%.
                • The minimum down payment must come from the borrower’s down payment and
                  may not include closing costs paid by the borrower.


Maximum # of    General Information
FHA Loans per   FHA will generally not insure more than one mortgage per borrower. Circumstances
Borrower        in which a borrower may keep his current FHA-insured mortgage are provided
                below.

                Relocating
                The borrower is relocating and re-establishing residency to another area that is not
                within reasonable commuting distance from the current HUD insured home. There is
                no need to reduce the principal balance or sell the current home. Other items of
                clarification are shown below.
                • The relocation need not be employer mandated.
                • If the borrower returns to an area where he/she owns a property with an FHA
                    Mortgage, it is not required that the borrower re-establish primary residency in
                    that property in order to obtain another FHA mortgage.

                Family Size Increase
                The borrower’s family has increased in the number of legal dependents and the
                present home no longer meets the family needs and the following applies.
                • Satisfactory evidence must be provided of the increase in dependents and an
                    explanation of why the property no longer meets the family needs,
                • The outstanding mortgage balance on the present home is paid down to a
                    maximum LTV of 75% (excluding financed MIP).
                • A current residential appraisal must be used to determine LTV compliance.

                Note: Tax assessments, market analysis by real estate brokers, etc., are not
                acceptable to determine LTV.


                                                                             Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                             Page 15 of 230
Broker Seller Guide
Loan Terms, Continued


Maximum # of     Co-Borrower for Family Member
FHA Loans per    The borrower will be a non-occupying co-borrower on property being purchased as a
Borrower,        primary residence by other family members, may have a joint interest in that property
(continued)      as well as his own primary residence, which is a FHA-insured mortgage too.

                 Vacating a Jointly Owned Property
                 The borrower is vacating a residence that will remain occupied by a co-mortgagor.
                 Acceptable situations include following a divorce where the borrower is purchasing a
                 new home or where the borrower is vacating the property.


Maximum          Reference: See Section 1.20: Maximum Number of Financed Properties and
Number of        Borrower Exposure, of the Broker Seller Guide, for additional information.
Financed
Properties and
Borrower
Exposure

                                                                               Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 16 of 230
Broker Seller Guide
Loan Terms, Continued

Prepayment        There is no prepayment penalty on FHA loans.


ARM Change        The FHA ARM first interest rate change dates are calculated on a “quarterly” basis,
Dates             unlike the conventional ARM programs. The first interest rate change date
                  information is found in the following ARM change date chart.

                  The following table shows the FHA 5/1 ARM change dates.

    Closing       Interest Starts   First Pymt Date   First Interest   Maturity Date      Number of
                     Accruing                         Change Date       30 Yr Term       Months Until
                                                                                          1st change
  12/2-01/1/12       01/01/12          02/01/12         04/01/17         01/01/42              63
  01/2-02/1/12       02/01/12          03/01/12         04/01/17         02/01/42              62
  02/2-03/1/12       03/01/12          04/01/12         04/01/17         03/01/42              61
  03/2-04/1/12       04/01/12          05/01/12         07/01/17         04/01/42              63
  04/2-05/1/12       05/01/12          06/01/12         07/01/17         05/01/42              62
  05/2-06/1/12       06/01/12          07/01/12         07/01/17         06/01/42              61
  06/2-07/1/12       07/01/12          08/01/12         10/01/17         07/01/42              63
  07/2-08/1/12       08/01/12          09/01/12         10/01/17         08/01/42              62
  08/2-09/1/12       09/01/12          10/01/12         10/01/17         09/01/42              61
  09/2-10/1/12       10/01/12          11/01/12         01/01/18         10/01/42              63
  10/2-11/1/12       11/01/12          12/01/12         01/01/18         11/01/42              62
  11/2-12/1/12       12/01/12          01/01/13         01/01/18         12/01/42              61
  12/2-01/1/13       01/01/13          02/01/13         04/01/18         01/01/43              63
 01/02-02/01/13      02/01/13          03/01/13         04/01/18         02/01/43              62


                  The following table shows FHA 7/1 ARM change dates.

    Closing       Interest Starts   First Pymt Date   First Interest   Maturity Date      Number of
                     Accruing                         Change Date       30 Yr Term       Months Until
                                                                                          1st change
  12/2-01/1/12       01/01/12          02/01/12         04/01/19         01/01/42              87
  01/2-02/1/12       02/01/12          03/01/12         04/01/19         02/01/42              86
  02/2-03/1/12       03/01/12          04/01/12         04/01/19         03/01/42              85
  03/2-04/1/12       04/01/12          05/01/12         07/01/19         04/01/42              87
  04/2-05/1/12       05/01/12          06/01/12         07/01/19         05/01/42              86
  05/2-06/1/12       06/01/12          07/01/12         07/01/19         06/01/42              85
  06/2-07/1/12       07/01/12          08/01/12         10/01/19         07/01/42              87
  07/2-08/1/12       08/01/12          09/01/12         10/01/19         08/01/42              86
  08/2-09/1/12       09/01/12          10/01/12         10/01/19         09/01/42              85
  09/2-10/1/12       10/01/12          11/01/12         01/01/20         10/01/42              87
  10/2-11/1/12       11/01/12          12/01/12         01/01/20         11/01/42              86
  11/2-12/1/12       12/01/12          01/01/13         01/01/20         12/01/42              85
  12/2-01/1/13       01/01/13          02/01/13         04/01/20         01/01/43              87
 01/02-02/01/13      02/01/13          03/01/13         04/01/20         02/01/43              86

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 17 of 230
Broker Seller Guide
Loan Terms, Continued


ARM             HUD offers FHA 5-Year and 7-Year ARM loans under the same requirements as the
Parameters      fixed rate loan with the exceptions as provided in this section. The ARM is offered
                under the FHA 203(b) program.

                Index
                Weekly average yield on U.S. Treasury Securities, adjusted to a constant maturity of
                one (1) year.

                Margin
                5 Year ARMs: 2.25%
                Seven Year ARMs: 2.25%

                Note: Other margins may be offered.        Refer to the Rate Sheet for additional
                information.

                First Adjustment Dates
                • The first adjustment for the Five (5) Year ARM will be 60 to 66 months after the
                    first installment payment is due in order to permit pooling the mortgage for sale
                    in the secondary market.
                • The first adjustment for the Seven (7) Year ARM will be 84 to 90 months after
                    the first installment payment is due in order to permit pooling the mortgage for
                    sale in the secondary market.

                Note: GNMA allows four (4) adjustment dates (January 1, April 1, July 1 and
                October 1).

                Interest Rate Changes
                • After the initial interest rate change, the interest rate will be adjusted every 12
                    months on the Change Date by adding the Margin to the Index. The result is
                    rounded to the nearest one eighth percent (1/8%).
                • The date of the each interest rate adjustment (change date) is shown on the note
                    and security instrument.
                • Payments cannot change earlier than one (1) month after the change date.

                Interest Rate Caps
                • Five (5) Year ARMs
                    • Annual: 1.0%, up or down, from the rate in effect during the preceding year.
                    • Lifetime: 5.0%, up or down, from the rate on the note.
                • Seven (7) Year ARMS
                    • Annual: 2.0%, up or down, from the rate in effect during the preceding year.
                    • Lifetime: 6.0%, up or down, from the rate on the note.

                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 18 of 230
Broker Seller Guide
Loan Terms, Continued


Massachusetts   •   SunTrust will not originate, close or purchase any loans that are secured by
ARM                 property located in the state of Massachusetts that are deemed to be “subprime
Parameters          mortgage loans.”
                •   The “subprime mortgage loan” provisions apply to the purchase of a primary
                    residence with a first-time home loan borrower(s) who is obtaining an adjustable
                    or variable rate loan.
                    • The regulation applies to both first and simultaneous second lien mortgages,
                        used as purchase money.
                •   A loan subject to the regulation will be prohibited if any of the following
                    conditions are true:
                    • For First Lien Mortgages with a loan amount less than or equal to the
                        conforming loan limit set by Fannie Mae or Freddie Mac, the loan’s fully
                        indexed rate exceeds the yield on Treasury securities having comparable
                        period of maturity by more than 3%.
                    • For First Lien Mortgages with a loan amount greater than the conforming
                        loan limit set by Fannie Mae or Freddie Mac, the loan’s fully indexed rate
                        exceeds the yield on Treasury securities having comparable period of
                        maturity by more than 4%.
                    • For simultaneous Second Lien Mortgages, the loan’s fully indexed rate
                        exceeds the yield on Treasury securities having comparable period of
                        maturity by more than 5%.

                          Note: The fully indexed rate is defined as the index rate prevailing at
                          origination plus the margin that will apply after the introductory interest rate.



Truth-in-       •   FHA/VA Five Year ARM: 30 Year Loan Term (BRO 0404)
Lending ARM     •   FHA/VA Seven Year ARM: 30 Year Loan Term (BRO 0405)
Disclosure
                Note: All FHA ARMS are non-convertible.


DU ARM Plan     The DU ARM Plan ID# is as follows:
ID#
                DO/DU Direct
                FHA 5 Year and 7 Year ARMs: FHA HYBRID ARM




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                   Page 19 of 230
Broker Seller Guide
FHA Jumbo

General         •   Only 30 year fixed rate, 5/1, and 7/1 ARM mortgages are eligible.
                •   The SunTrust FHA Jumbo Loan Program Eligibility Checklist (BRO 0330) is
                    required on all FHA Jumbo Loans.


Jumbo           •   The FHA Jumbo Loan Program code (F30JFX) must be used when the base
Eligibility         loan amount meets or exceeds the loan amounts in the table below.

                               If you have a:                Jumbo Program Code begins at:
                              1 Unit Property                          $417,001
                              2 Unit Property                          $533,851
                              3 Unit Property                          $645,301
                              4 Unit Property                          $801,951



Maximum         •   On purchase transactions, the maximum LTV/TLTV is 96.5%.
LTV/TLTV        •   On Rate/Term refinance transactions, the maximum LTV/TLTV is 97.75%.
                •   On Streamline Refinance, credit qualifying transactions, the maximum LTV/TLTV
                    is:
                    • 97.75% / 105% for STM to STM transactions, and
                    • 97.75% / 100% for non-STM to STM transactions.
                •   On cash-out refinance transactions, the maximum LTV/TLTV is 85.00%.

                    Note: Cash-out refinance transactions for properties located in the state of
                    Florida are limited to a LTV/TLTV of 80.00%.


Minimum         •   The minimum credit score is 680 for purchase, rate/term refinance, and
Credit Score        streamline refinance transactions.
Requirement     •   The minimum credit score is 700 for cash-out refinance transactions.
for All
Borrowers


Underwriting    •   All transactions are eligible for Traditional or Automated Underwriting through
Method              DU/DO and LP.

                    Note: If a FHA streamline refinance is inadvertently submitted through DU, the
                    loan must still be manually underwritten.

                •   All streamline refinances must be traditionally underwritten.

                                                                                Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 20 of 230
Broker Seller Guide
FHA Jumbo, Continued


Qualifying
Ratios                                 AUS                              Traditional
                     •    Maximum DTI 45% regardless              Maximum Ratios 31%/43%
                          of AUS Findings for fixed rate
                          mortgage transactions.                New Construction 33%/45%
                     •    Maximum ratios of 31%/45%,
                          for Jumbo ARM transactions,
                          regardless of AUS findings.



Non-Occupying    •   Non-Occupant Co-Borrowers and Co-Signers are not permitted.
Co-Borrowers
and Co-Signers


Loan Purpose     •   Purchase
                 •   Rate/Term Refinance
                 •   Credit Qualifying Streamline Refinance with or without an appraisal
                 •   Cash-out Refinance
                     • Max 85% LTV

                     Note: Cash-out refinance transactions for properties located in the state of
                     Florida are limited to a LTV/TLTV of 80.00%.


Maximum          Reference: See Section 1.20: Maximum Number of Financed Properties and
Number of        Borrower Exposure, of the Broker Seller Guide, for additional information.
Financed
Properties and
Borrower
Exposure


Refinance        •   Six (6) months seasoning [i.e., six (6) permanent mortgage payments made] is
Guidelines           required for the existing mortgage, and
                 •   A twelve (12) month mortgage and/or rental verification is required.
                 •   All subordinated liens must be paid in full, no re-subordinations are permitted.

                                                                               Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 21 of 230
Broker Seller Guide
FHA Jumbo, Continued


Payment         •   First-Time Homebuyers (applies to AUS and non-AUS loans)
History             • The borrower must have an established credit history.

                    Note: An established credit history is defined as a minimum of three (3) active
                    traditional credit references that have been opened for at least 24 months and
                    have been active at some time during that period.

                    •     Closed accounts with balances are acceptable.
                    •     A full twelve (12) month satisfactory payment/rental history (0x30) must be
                          documented through a third party or credit bureau.

                    Note: Private references are not acceptable.

                •   Borrower Not a First Time Homebuyer
                    • If DU “Approve/Eligible” or LP “Accept,” follow FHA AUS guidelines and
                       findings.
                    • If traditionally underwritten, no housing late payments within the last 12
                       months (all mortgages), and
                    • Within the last 24 months no more than 2x30 late payments and acceptable
                       to the DE Underwriter.

                          Note: Isolated late payments may be acceptable.


Minimum         •   Borrower(s) are required to contribute three and one-half percent (3.50%) from
Downpayment         his/her own funds towards the down payment for purchase transactions.
from the        •   Funds must be seasoned for a minimum of sixty (60) days and verified.
Borrower        •   Gift funds are only acceptable if received from a family member, and
                    • Gift funds may only be applied to closing cost and prepaids only after the
                         borrower has made the required 3.5% investment into the transaction from
                         their own funds.
                    • Gift funds must meet the sixty (60) day seasoning requirement, either in the
                         donor’s account or a combination of both donor’s and borrower’s accounts.


Cash Reserves   •   Two (2) months cash reserves are required.



Secondary       •   New secondary financing is eligible, including Community Seconds, on purchase
Financing           transactions.
                •   Existing secondary financing is eligible for subordination on refinance
                    transactions.


Down Payment    •   Down Payment Assistance programs are not eligible.
Assistance
Programs

                                                                              Continued on next page
Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 22 of 230
Broker Seller Guide
FHA Jumbo, Continued


Ineligible       •   The following programs listed below may not be used.
Programs             • Temporary Interest Buydown on 5/1 and 7/1 ARM transactions
                     • Ease-In Payment Reduction Feature

                          Note: A temporary interest buydown is eligible on a 30 year fixed rate
                          transaction.

                          Reference: See the “Temporary Buydowns” subtopic in the “Eligible
                          Transactions” topic subsequently presented for additional information.


Ineligible       •   The following property types are ineligible:
Property Types       • Investment property
                     • Second/vacation homes.

                 Reference: See “Ineligible Property Types” in the “Occupancy/Property Types” topic
                 for additional information.The property may not have more than ten (10) acres.


Appraisal        •   The property may not have more than ten (10) acres.
Requirements     •   The FHA Roster appraiser must also be state certified to meet Title XI
                     requirements of the Federal Institutions Reform, Recovery and Enforcement Act
                     (FIRREA).


Declining        Reference: See the “Properties Located in Declining Market Areas” subtopic in the
Markets          “Appraisal Requirements” topic for additional information.


Bankruptcy /     •   No bankruptcy (Chapter 7 or 13), foreclosure or short sales in the last three (3)
Foreclosure /        years based on discharge date, for purchase money, rate/term refinance
Short Sales          transactions, and Credit-Qualifying Streamline Refinance transactions.
                 •   No bankruptcy (Chapter 7 or 13), foreclosure or short sales in the last seven (7)
                     years based on discharge date, for cash-out refinances.

                 Reference: See Section 1.24: Short Sales and Restructured Mortgage Loans of the
                 Broker Seller Guide for additional information.




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 23 of 230
Broker Seller Guide
Eligible Transactions


ARM               •   The ARM Alternative is a lender funded buydown, not an Adjustable Rate
Alternative           Mortgage (ARM).
                  •   The feature is called the ARM Alternative because it is an alternative for
                      borrowers who like the low initial interest rate of an ARM but want the interest
                      rate protection of a fixed rate mortgage.
                  •   The ARM Alternative is a lender funded buydown where the cost of the buydown
                      is built into the pricing and therefore no buydown funds are required at closing.

                  Reference: See Section 2.02: ARM Alternative, of the Broker Seller Guide, for
                  additional information.


Construction to   Not eligible for SunTrust Construction/Permanent financing.
Permanent
Loans


Refinances        Reference: See the topic “Refinances” in this product description for information.



Temporary         General Requirements
Buydowns          • Borrower paid temporary interest rate buydowns are not eligible.
                  • Interest buydowns are permitted on purchase transactions only.
                  • The loan must be a fixed rate mortgage on an owner occupied principal
                     residence.
                  • Builders and sellers may still offer buydowns on the fixed-rate loans; however,
                     the borrower must qualify at the note rate.
                  • No adjustment is required to the acquisition cost unless the seller, mortgagee or
                     other third party contributes cash to the transaction that exceeds the 6% limit
                     established by HUD.
                  • The following requirements must be met for all temporary buydowns:
                     • an agreement must be executed in which the seller, lender or other third
                         party places funds in escrow with monthly releases to be made to the lender
                         to subsidize the borrower’s monthly payment during the first years of the
                         mortgage,
                     • the buydown is limited to 2% below the note rate,
                     • the borrower is qualified at the note rate,
                     • the payment increase during the buydown period cannot be greater than 1%
                         per year and can only occur once each year,
                     • payments are to be made by the escrow agent to the mortgagee, who is the
                         holder of the mortgage, or to its servicing agent,
                     • the FHA case number must have a special suffix code if the loan is a
                         buydown, and
                     • the seller or mortgagee may provide the buydown funds subject to the seller
                         contribution limits.

                                                                                 Continued on next page


Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 24 of 230
Broker Seller Guide
Eligible Transactions, Continued


Temporary       Underwriting Requirements
Buydowns,       • A copy of the escrow agreement, signed by the borrower and provider of the
(continued)        funds, must accompany the loan application. (The underwriter may condition for
                   the executed buydown agreement at closing.)
                • It must be established that the eventual increase in mortgage payments will not
                   affect the borrower adversely and likely lead to default.

                Escrow Agreement Requirements
                • Must provide that any escrow funds not distributed at time the mortgage loan is
                   prepaid be applied to the outstanding balance due on the mortgage. In the event
                   of foreclosure, the claim for mortgage insurance benefits must be reduced by the
                   amount remaining in the buydown escrow account.
                • Must not permit reversion of undistributed escrow funds to the provider if the
                   property is sold or the mortgage is prepaid in full unless the borrower establishes
                   the escrow account.
                • May continue to buyers who assume the mortgage.
                • The escrow funds must be held in an escrow account by a financial institution
                   supervised by a federal or state agency.

                Note: An FHA/VA Buydown and Escrow Agreement (BRO 0012a) is available under
                “Forms” in the SunTrust Broker Seller Guide.


Seller-Paid     Reference: See “Ease-In Payment Reduction Feature” topic for more information
Interest        regarding seller-paid interest buydowns.
Buydowns




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 25 of 230
Broker Seller Guide
New Construction

Construction    Proposed Construction
Definitions     Property is considered “proposed construction” when no concrete or permanent
                material has been placed. Digging of footing and placement of rebar is not
                considered permanent.

                Under Construction
                Property is considered “under construction” from the first placement of concrete
                (permanent material) to 100% completion or to 90% with only customer preference
                items remaining.

                Existing Construction less than One (1) Year Old
                Property is considered “existing construction” when the appraisal was performed less
                than one year since receipt of final occupancy permit issued. The home is 100%
                complete if the Certificate of Occupancy (or its equivalent) was issued prior to the
                appraisal and is less than 12 months old.

                Note: A re-sale property (sold from builder to owner-occupant and sold again) is
                NOT exempt from the new construction exhibits when the Certificate of Occupancy
                (or its equivalent) is less than 12 months old.

                Reference: See “Appraiser’s Architectural Exhibits” in the subtopic “Architectural
                Exhibits/Properties Not Complying with ML 2001-27” subsequently presented in this
                topic for additional information.

                MLCS Information (SunTrust Internal Information Only)
                See the “MLCS Loan Set Up and Processing” topic for more information regarding
                the required fields to complete.


General         •   The new construction requirements remain unchanged except for the clarification
Requirements        that the appraiser may appraise a home that is under construction and is 90% or
                    more complete, with only minor finish items remaining, without benefits of plans
                    and specifications.
                •   The minor finish items include floor coverings, appliances, fixtures, landscaping,
                    etc.). Grading, drainage and functional utilities must be completed.
                •   The appraisal can be completed at any time during construction.
                •   If a borrower wants to obtain maximum FHA financing on new construction, ONE
                    (1) of the following documentation options is required:
                    • construction was completed more than one (1) year preceding the borrower’s
                         signature on the Addendum to Uniform Residential Loan Application (HUD-
                         92900-A page 2),
                    • the site plans and materials were approved by Department of Veterans
                         Affairs, a DE underwriter, or a builder under the FHA’s Builder certification
                         procedures (see HUD Handbook 4145.1 Rev.2) before construction began
                         (this does not apply to condominiums),
                    • the local jurisdiction has issued both a building permit (prior to construction)
                         and a Certificate of Occupancy or equivalent,
                    • the dwelling is covered by an approved 10-Year Protection Plan that is
                         acceptable to HUD, or

                                                                              Continued on next page

Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 26 of 230
Broker Seller Guide
New Construction, Continued

General             •     the dwelling will be moved to a new location and the property is eligible at
Requirements,             the new location by having the site plans and materials pre-approved before
(continued)               construction began.

                    Note: Lenders are not responsible for establishing an approved locality list (i.e.,
                    it is not SunTrust’s responsibility to verify with each county that we lend in to
                    determine if they issue a building permit prior to the start of construction).
                    Lenders are to assume that if the county issues a building permit, then it is prior
                    to construction.

                    Reference: See the subtopic “Lender Required Documents” subsequently
                    presented in this topic for additional information.

                •   Loan files should contain a copy of the building permit (or a HUD Accepted
                    Insured Ten-Year Protection Plan), the final Certificate of Occupancy, and the
                    final inspection by the appraiser or HUD fee inspector, if applicable, prior to
                    closing.
                •   The loan file must be documented as to whether there will be a building permit or
                    a HUD Accepted Insured Ten-Year Protection Plan at the time the appraisal is
                    being underwritten to permit the underwriter to make the appropriate conditions.
                •   Localities that do not issue building permits prior to the start of construction must
                    follow the "Early Start Letter" guidelines in order to avoid the ten (10) year
                    warranty requirement, all three initial compliance inspections, and final
                    compliance inspection.
                •   This new definition of "pre-approval" process does not apply to Condominiums.

                    Reference:   See “HUD Specifications for Pre-Approval, Inspections and
                    Documentation” subsequently presented in this topic for additional information.

                •   All new construction must meet the Council of American Building Officials
                    (CABO) 1992 Model Energy Code (MEC), regardless of LTV.
                •   The following information applies to issues concerning flood zones:
                    • A property (dwelling and related structures/equipment essential to the
                        property value and subject to flood damage) cannot be built in a special
                        flood zone (floodplain) unless FEMA has issued a “Letter of Map
                        Amendment” (LOMA), or a “Letter of Map Revision (LOMR) stating that the
                        property is not in a flood plain,
                    • The builder can use an “Elevation Certificate” as an alternative document if it
                        is submitted with the Builder’s Certification of Plans, Specifications and Site
                        (Form HUD-92541), and
                    • If an “Elevation Certificate” is used in lieu of a LOMA or LOMR, flood
                        insurance is required, however, if a LOMA or LOMR are provided, flood
                        insurance is not required.

                    Reference: See Section 1.07: Property Insurance of the Broker Seller Guide for
                    additional information regarding properties located in a Special Flood Hazard
                    Area (SFHA).

                •   Properties built in an airport runway clear zone are not eligible for new
                    construction FHA loans.

                                                                                  Continued on next page

Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 27 of 230
Broker Seller Guide
New Construction, Continued


General         •   A certification must be provided on form HUD-92900-A, page 3, which states that
Requirements,       the property is 100% complete at the time of loan closing (both on site and off
(continued)         site improvements) and the property meets HUD’s minimum property standards.
                    Documentation must be provided to verify completion of the property (i.e.,
                    appraisal, Certificate of Occupancy, and final inspection from the original
                    appraiser – as applicable for the type of new construction).
                •   SunTrust requires a final inspection from the original appraiser on
                    proposed or under construction properties, even with a Building Permit and a
                    Certificate of Occupancy issued prior to closing. If a Certificate of Occupancy, or
                    its equivalent, was not issued, then a HUD fee inspector must issue the final
                    inspection.
                •   When a property is considered “existing construction” and there are no repairs or
                    corrections conditions noted by the appraiser, the appraisal serves as final
                    inspection. For new construction “existing” appraisals to serve as a final
                    inspection, the following requirements apply:
                    • the appraisal states that the property was built in accordance with the
                         submitted plans and specs, grading and drainage are adequate, and
                    • the appraisal may not be made “subject to completion per plans and
                         specifications.”
                •   In all cases, without exception, the builder must provide a one (1) year builder’s
                    warranty as provided on Form HUD-92544.

                References:
                • See “Comprehensive Valuation Package (CVP) Requirements” in the topic
                   “Appraisal Requirements” for additional information.
                • See “Closing Documents” under the topic “Workflow” for additional information.


Inspection      See “Repair and Inspection Requirements” in the “Appraisal Requirements” topic for
Requirements    information regarding when an appraisal is made “As Is” or “Subject to” one of the
                following categories:
                • Completion per Plans and Specifications,
                • Repairs and Alterations, or
                • Required Inspections.


Builder         HUD no longer approves builders nor maintains a list of approved builders.
Approval

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 28 of 230
Broker Seller Guide
New Construction, Continued


HUD               HUD specifications for pre-approval, inspections and documentation as provided in
Specifications    HUD Mortgage Letter 2001-27are shown below.
for Pre-          • The local jurisdiction is allowed to perform the inspections when evidenced by a
Approval,           Certificate of Occupancy.
Inspections and   • Additionally, if a local jurisdiction issues a Building Permit (or its equivalent), prior
Documentation       to construction, it is acceptable as evidence of "Pre-Approval".
                  • In such cases where both a Building Permit and Certificate of Occupancy are
                    issued by a local jurisdiction, neither an Early Start Letter nor a HUD approved
                    10-year Protection Plan is required.
                  • This new definition of “Pre-Approval” does NOT apply to condominiums due to
                    special requirements applicable to this housing type.
                  • In lieu of providing the Early Start Letter or proof of coverage by an acceptable
                    protection plan, a copy of the Building Permit (or equivalent) and a copy of the
                    Certificate of Occupancy (or equivalent) MUST be included in the endorsement
                    binder.
                  • The alternative to local inspections described above does not eliminate the
                    requirement for a One-Year Builder Warranty (HUD Form 92544) as required by
                    Section 801 of the National Housing Act.
                  • In addition to the One-Year Builder's Warranty and the Builder's Certification of
                    Plans, Specifications and Site (Form HUD 92541) the lender is still responsible
                    for obtaining all the applicable construction documents from the builder for the
                    appraiser.

                  Notes:
                  • FHA no longer requires mortgagees to retain architectural plans and
                     specification for high ratio loans on construction of single-family properties, one
                     year old or less, that have been processed and closed under the specifications
                     of Mortgagee Letter 2001-27
                  • Mortgagee Letter 2005-09 only allows for the elimination of the retention of plans
                     and specs after the case is endorsed, NOT the elimination of obtaining plans and
                     specs for processing a new construction case. The lender is still required to
                     obtain the documents for the appraiser.
                  • If the case is a condominium unit approved by FHA, the lender is not required to
                     obtain the plans and specs.

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Section 2.90                                                                               October 19, 2012
FHA 203(b) Loan Program                                                                     Page 29 of 230
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New Construction, Continued


Architectural    General
Exhibits /       • Local jurisdictions that do NOT issue a Building Permit (or its equivalent) prior to
Properties Not      construction and a Certificate of Occupancy (or its equivalent), for a property one
Complying with      year old or less must have one of the following to be eligible for a high-ratio
ML 2001-27          insured mortgage:
                    • Early Start Letter, OR
                    • 10 Year Protection Plan acceptable to HUD.
                 • Properties NOT processed and closed in accordance with the specifications in
                    Mortgagee Letter 2001-27 must meet the requirements shown below.
                    • If the property is proposed or under construction and NOT 90% complete at
                        time of appraisal. HUD expects the lender to obtain the architectural exhibits
                        for the appraiser.
                    • These exhibits must be adequate and accurate to determine compliance with
                        applicable HUD standards, for the accurate basis for HUD commitments,
                        determine acceptability of the physical improvements, and provide the basis
                        for conclusions. Lenders are not expected to review or approve these
                        documents.
                    • Additionally, appraisers must receive a fully executed Builder’s Certification
                        of Plans, Specifications, & Site (Form HUD-92541) before performing the
                        appraisal on proposed, under construction or less than one year old
                        properties.
                 • Appraisers must review Item 1 on the Builder’s Certification and note in the
                    Appraisal Report any discrepancies between the information in Item 1 and the
                    actual conditions observed on site. The appraisal and lender are responsible for
                    addressing any yes answers in Item 1.


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Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 30 of 230
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New Construction, Continued


Architectural    Lender’s Architectural Exhibits
Exhibits /       For all proposed construction properties NOT processed under Mortgagee Letter
Properties Not   2001-27 that are less than 90% completed at time of appraisal, HUD requires the
Complying with   lender to retain the appropriate architectural exhibit(s) in the origination file for
ML 2001-27,      resolving any future construction complaints and Section 518(a) complaints for
(continued)      structural defects. Therefore, the lender’s file must continue to retain the following
                 documents for new or proposed construction and high ratios loans:
                 •    One Year Builder’s Warranty (Form HUD-92544)
                 •    Builder’s Certification (Form HUD-92541)
                 •    Design and local authority approval of individual water supply and/or sewage
                      disposal system.
                 •    Any additional exhibits made necessary when the mortgage risk could be
                      affected by unstable soil or other differential ground movement, ground water
                      problems and other site or toxic hazards (i.e., engineers’ reports on soil
                      exploration and testing, earthwork specifications, special foundation and related
                      designs, slope or other stability evaluations, evaluations of underground
                      sewage effluent disposal and waste disposal sites, etc.).
                 •     Pest Inspection forms from the National Pest Control Association, HUD-NPCA-
                      99-A and HUD-NPCA-99-B (where applicable).
                 •    The following documents, as applicable:
                      • an executed Early Start Letter, or
                      • a 10-year Warranty, and
                      • a final inspection from the HUD inspector.
                 •    Evidence of an approved Affirmative Fair Housing Marketing Plan or Voluntary
                      Affirmative Marketing Agreement OR checked block “d” (part 11) on the
                      Builder’s Certification (Form HUD-92541)
                 •    Applicable inspections and/or certifications.
                 •    Any other additional/appropriate documents required in satisfying FHA
                      requirements which may include, but are not limited to the LOMA/LOMR or
                      elevation certificate regarding flood plains, well water tests, local health
                      authority approval for individual water and sewer systems, etc. This is not
                      applicable for condominium projects.

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Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 31 of 230
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New Construction, Continued


Architectural    Lender’s Architectural Exhibits, Continued
Exhibits,        • Final Inspection Requirements as shown below:
Properties Not      • Final inspection report by a HUD fee inspector is required, if property is
Complying with          “proposed or under construction” and the LOCAL JURISDICTION DOES
ML 2001-27              NOT ISSUE A FINAL CERTIFICATE OF OCCUPANCY or its equivalent.
(continued)         • When the final inspection is completed by a fee inspector on under
                        construction and less than 90% complete properties, the inspection will
                        include photographs along with a statement on the HUD-92051 as follows:
                        "This is a newly completed dwelling that was not completed under HUD or
                        VA inspections. The dwelling appears to be in conformance with the
                        submitted construction exhibits."
                    • Final inspections performed by a fee inspector must include a notation that
                        all utilities were on and functional when the inspection was conducted.
                    • The appraiser may complete the final inspection if the local jurisdiction
                        issues a Certificate of Occupancy (or its equivalent) with the exception of
                        condominiums.

                 Appraiser’s Architectural Exhibits
                 • HUD’s itemization of architectural exhibits includes those listed below:
                    • plot plan (including dwelling and accessory buildings, finish grade elevations
                        direction of drainage, location of well and septic, if applicable),
                    • floor plan (separate foundation plan and plan of each floor and basement, if
                        any),
                    • kitchen cabinet details,
                    • electrical layout,
                    • heat layout (ductwork and location of all vents),
                    • heat loss calculations,
                    • cooling system layout,
                    • exterior elevations (front, side and rear),
                    • sections (exterior wall sections, stairwells, and stairs),
                    • fireplace section and elevations, if applicable,
                    • roof truss details,
                    • water supply plans and specifications,
                    • sewage system plans and specifications,
                    • individual water supply and sewage disposal systems, if applicable, and
                        Description of Materials Form HUD-92005,
                    • completed Builder's Certification of Plans, Specifications, & Site Form HUD-
                        92541, signed and dated no more than 30 days prior to the date the
                        appraisal was ordered, and
                    • all reports and available information (i.e., sales agreement, title report,
                        environmental reports or studies and inspection reports).

                 Note: HUD requires that all utilities be turned on and fully functional during a final
                 inspection otherwise, the property is not considered 100% complete.


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Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 32 of 230
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New Construction, Continued


Architectural    Appraiser’s Architectural Exhibits, Continued
Exhibits,        • HUD’s itemization of architectural exhibits – Continued:
Properties Not      • For “under construction” properties that will be insured at 90% LOAN TO
Complying with          VALUE OR LESS, the lender is to RETAIN a copy of the architectural
ML 2001-27              exhibits in its origination binder; however, the Builder’s Certification and
(continued)             Builder’s Warranty are not required.
                    • For “existing” properties GREATER than one-year old (100% complete) at
                        the time of the appraisal, architectural exhibits are not required.

                 Homes 100% Complete Less Than One Year Old
                 • If the home is 100% complete at time of the appraisal and the appraisal is to
                    serve as the final inspection, the procedures below must be followed.
                    • The appraisal serves as the final inspection and Form HUD-92051 is not
                        required.
                    • The appraiser must notate that the utilities were turned on at the time of
                        inspection.
                    • The appraiser is to inspect for health and safety violations.
                    • If no health and safety problems are noted, there are no repairs, alterations,
                        or inspection conditions, and the property is ready for occupancy, the
                        appraiser is to mark the appraisal “As Is.”
                    • The appraiser must take a clear photograph (in addition to the standard
                        appraisal photos) of each diagonally opposite front and rear corner of the
                        house to record adequate grading and drainage of the site; and make a
                        statement on the appraisal report of the acceptance of the grading and
                        drainage.


Lender           General
Required         • Complete appraisal package or Master Appraisal Report (MAR) is always
Documents           required, including the information listed below, if the property is “under
                    construction” or “existing.”
                    • Verification that the property conforms with plans and specs.
                    • Notation that there are no health and safety issues.
                    • Clear photographs of each diagonally opposite front and rear corner of the
                       house to record adequate grading and drainage of the site with the
                       appraiser’s statement that grading and drainage is acceptable.
                    • Notation of a final inspection if the property is “proposed construction” or
                       “under construction” less than 90% completed.
                    • Notation that all utilities were on and functional when the appraisal was
                       completed (if the property is complete).

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Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 33 of 230
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New Construction, Continued


Lender          Properties Built in Accordance with Mortgagee Letter 2001-27
Required        The lender’s files must continue to retain the following documents for new or
Documents,      proposed construction and high ratio loans:
(continued)     • Builders Certification of Plans, Specs, & Site (Form HUD-92541)
                • Building Permit
                • National Pest Association Form NPCA-99-A and HUD-NPCA-99-B,
                • Builder’s One Year Warranty (Form HUD-92544)
                • Certificate of Occupancy
                • Carpet ID
                • Manufacturers Warranties
                • Insulation Certificate
                • Final Inspection by the appraiser with utilities on and functional (required by
                    SunTrust).

                    Reference:   See “HUD Specifications For Pre-Approval, Inspections and
                    Documentation” previously presented in this topic for information concerning
                    Mortgagee Letter 2001-27.

                •   Regardless of the process used, the lender must certify that the property is
                    100% complete (both on site and off site improvements) and that the property
                    meets HUD's minimum property standards. This certification is on the Addendum
                    to the Uniform Residential Loan Application (Form HUD 92900-A) on page 3.


Pre-Approval/   •   Builders that wish to begin construction before the appraisal is completed or the
Early Start         lender issues the Statement of Appraised Value must have “Pre-Approval” in
Letters             order to permit a borrower to obtain greater than 90% financing in areas not
                    issuing Building Permits (or their equivalent).
                •   Pre-Approval is defined as either a lender issued “Early Start Letter” (BRO 0036), or
                    a Building Permit (or its equivalent) issued by a local jurisdiction prior to construction.
                •   Early Start Letters are typically issued by a lender’s DE Underwriter upon review
                    and analysis of the plans and specs.
                •   If a builder is providing a HUD approved ten (10) year warranty on the subject
                    property an Early Start Letter is not required.
                •   If the local jurisdiction issues both a Building Permit and a Certificate of
                    Occupancy, then neither an Early Start Letter (BRO 0036) or a HUD approved
                    ten (10) year warranty is required.

                    Note: This definition of pre-approval does not apply to condominiums.

                    Reference: See “10 Year Warranties” subsequently presented within this topic
                    for additional information.

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Section 2.90                                                                                October 19, 2012
FHA 203(b) Loan Program                                                                      Page 34 of 230
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New Construction, Continued


Builder         •   The builder must complete the applicable sections of the Builder Certification of
Certification       Plans, Specs and Site (Form HUD-92541) for all new construction, regardless of
                    whether or not a 10-year warranty is offered.
                •   The Builder Certification of Plans, Specs and Site form must be completed and
                    signed within 30 days of the lender’s request for an appraisal.
                •   The form must be provided to the appraiser who must review the form and note
                    on the appraisal that he/she has seen the certification. In addition, the appraiser
                    must comment on the appraisal as to whether or not he/she agrees with the builder’s
                    findings.
                •   If the form is not provided to the appraiser, HUD requires the appraiser to return
                    the appraisal request. If the form is not complete, HUD requires the appraiser to
                    return the form for completion prior to releasing the appraisal.
                •   The Builder’s Certification of Plans, Specifications, & Site (form HUD-92541)
                    must be reviewed by the DE Underwriter when reviewing and approving the
                    appraisal.
                    • If the Builder’s Certification of Plans, Specifications, & Site (form HUD-
                       92541) is missing at time of appraisal review, the underwriter will pend the
                       file until the document is received.

                Reference: See “Builder Certification Procedure” subsequently presented in this
                topic for additional information.


10 Year         •   A ten (10) year warranty is required if the borrower wants maximum FHA
Warranties          financing, an Early Start Letter is not available and the local jurisdiction does
                    not issue a building permit.
                •   If a ten (10) year warranty is required, a copy of the actual warranty or letter from
                    the warranty company specifically stating acceptance of the property must be
                    provided.
                •   Letters from the warranty companies should include the subject address,
                    effective date of coverage, type of warranty and the warranty company’s name.
                    The letter must be signed by an official of the company.
                •   If a 10 Year Warranty is a condition on the loan, the loan cannot close until
                    actual confirmation of the warranty approval has been received in writing. Verbal
                    confirmation is not sufficient.
                •   HUD issues periodic updates for approved warranty companies. Click here for
                    the current list of HUD Accepted Insured 10 Year Protection Plans or access the
                    HUD website at: http://www.hud.gov/offices/hsg/sfh/ins/hoctenyr.pdf.


Required        Construction exhibits required to be submitted to HUD in the endorsement package
Exhibits for    for high LTV (above 90%) cases are as follows:
HUD             • Builder’s Certification (Form HUD-92541),
Endorsement     • Builder’s Warranty (Form HUD-92544),
                • a HUD Accepted Insured Ten-Year Protection Plan, (when required), and
                • all other documents normally submitted, such as inspection reports, soil
                     poisoning certifications, appraisal reports, Square Foot Cost Appraisal form, if
                     applicable, etc.

                                                                                   Continued on next page

Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                  Page 35 of 230
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New Construction, Continued


Builder            General Information
Certification      • The Builder Certification procedure is used to obtain mortgage insurance for
Procedure             most new construction in new subdivisions.
                   • If the local HUD Field Office determines that local subdivision standards do not
                      exist, or are inadequate to protect HUD’s underwriting risk or the health and
                      safety of the of the intended occupants, it may require builders and lenders to
                      use only the Improved Area procedure (IAP) and the Appraiser/Review Checklist
                      (HUD-54891).
                   • Local HUD offices will periodically publish a list of those jurisdictions where
                      subdivision standards do not exist or are considered ineffective or inadequate.
                   •   THE BUILDER CERTIFICATION PROCEDURE IS NOT APPLICABLE TO
                       CONDOMINIUM PROJECT APPROVAL.

                   Builder Certification Procedure (Local Standards Are Acceptable)
                   • The Builder Certification procedure is used where HUD determines that local
                       subdivision standards adequately protect the health and safety of the borrower.
                   • The builder must complete the Builder Certification of Plans, Specifications, and
                       Site form (HUD-92541). If there are flood hazards, runway clear zones/clear
                       zones or foreseeable hazards/adverse conditions noted on the certification, the
                       DE underwriter has the responsibility to determine if the health and safety of the
                       borrower or the underwriting risk is affected. The builder can use the certification
                       for more than one (1) property by attaching it to a list of properties with matching
                       FHA case numbers and entering “See Attached List” into the FHA case number
                       block on the form.
                   • The Builder Certification of Plans, Specifications, and Site form (HUD-92541) is
                       sent to the appraiser with the appraisal request. The appraiser will indicate any
                       discrepancies noted, use it as a source to assist in determining the property
                       value and return the form with the appraisal report to the lender.
                   • The builder’s compliance with the Affirmative Fair Housing Marketing Plan
                      requirements must be noted on the Builder Certification of Plans, Specifications,
                      and Site Form (HUD-92541).


Affirmative Fair   •   Mortgagee Letter 01-09 states to “streamline the process and assure better
Housing                compliance to HUD’s affirmative fair housing marketing requirements”, a fourth
Marketing Plan         option is now available to builders that sold 5 or more units in the past 12 month
(AFHMP)                period or plan to sell 5 or more units in the next 12 month period with FHA
                       insured financing.
                   •   This new option-block “d”, paragraph 11, of the Builder Certification of Plans,
                       Specifications, and Site form (HUD-92541), allows the builder to self certify
                       compliance with HUD’s affirmative fair housing marketing regulations. Builders
                       must also maintain records of their affirmative fair housing marketing activities
                       and make them available to the Department upon request. If a builder opts to
                       check block “d”. They no longer need to submit an individual Affirmative Fair
                       Housing Marketing Plan (AFHMP) to the department for approval, sign a
                       Voluntary Affirmative Marketing Agreement (VAMA), or contract with another
                       entity that has a VAMA or AFHMP.

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Section 2.90                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                    Page 36 of 230
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New Construction, Continued


Affirmative Fair   •   To obtain approval of an AFHMP, the builder or developer must complete and
Housing                file Form HUD-935.2 with the Fair Housing and Equal Opportunity (FHEO)
Marketing Plan         Division of the local HUD Field Office or the FHEO Program Operations
(AFHMP),               Divisions in HUD Regional Offices.
(continued)        •   THE AFHMP MUST BE APPROVED BY THE FHEO DIVISION BEFORE THE
                       BUILDER OR DEVELOPER BEGINS TO MARKET PROPERTIES.
                   •   For new subdivisions being built in phases, an AFHMP must be filed for the first
                       phase. Builders or developers that are planning large phased subdivisions must
                       consult with the FHEO Division of the local HUD Field Office for further
                       guidance. The FHEO Division can request the submission of new or amended
                       AFHMPs for subsequent phases.
                   •   A builder or developer may be exempt from obtaining HUD approval of an
                       AFHMP if the following conditions are met:
                       • the builder/developer is in good standing to a Voluntary Affirmative
                            Marketing Agreement (VAMA) between the Department and a State, local
                            home builders association, or Board of Realtors associated with their
                            national organizations (signatory promises that marketing activities
                            connected with HUD-insured mortgages will be conducted in a non-
                            discriminatory manner), AND
                       • the builder/developer submits to HUD written proof of its status as a
                            signatory to such an agreement.
                   •   Case numbers should not be ordered on new properties until it has been verified
                       that the builder is in compliance with HUD’s AFHMP requirements (i.e., have an
                       approved AFHMP or documentation that builder is in good standing to a VAMA).

                       Reference: See “Case Number Assignment and Cancellation” in the “Workflow”
                       topic for additional information.

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Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 37 of 230
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New Construction, Continued


Land Contracts   •   If the borrower will use the loan to complete payment on a land contract, contract
                     for deed, or other similar type financing arrangement where the borrower does
                     not have title to the property, the new mortgage may be processed as either a
                     purchase or a refinance transaction with maximum insured financing if the
                     borrower receives no cash at closing.
                 •   If all loan proceeds are used to pay the outstanding balance on the land contract
                     and eligible repairs, renovations, etc., the appropriate loan-to-value ratio is
                     applied to the lesser of:
                     • the appraised value plus the allowable closing costs, or
                     • the total cost to acquire the property (the original purchase price, plus any
                           documented costs the purchaser incurs for rehabilitation, repairs, renovation,
                           or weatherization), plus allowable closing costs and, if treated as a refinance,
                           reasonable discount points.
                 •   Equity in the property (original sales price minus the amount owed) may be used
                     for the borrower’s entire down payment. However, if the borrower receives cash
                     at closing exceeding $500, the loan is limited to 85 percent of the sum of the
                     appraised value and allowable closing costs.
                 •   Replenishment of the borrower’s own cash expended for repairs, improvements,
                     renovation, etc., is not considered as “cash back”, provided the borrower can
                     substantiate, with cancelled checks and paid receipts, all out-of-pocket funds
                     spent for these purposes.

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Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                   Page 38 of 230
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New Construction, Continued


Building on     •   Borrowers who are building homes on land they already own are still required to
Own Land            have a 3.5% down payment (or its equivalent in land equity) into the transaction.
                    All mortgage transactions must be calculated using the documented acquisition
                    cost.

                    Note: A manual verification of the calculation is necessary to determine that the
                    maximum loan amount is accurate. Do not rely on computer-generated
                    calculations during the processing and underwriting of the loan as an accurate
                    loan amount.

                •   The documented acquisition cost is entered in the Sales Price line, of the FHA
                    Loan Underwriting and Transmittal Summary (HUD-92900-LT) and includes the
                    sum total of the following items:
                    • builder’s price or sum of all subcontractors’ bids, materials, etc.,
                    • cost of the land (if owned more than six [6] months or received as an
                         acceptable gift, the appraised value of the land may be used instead of its
                         cost), and
                    • interest and other costs associated with any construction loan obtained by
                         the borrower to fund construction of the property.
                •   The calculated Loan-to-Value Ratio shown will reflect the lesser of the sales
                    price or the appraiser’s value estimate, as it does on other purchase
                    transactions, and is the same value used for TOTAL Scorecard.
                •   If the borrower receives cash at closing to replenish his/her own cash funds
                    spent during construction, it is not cash-out if documentation (i.e., canceled
                    checks and paid receipts) is provided that the funds were paid out of pocket.
                •   If the borrower receives cash-back of more than $250 at closing, the maximum
                    LTV is limited to 85%.


Property Tax    Tax Estimate Used for Qualifying
Estimates       • Borrower(s) must qualify with the monthly payment based on improved property
                   taxes, not on the vacant land.
                • In those states where it is customary for a borrower to pay property taxes in
                   arrears, (and he/she may not pay property taxes on the improvements until a
                   year or more after closing), FHA still expects the borrower to qualify based on
                   accurate and realistic property tax estimates that include the improvements.
                • Realistic estimates of value for improved property must be obtained from reliable
                   sources such as those listed below.
                   • The appraiser
                   • Comparable sales data
                   • The assessor’s office

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Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 39 of 230
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New Construction, Continued


Property Tax     Tax Estimates for Escrow Accounts
Estimates,       • The borrower’s monthly escrow payments must be based on the accurate and
(continued)         realistic “improved” property estimate when tax authority reassessments are
                    likely to occur within 12 months of mortgage loan closing.
                 • RESPA permits lenders to project the disbursements for real estate taxes for the
                    ensuing twelve months and collect funds based on this projection. When the
                    annual escrow analysis is completed, refunds are issued or shortages collected
                    based on the results of that analysis.


Re-Sale of New   •   FHA will treat most re-sales of properties that are less than one (1) year old and
Construction         100% complete, as an existing property for documentation purposes, and the
Properties           new construction exhibits normally submitted will not be required.
                 •   For re-sales of properties that are existing construction less than a year old, the
                     new construction exhibits are required when the following scenarios apply:
                     • the new FHA loan is an non-arms length transaction, or
                     • documentation to identify the transaction as a re-sale to a second or
                         subsequent purchaser cannot be provided.

                     Notes:
                     • The property must be 100% complete (including all on and offsite
                        improvements).
                     • The FHA case binder file must clearly identify the transaction as a re-sale to
                        a second or subsequent purchaser.
                     • A lender selling a newly built home is currently exempt from the ninety (90)
                        day property flipping guidelines.
                     • A builder selling a newly built home, where the current builder completed the
                        home and obtained the Certificate of Occupancy, is currently exempt from
                        the ninety (90) day property flipping guidelines.
                     • A builder selling a newly built home, where the current builder did not
                        actually complete the construction of the property and the Certificate of
                        Occupancy was issued prior to the current owner, is subject to all property
                        flipping guidelines.




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 40 of 230
Broker Seller Guide
Ease-In Payment Reduction Feature


General         Introduction
                • The “Ease-In” is a payment reduction feature where the seller / builder
                    contributes interest up to the first six (6) months allowing the borrower to “ease-
                    in” into a new home and to “ease-in” to the monthly payments.
                • The maximum interest subsidy may not exceed the six percent (6%) seller
                    contribution.
                • The builder or seller may pay the interest portion beginning with the first payment
                    up to the 6th month payment.

                Requirements
                • This feature is only available for a 30-year fixed rate FHA purchase transaction.
                • Borrower must qualify at the note rate.
                • The maximum contribution of 6% of the sales price may be used towards the
                   borrower’s interest, closing costs and/or prepaids.
                • Any dollar amount over the 6% seller contribution limit must be subtracted dollar-
                   for-dollar from the sales price.
                • Care must be taken to ensure the borrower’s 3.5% down payment is not reduced
                   as a result of the seller contributions.
                • The seller / builder contribution which is disbursed monthly must be a fixed
                   amount (i.e., payments applied to the monthly interest cannot fluctuate from
                   month to month).
                • No portion of the funds may be applied to the principal balance.

                Ineligible Transactions
                The following transactions are not eligible for use with the Ease-In Payment
                Reduction Feature:
                • Adjustable Rate Mortgages,
                • Temporary buydowns,
                • Base loan amounts greater than $417,000, and
                • Housing Finance Agency loans.


Amortization    •   An amortization schedule may be obtained on the SunTrust website at
Schedule            http://www.suntrustmortgage.com/amortcalc.asp, or similar loan amortization
                    programs can be used.
                •   The following items are determined by running an amortization schedule:
                    • Total Seller Paid Contribution: the dollar amount of the seller paid interest,
                    • Reduced Payment Period: the number of months during which interest
                        payments are made, a minimum of one (1) month and no more than six (6)
                        months, and
                    • Interest Payment: a fixed dollar amount being paid monthly toward borrower
                        interest from the seller / builder contribution.

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Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 41 of 230
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Ease-In Payment Reduction Feature, Continued


Interest         •     An example of a 5-month payment reduction on a loan amount of $97,000 at 6%
Payment                interest is shown in the following table.
Reduction        •     The seller’s interest contribution for the payment reduction is a fixed amount that
Calculation            cannot exceed the last month of the subsidy period.
                 •     The maximum monthly interest contribution amount in the example below is
                       $483.00.


                     Monthly      Principal     Interest     Total P&I     Seller/Builder     Borrower
                     Payment                     Owed                      Contribution      Contribution
                        #1         $96.56       $485.00       $581.56         $483.00          $98.56
                        #2         $97.04       $484.52       $581.56         $483.00          $98.56
                        #3         $97.53       $484.03       $581.56         $483.00          $98.56
                        #4         $98.02       $483.54       $581.56         $483.00          $98.56
                        #5         $98.51       $483.05       $581.56         $483.00          $98.56


Calyx Point DU   The table below shows the data input instructions for DU submission of the Ease-In
Submission       Payment Reduction Feature in Calyx Point.

                                       Fannie Mae’s Desktop Underwriter (DU)
                 Interfaces/Fannie Mae/Loan App Pg 1
                     Section I. Type of Mortgage and Terms of Loan
                     • Note Rate – enter the Note Rate
                     • Qual Rate – enter the Note Rate
                 Interfaces/Fannie Mae/Loan App Pg 4
                     Section VII. Details of Transaction
                     • Line f. Est. closing costs – Add Ease-In amount to closing costs.
                     • Line k. CC paid by seller – if an Ease-In Payment Reduction Feature is
                         involved, add the Ease-In Payment Reduction Feature amount to other
                         seller paid closing costs
                 Interfaces/Fannie Mae/Addendum
                     Transmittal Summary Information
                     • Buydown – check the box marked “Buydown.”
                     • Rate(%) – enter “0.000” in Line 1
                     • Term (mth) – enter “12” in Line 1

                                                                                  Continued on next page




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                   Page 42 of 230
Broker Seller Guide
Ease-In Payment Reduction Feature, Continued


DU Direct       The table below shows the data input instructions for DU submission of the Ease-In
Submission      Payment Reduction Feature in DU Direct.

                                       Fannie Mae’s Desktop Underwriter (DU)
                 Types, Terms and Property
                    Type of Mortgage and Terms of Loan
                    • Interest Rate (%) – enter the Note Rate
                 Details of Transaction
                    • Line f. Est. closing costs – Add Ease-In amount to closing costs.
                    • Line k. Closing Costs Paid By Seller – if an Ease-In Payment Reduction
                         Feature is involved, add the Ease-In Payment Reduction feature amount to
                         other seller paid closing costs

                    Other Credits
                    • Description of Other Credits – enter “Other”
                    • Amount – if an Ease-In Payment Reduction feature is involved, enter the
                        dollar amount of the Ease-In Payment Reduction Feature
                 Additional Data
                    Loan Information
                    • First Year Buydown Rate – enter the Note Rate


LP Submission   The table below shows the data input instructions for LP submission of the Ease-In
                Payment Reduction Feature.

                                      Freddie Mac’s Loan Prospector (LP)

                 Note: At this time, the Ease-In Payment Reduction Feature is NOT eligible for
                 LP submission.


                                                                            Continued on next page




Section 2.90                                                                      October 19, 2012
FHA 203(b) Loan Program                                                            Page 43 of 230
Broker Seller Guide
Ease-In Payment Reduction Feature, Continued


MLCS Loan       MLCS Program Code and Investor Code
Set-Up          • The following program and investor codes are applicable for MLCS. Additionally,
                  they apply to Non-AUS and Fannie Mae DU Loans.
                • Program Code = F30SPI
                • Investor Code = 000

                MLCS Data Input
                • The table below shows MLCS procedures for data input.

                    MLCS Screen            Field                               Input
                       MOM          Program Code          F30SPI
                       MOB          Target Investor       000 (should prefill)
                                    Buydown Code          SPI
                        Z74         Type                  D (for dollar buydown)
                                    Who            Pays   S (for seller)
                                    Buydown
                                    Amount                $ Amount of monthly fixed interest payment
                                                          fund
                                    MOS                   # of months seller will pay toward the
                                                          interest portion of PITI payment

Closing         •     The Seller-Paid Interest Rate Buydown Agreement (BRO 0030) must be
                      completed by the Loan Closer and signed by the borrower and sellers.
                •     The Ease-In Contribution must be show on a line within the 800 series of the
                      HUD 1 settlement statement as a seller credit and be labeled “Seller-Paid
                      Interest Contribution”, 4 months @ $483.54” with $1,934.16 (per example above)
                      under the seller’s column.
                •     Additional funds paid by the seller over and above the cumulative interest
                      calculation must be shown as a closing cost credit to the borrower on the HUD-1
                      settlement statement.
                •     HUD does not require or permit the presentation or disclosure of “seller-paid
                      credits” on the Good Faith Estimate (GFE).
                •     Seller credits must be entered as a “lump sum credit” on the HUD-1.

                      Note: When the seller makes a contribution to more than one expense for the
                      borrower, the seller credits shown on the HUD-1 MUST reflect the “lump sum
                      payment”.

                •     The servicing department will disburse the Ease-In seller-paid interest
                      contribution shown on the HUD-1 on a monthly basis and bill the borrower for the
                      difference.
                •     As far as IRS reporting is concerned, servicing will back out the seller-paid
                      interest contribution for year-end reporting purposes on Form1098.




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 44 of 230
Broker Seller Guide
Energy Efficient Mortgage (EEM) Program


General         •   SunTrust has temporarily suspended the FHA Energy Efficient Mortgage (EEM)
                    program.




Section 2.90                                                                   October 19, 2012
FHA 203(b) Loan Program                                                         Page 45 of 230
Broker Seller Guide
Refinances


Types of        SunTrust Mortgage offers the following types of refinance transactions:
Refinance       • Cash-Out Refinance (85% LTV),
Transactions    • Rate/Term Refinance, and
                • Streamline Refinances (FHA loan to FHA loan)
                   • Credit Qualifying with an appraisal
                   • Credit Qualifying without an appraisal


General         •   A new “FHA” appraisal is required for each refinance transaction requiring an
                    appraisal. An appraisal used for the purchase of the property cannot be used
                    again for a subsequent refinance, even if 120 days has not passed.
                •   All Rate/Term and Streamline refinances must have a payoff statement in the
                    file.
                •   The payment due in the month the loan is closing must be paid either prior to
                    closing or included in the payoff amount at closing. (I.e., if the borrower closes
                    and funds on a refinance in the month of December, the borrower does not need
                    to have made the December payment. However, if the loan doesn’t close/fund
                    until January, the December payment cannot be included in the loan amount and
                    the borrower will need to pay the December payment from his/her own cash.)
                •   All subordinated financing, whether it will be subordinated to the new SunTrust
                    mortgage or will be paid off by the new SunTrust mortgage (unless FHA’s more
                    restrictive twelve (12) month period applies), must be seasoned for at least six
                    (6) months with 0x30 late payments (i.e., six (6) permanent mortgage payments
                    made) prior to application for the new SunTrust mortgage.
                •   Confirm the borrower is current on the mortgage being refinanced for:
                    • The month prior to the month in which they close, and
                    • The month they close.

                    Note: The borrower has the option to make the current payment at the
                    beginning of the month or include it in the payoff amount at closing, when closing
                    within the month the payment is due.

                •   SunTrust will not permit netting of tax and insurance escrows from the unpaid
                    principal balance of the FHA loan being paid off (i.e. principal balance cannot be
                    reduced by escrow account balance). Any tax and insurance escrow account
                    balance will be refunded directly to the borrower within 30 days after the existing
                    loan is paid off.
                •   SunTrust Mortgage prohibits the transfer (rolling) of tax and insurance escrows
                    from the unpaid principal balance of the FHA loan being paid off, to the new
                    loan, in order to fund the new escrow account. We will refund any tax and
                    insurance escrow account balance directly to the borrower within 30 days after
                    the existing loan is paid off.

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 46 of 230
Broker Seller Guide
Refinances, Continued


FHA Refinance   •       If the existing loan is an FHA loan, there could be a refund of a portion of the
Credit Query            Upfront MIP. If the new loan will also be an FHA loan, this refund is applied as a
                        credit in determining the new loan amount. FHA provides Refinance Credit
                        Query to use in determining this amount “upfront.”
                •       The Refinance Credit Query is used to determine the amount of the MIP credit
                        available for an active FHA-insured loan that is being refinanced.
                •       It provides 30-day and 60-day calculations based on the projected closing date
                        of the new loan.
                •       This feature can be used to determine the credit or refund on either FHA or
                        conventional new financing without ordering a new case number.

                        Reference: See “Case Number Assignment and Cancellation” in the “Workflow”
                        topic for additional information.

                •       This enables lenders to know the amount of the MIP credit or refund at the pre-
                        application stage.
                •       The instructions to utilize the Refinance Credit Query feature are shown below.

                Step                                         Action
                 1         Go to FHA Connection – Single Family FHA - Single Family Origination -
                           Case Processing, Refinance Credit Query (last menu item).
                    2      Enter the case number for the existing active FHA-insured loan and a
                           projected closing date.
                    3      The system will return the amount of refinance credit due the borrower based
                           on the projected closing date.


FHA-to-FHA       SunTrust Mortgage currently does not permit FHA-to-FHA refinance transaction to
Refinance        exceed the new county loan limits.
Transactions
May Not
Exceed County
Loan Limits




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                   Page 47 of 230
Broker Seller Guide
Cash-Out Refinances


General         •   HUD considers cash out refinances for debt consolidation a high risk, especially
                    if borrowers have not demonstrated a significant increase in income and appear
                    to be heavy credit users.
                •   These transactions should be scrutinized more carefully.


Delinquent      •   Borrowers who are delinquent or in arrears with their existing mortgage, or had a
Mortgages           late payment in the last 12 months (no payment may have been more than thirty
                    [30] days late) are NOT eligible for cash-out financing.
                •   Verification of a satisfactory mortgage payment history must be provided through
                    the month prior to closing, ensuring that all payments have been made within the
                    month due for the previous 12 months.
                •   An updated credit report or Verification of Mortgage (VOM) is required, if the
                    mortgage payment history provided in the loan file is not reporting through the
                    month prior to loan closing.
                •   STM Internal Information: A prior to closing condition, code CLS54, will be
                    issued requiring evidence that the existing mortgage is less than 30 days past
                    due at closing with 0 x 30 day late payment in the last 12 months.
                •   Brokers must inform their clients that all mortgage payments must be made
                    within the month due on their current mortgage, until the date of closing for their
                    new transaction.

                Notes:
                • Payoff statements are not an acceptable means to document a mortgage
                   payment history.
                • Cancelled checks may be an acceptable source of documentation for a
                   mortgage payment history, at the underwriter’s discretion, on a case-by-case
                   basis.

                Reference: See the “Mortgage/Rental Payment Histories” subtopic subsequently
                presented in the “Credit Requirements” topic for additional requirements when using
                TOTAL Scorecard for borrowers that have any mortgage tradelines with a
                delinquency in their credit history.



Eligible        •   Any co-borrower or co-signer being added to the Note must be an occupant of
Borrowers           the subject property.
                •   Non-occupant co-borrowers or co-signers are not permitted.


Occupancy       •   Cash-out refinances are eligible only for primary residences.
                •   Primary residences owned free and clear must be refinanced as cash-out
                    transactions.
                •   One-to-four (1-4) unit dwellings are eligible.

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 48 of 230
Broker Seller Guide
Cash-Out Refinances, Continued


Maximum         •   If the borrower has owned and occupied the subject property as their primary
LTV/TLTV            residence for less than one (1) year prior to loan application, the maximum loan
                    is limited to a combined TLTV of 85% of the lesser of:
                    • appraised value (no closing costs, discount points or prepaid items), or
                    • original sales price of property (no closing costs, discount points or prepaid
                         items).

                    Notes:
                    • A sales price need not be considered if the property was acquired as the
                       result of inheritance and is or will become the borrower’s primary residence.
                    • Cash-out refinance transactions for properties located in the state of Florida
                       are limited to a LTV/TLTV of 80.00%.

                •   A combined TLTV of 85% of the appraised value may be used if the borrower
                    has owned and occupied the subject property as their primary residence for at
                    least one (1) year prior to loan application.

                    Note: Cash-out refinance transactions for properties located in the state of
                    Florida are limited to a LTV/TLTV of 80.00%.

                    Reference: See the TLTV Calculation subtopic in the Secondary Financing topic
                    subsequently presented in this product description for additional information
                    when secondary financing exists.


Acceptable      •   Mortgages with less than 6 months of payment history are not eligible for a cash-
Payment             out refinance.
History         •   Free and clear properties are eligible for cash-out refinances.


Secondary       •   New subordinated financing is not allowed on any cash-out transaction.
Financing       •   If the secondary financing is an equity line, the maximum amount of the equity
                    line is used in the calculation.
                •   All existing liens (to be paid off or remain subordinate to the new first mortgage)
                    must be seasoned for at least six (6) months (i.e., six (6) permanent mortgage
                    payments made), with an acceptable payment history (i.e., no late payments of
                    30 days or beyond.
                •   When the LTV of the proposed first mortgage is 85%, no subordinate financing
                    may remain on the loan regardless of the length of ownership.
                •   Discount points, prepaid expenses and closing costs may not be included nor
                    added to the properties appraised value.

                    Reference: See “Lender Credit” in the topic “Contributions by Interested Parties”
                    for additional information.




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 49 of 230
Broker Seller Guide
No Cash-Out with an Appraisal (Rate/Term Refinance)


General         •   The existing mortgage being refinanced can be either a current FHA,
                    conventional or VA loan.
                •   Requires an appraisal, full processing documentation and underwriting.


Occupancy       Owner-occupied only.


The Maximum     •   The maximum insurable mortgage is based on the lesser of one(1)                of the
Insurable           following two (2) calculations:
Mortgage            • multiply the appraised value of the property by 97.75%, or

                          Note: If the property was acquired less than one year before the loan
                          application and is not already FHA-insured, the lesser of the current
                          appraised value or original sales price of the property must be used.

                    •     the sum of the existing first lien, Pro Rata MIP (if paying off an FHA mortgage,
                          up to two [2] months) closing costs, prepaid expenses, borrower paid discount
                          points, purchase money seconds, junior liens (not used to acquire the
                          property) over 12 months old (i.e., 12 permanent mortgage payments made),
                          prepayment penalties, accrued late charged, escrow shortages, borrower paid
                          repairs required by the appraisal minus any refund of UFMIP (prepaid
                          expenses are limited to per diem interest and hazard/flood property taxes and
                          mortgage insurance impound), regardless of whether the lender refinancing
                          the existing loan is also the servicing lender for that mortgage, and
                    •     the base loan amount may not exceed the maximum county loan limits for the
                          property.

                    Note: Any appraisal requirements, including, repairs, must be complied with
                    before the mortgage is eligible for insurance endorsement.

                Reference: See the FHA Refinance Maximum Total Loan Amount Worksheet (BRO
                0397a) for assistance in calculating the loan amount.


Maximum Cash    •   The borrower may NOT receive cash back in excess of $500 at closing.
Back to the     •   Delinquent interest may NOT be included. The refinance does not permit a
Borrower            borrower to obtain cash back by not making a mortgage payment when due.

                    Reference: See “Lender Credit” in the topic “Contributions by Interested Parties”
                    for additional information.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                  Page 50 of 230
Broker Seller Guide
No Cash-Out with an Appraisal (Rate/Term Refinance), Continued


Mortgage and    •   The mortgage being refinanced must be current for the month due.
Payoff          •   The payment does not need to be paid for the month in which the loan
Requirements        closes/funds.

                    Note: If the closing/funding rolls over to the following month, the prior month’s
                    payment cannot be included in the loan amount.

                •   The amount of the existing first mortgage may include the interest charged by the
                    servicing lender when the payoff will not likely be received on the first day of the
                    month (as is typically assessed on FHA-insured mortgages).


Subordinate     •   Subordinate liens, including credit lines, with six (6) months seasoning (i.e., six (6)
Liens               permanent mortgage payments made), may remain outstanding provided the FHA
                    loan and subordinate lien meets the criteria outlined in the topic “Secondary
                    Financing” of this product description.
                •   • If disbursements from an equity line exceed a total of $1,000 within the past
                    12 month period and the funds were used for purposes other than repairs and
                    rehabilitation of the subject property, the line of credit cannot be included in the
                    new mortgage.
                •   Subordinate financing, except purchase money seconds, must be seasoned 12
                    months (i.e., 12 permanent mortgage payments made) to be included in the loan
                    amount.
                •   New and existing subordinate financing is permitted up to a maximum TLTV of
                    97.75%.

                    Reference: See the TLTV Calculation subtopic in the Secondary Financing topic
                    subsequently presented in this product description for additional information when
                    secondary financing exists.


Spousal Buy-    •   The amount of “specified equity” in a spousal buy-out is considered property
Outs                related indebtedness and can be included in the new mortgage.
                •   The “specified equity” must be documented in a recorded property settlement
                    agreement or divorce decree.
                •   If the borrower is newly separated and no property settlement agreement has
                    been prepared, a legally recorded document prepared by an attorney specifically
                    outlining the division of equity is acceptable to HUD.


Seasoning       •   If the subject property was purchased less than one (1) year prior to loan
Requirement         application and is not already FHA-insured, the maximum loan will be determined
                    by using the lesser of the appraised value or the original sales price (plus the cost
                    of any repairs or rehabilitation, with proper documentation).
                •   If the subject property was purchased more than one (1) year prior to loan
                    application, the maximum loan will be determined from the appraised value.




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                  Page 51 of 230
Broker Seller Guide
Streamline Refinances


General         •   Streamline refinances are designed to lower the monthly principal and interest
                    (P&I) on a current FHA mortgage and must involve no cash back to the
                    borrower, except for minor adjustments at closing not to exceed $500.
                •   SunTrust Mortgage offers the following types of streamline refinance
                    transactions:
                    • Credit Qualifying Streamline Refinance with an appraisal, and
                    • Credit Qualifying Streamline Refinance without an appraisal.
                •   For credit qualifying transactions, SunTrust to SunTrust and non-SunTrust to
                    SunTrust FHA streamline refinances are eligible for conforming and jumbo loan
                    amounts. Unless otherwise stated, the guidelines below apply for both
                    conforming and jumbo loan amounts.


Loan Terms      Streamline Refinance without an Appraisal:
                • Term is lesser of 30 years or remaining term plus 12 years.

                Streamline Refinance with an Appraisal:
                • 10, 15, 20, 25, and 30 year fixed rate, or 5/1 and 7/1 ARMs – 30 year only.

                Note: A reduction in the loan term must be processed, underwritten, and closed as
                a no cash-out (rate/term) refinance.

                                                                             Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                             Page 52 of 230
Broker Seller Guide
Streamline Refinances, Continued


Maximum Loan    Streamline Refinance without an Appraisal
Amount          • The maximum total loan amount may not exceed the outstanding principal
                    balance, plus interest due on the current mortgage, minus the applicable refund
                    of the UFMIP, plus the new UFMIP.

                    Notes:
                    • Discount points may not be included in the new mortgage. If the borrower
                       has agreed to pay discount points, document in the file that the borrower has
                       the assets to pay the discount points, along with any other financing costs
                       that are not included in the new loan amount.
                    • Delinquent interest, late charges, or escrow shortages may not be included
                       in the outstanding principal balance of the mortgage being paid off for the
                       maximum mortgage calculation.
                    • SunTrust will not permit netting of tax and insurance escrows from the
                       unpaid principal balance of the FHA loan being paid off (i.e. principal
                       balance cannot be reduced by escrow account balance). Any tax and
                       insurance escrow account balance will be refunded directly to the borrower
                       within 30 days after the existing loan is paid off.
                    • SunTrust Mortgage prohibits the transfer (rolling) of tax and insurance
                       escrows from the unpaid principal balance of the FHA loan being paid off, to
                       the new loan, in order to fund the new escrow account. We will refund any
                       tax and insurance escrow account balance directly to the borrower within 30
                       days after the existing loan is paid off.
                    • The base loan amount may not exceed the maximum county loan limits for
                       the property.

                •   The borrower(s) for a non-owner occupied property, even if originally acquired as
                    principal residences by the current mortgagors, may only refinance the
                    outstanding balance of the existing mortgage.
                •   FHA will compute the new LTV by dividing the new loan amount, exclusive of
                    any UFMIP, by the lower of the sales price or appraised value that is in their
                    Single Family Insurance System (SFIS) database for the existing loan being
                    refinanced. If there is missing information in the database and a computed value
                    is not possible, only then will the new LTV default to 89.99%.

                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 53 of 230
Broker Seller Guide
Streamline Refinances, Continued


Maximum Loan    Streamline Refinance with an Appraisal
Amount,         • The maximum total loan amount may not exceed the lower of;
(continued)         • The outstanding principal balance, plus interest due on the current
                       mortgage, minus the applicable refund of the UFMIP, plus closing costs, plus
                       prepaid items to establish the escrow account, plus the new UFMIP, or
                    • 97.75% of the appraised value of the property, plus the new UFMIP.

                    Notes:
                    • Discount points may not be included in the new mortgage. If the borrower
                       has agreed to pay discount points, document in the file that the borrower has
                       the assets to pay the discount points, along with any other financing costs
                       that are not included in the new loan amount.
                    • Delinquent interest, late charges, or escrow shortages may not be included
                       in the outstanding principal balance of the mortgage being paid off for the
                       maximum mortgage calculation.
                    • SunTrust will not permit netting of tax and insurance escrows from the
                       unpaid principal balance of the FHA loan being paid off (i.e. principal
                       balance cannot be reduced by escrow account balance). Any tax and
                       insurance escrow account balance will be refunded directly to the borrower
                       within 30 days after the existing loan is paid off.
                    • SunTrust Mortgage prohibits the transfer (rolling) of tax and insurance
                       escrows from the unpaid principal balance of the FHA loan being paid off, to
                       the new loan, in order to fund the new escrow account. We will refund any
                       tax and insurance escrow account balance directly to the borrower within 30
                       days after the existing loan is paid off.
                    • The base loan amount may not exceed the maximum county loan limits for
                       the property.

                •   Any refund of UFMIP on the old mortgage (if originally financed) must be
                    subtracted from the existing first lien (i.e., current loan payoff) in calculating the
                    new mortgage amount.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                  Page 54 of 230
Broker Seller Guide
Streamline Refinances, Continued


Net Tangible    The borrower must receive one of the following net tangible benefits from the new
Benefit         transaction:
                • a 5% reduction to the principal and interest (P&I) of the mortgage payment plus
                    the annual MIP, or
                • refinancing from an ARM to a fixed rate mortgage.

                Reducing the term of the mortgage alone is not a net tangible benefit. The table
                below illustrates the net tangible benefit requirements for streamline refinances.



                Refinancing               …to a Fixed Rate                 …to a Hybrid ARM



                                       Reduction of at least 5%
                … from a Fixed                                        Reduction of at least 5 percent
                                       percent of P&I and MIP
                Rate                                                         of P&I and MIP


                                   New interest rate no greater
                                   than two percentage points      New interest rate at least 2
                … from a One-Year
                                  above the current interest rate percentage points below the
                ARM
                                           of the ARM            current interest rate of the ARM


                … from a Hybrid        Reduction of at least 5%
                                                                      Reduction of at least 5 percent
                ARM During Fixed       percent of P&I and MIP
                                                                             of P&I and MIP
                Period

                                     New interest rate no greater
                                     than two percentage points         New interest rate at least 2
                … from a Hybrid
                                    above the current interest rate    percentage points below the
                ARM During
                                               of the                   current interest rate of the
                Adjustable Period
                                            Hybrid ARM                         Hybrid ARM


                Notes:
                • Mortgage payment includes principal, interest, and monthly MIP.
                • A reduction in loan term requires the loan to be underwritten and closed as a
                   rate and term (no cash-out) refinance.

                                                                               Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 55 of 230
Broker Seller Guide
Streamline Refinances, Continued


Seasoning        On the date of the new FHA case number assignment,
Requirement      • the borrower must have made at least six (6) payments on the existing FHA first
                     mortgage and any subordinate financing
                 • at least six (6) full months must have passed since the first payment due date of
                     the refinanced first mortgage and any subordinate financing, and

                     Example: The FHA case number on the mortgage being refinanced was closed
                     on or before December 1st, and the borrower's first payment on that mortgage
                     was due on January 1st. The lender may request assignment of an FHA case
                     number for the refinancing mortgage no earlier than July 1st.

                 •   at least 210 days must have passed from the closing date of the refinanced first
                     mortgage.


Maximum Cash     Streamline refinances are designed to lower the monthly principal and interest (P&I)
Back to          on a current FHA mortgage and must involve no cash back to the borrower except
Borrower         for minor adjustments at closing not to exceed $500.


Secondary        •   New subordinated financing is not allowed on any Streamline refinance
Financing            transactions
                 •   Existing secondary financing may be subordinated, but it must be seasoned six
                     (6) months (i.e., six (6) permanent mortgage payments made) prior to the date of
                     the new FHA case number assignment with 0x30 day late payments.

                 •   The maximum TLTV is as follows:
                     • 105% for STM to STM transactions, and
                     • 100% for non-STM to STM transactions.


Eligible         •   Eligible for owner occupied, secondary, and investment properties.
Occupancy/       •   Investment properties and second homes are only eligible for conforming
Property Types       streamline refinances without an appraisal.

                 Note: Condominium Projects where the approval has been withdrawn must be a
                 refinance without an appraisal.


Employment/      Standard employment/income documentation requirements must be met as outlined
Income           in the Income topic subsequently presented in this product description.
Verification

                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 56 of 230
Broker Seller Guide
Streamline Refinances, Continued


Qualifying      •   The maximum upfront ratio is 31%.
Ratios          •   The maximum back-end ratio is 43%.

                Note: Streamline refinances are not eligible for TOTAL Scorecard, they must be
                traditionally underwritten.


Credit          •   Minimum credit scores for all borrowers on streamline refinances are:
Requirements        • 660 for loan amounts =/< $417,000, and
                    • 680 for loan amounts > $417,000.

                Note: Credit scores must be entered into FHA Connection.


Mortgage        •   The borrower must have a payment history of 0x30 day lates over the most
Payment             recent 12 month history for the first mortgage.
History         •   Less than 12 month payment history is acceptable as long as there are no late
                    payments for the life of the loan.

                Note: 6 month seasoning is required from the date of loan application with 0x30 on
                any existing subordinate financing as well as the existing first mortgage.


Asset           Standard asset documentation requirements must be met as outlined in the Case
Documentation   Requirements and Cash Reserves topics subsequently presented in this product
Requirements    description.



Buydowns        Buydowns are not eligible with streamline refinances.


                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 57 of 230
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Streamline Refinances, Continued


Appraisal       Streamline refinances may be done with or without an appraisal.
Requirements


Loan            A full application is required.
Application


CAIVRS          •   Streamline refinances can be insured with or without an appraisal, and without
                    HUD’s Credit Voice Alert Interactive Response System (CAIVRS).
                •   Documentation of CAIVRS codes is not required.


LDP/GSA List    •   Copies of the LDP/GSA computer printouts must be in the file and the
                    underwriter comments section of the FHA Loan Underwriting and Transmittal
                    Summary must reflect this information.


TOTAL           •   Streamline Refinance transactions are eligible for traditional underwriting and
Scorecard           should not be submitted through TOTAL Scorecard (DU).

                    Exception: If a streamline refinance is inadvertently submitted through TOTAL
                    Scorecard, the loan must be traditionally underwritten, and the DE underwriter
                    remains responsible for insuring all HUD and SunTrust Mortgage Credit
                    streamline refinance guidelines are met (i.e., mortgage payment history,
                    seasoning, etc.). Underwriters must also use their CHUMS ID for page three of
                    the HUD/VA Addendum to Uniform Residential Loan Application (HUD 92900-A),
                    FHA Connection, and the FHA Loan Underwriting and Transmittal Summary
                    (HUD 92900-LT) for streamline refinances.



Mortgage        Reference: See the “Mortgage Insurance Premiums for Streamline Refinances
Insurance       ONLY” subtopic in the “Mortgage Insurance” topic for additional information on
                mortgage insurance for streamline refinance transactions.




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                             Page 58 of 230
Broker Seller Guide
Secondary Financing


General         •   Any financing other than the FHA first mortgage that creates a lien against the
                    property is considered secondary financing, even those with “soft” or “silent”
                    seconds (i.e., has no monthly repayment provisions or other features forgiving
                    the debt).
                •   Documentation from the provider of the secondary financing must show the
                    amount of funds provided to the borrower and copies of the loan instruments are
                    to be made part of the case binder file.
                •   Costs incurred for participating in a downpayment assistance secondary
                    financing program may only be included in the amount of the second lien.
                •   FHA reserves the right to reject any secondary financing that does not serve the
                    needs of the intended borrower or where it believes the costs to the participants
                    outweigh the benefits derived by the homebuyer.
                •   All existing subordinated financing, whether it will be subordinated to the new
                    SunTrust mortgage or will be paid off by the new SunTrust mortgage (unless
                    FHA’s more restrictive twelve (12) month period applies), must be seasoned for
                    at least six (6) months (i.e., six (6) permanent mortgage payments made) prior to
                    application for the new SunTrust mortgage.
                •   If new subordinated financing is being provided by a nonprofit, government entity
                    or other business entity, the following is required:
                    • employer identification number (EIN) must be noted on the appropriate
                         line(s) of the “Mortgage Information” section of the FHA Loan Underwriting
                         and Transmittal Summary (HUD-92900-LT), and
                    • the correct provider must be marked in the box below the EIN.
                         • When the “Other” box is marked as the provider of secondary financing,
                              the type of provider (i.e., employer, labor union, etc.) must also be
                              identified.
                •   Secondary financing subject to negative amortization is not acceptable.


TLTV            •   A combined TLTV for a Purchase, Streamline Refinance, and Rate/Term
Calculation         Refinance transactions includes the proposed FHA first mortgage total loan
                    amount (including any financed UFMIP) and any secondary financing, when
                    secondary financing exists.
                •   A combined TLTV for a Cash-out Refinance transaction includes the proposed
                    FHA first mortgage base loan amount (excluding any financed UFMIP) and any
                    secondary financing.

                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 59 of 230
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Secondary Financing, Continued


Equity Line     •   Obtain one of the following forms of documentation to show a modified line
Amount              amount for a HELOC:
Modifications       • A recorded modification agreement,
                    • An unrecorded modification agreement reflecting a signature from the
                       company representative in the event the recorded document is not back from
                       recordation
                    • A subordination agreement that specified that modified line amount, or
                    • A letter from the HELOC lender, on company letterhead, reflecting a
                       signature from the appropriate company representative indicating that the
                       line of credit has been modified to a specific amount as of a specific date.

                    Notes:
                    • SunTrust always records our modification and subordination agreements.
                    • If you cannot obtain one of the above forms of documentation, use the
                       original line amount of the HELOC to calculate the TLTV for the new first
                       mortgage


Automated       •   In all cases, the first mortgage data must include secondary financing data so
Underwriting        that the TLTV is accurate.
Systems (AUS)   •   SunTrust Wholesale Branches/Lenders must determine, outside of DO/DU or
Information         LP, the open date of any existing secondary financing to determine if it is eligible
                    for inclusion in the new loan for rate/term refinances.
                •   If secondary financing is a HELOC, the TLTV is based on the total available
                    credit line, regardless of the balance.

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 60 of 230
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Secondary Financing, Continued


Federal, State   •   Secondary financing may be provided for the borrower’s full amount of down
and Local            payment.
Governmental     •   The second lien must be made or held by the eligible governmental body or
Agencies             instrumentality.
                 •   The first and second mortgages cannot result in cash back to the borrower at
                     closing.
                 •   The sum of all financing cannot exceed 100% of the “cost to acquire” the
                     property. “Cost to acquire” is defined as the sales price plus allowable borrower
                     paid closing costs, discount points, prepaids, repair and rehabilitation expenses.
                     It does not include buydown funds, funds to pay off personal debts, or
                     unallowable closing costs, such as tax service fees.
                     • The maximum TLTV for SunTrust is 105%.
                 •   The “cost to acquire” may exceed the appraised value of the property under
                     these types of government assistance programs.
                 •   The FHA insured first mortgage cannot exceed the FHA statutory limit for the
                     area where the property is located. The combined indebtedness, however, may
                     exceed the FHA statutory limit.
                 •   The source, amount, and repayment terms of the secondary financing must be
                     disclosed in the mortgage loan application and the borrower must acknowledge
                     that he/she understands and agrees to the terms.
                 •   The payment of the second mortgage is included in both the housing and debt
                     ratios.


Non-Profit       •   A non-profit agency that meets the criteria and is considered an instrumentality
Agencies             of the government may provide secondary financing when certain conditions are
                     met.
                 •   If the non-profit agency is considered an instrumentality of government, the
                     guidelines indicated in the above section (Federal, State and Local
                     Governmental agencies) must be followed.
                 •   Non-profit agencies not meeting either of the preceding criteria may provide
                     secondary financing only after the borrower has met the normal down payment
                     requirement of 3.5% and the combined dollar amount of the first and second
                     mortgages do not exceed the statutory limit for the area where the property is
                     located.
                      • The maximum TLTV for SunTrust is 105%.
                 •   The local FHA office must approve the non-profit agency which must meet the
                     following guidelines:
                      • must be type described in Section 501(c)(3) as exempt from taxation under
                          Section 501(a) of the IRS code of 1986, and
                      • have two(2) years’ experience as a provider of housing for low and
                          moderate income persons, and
                      • have a voluntary board with not part of the net earnings of the organization
                          benefiting any member, founder, contributor, or individual.

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 61 of 230
Broker Seller Guide
Secondary Financing, Continued


Non-Profit      •   All SunTrust Wholesale Branch Offices must follow procedures as shown in the
Agencies,           table below in order to obtain secondary financing from a non-profit agency.
(continued)
                    Step                                        Action
                     1       Determine if the non-profit has received FHA approval by checking the
                             appropriate HOC web site for a list of all approved non-profit
                             agencies.

                             Note: HUD may add or remove nonprofit entities from this list, it is
                             important to view the most current list at all times.
                     2       Access the HUD website below for a roster of HUD approved
                             nonprofits providing secondary financing.
                             http://www.hud.gov/offices/hsg/sfh/np/np_hoc.cfm
                     3       Include a copy of the FHA approval letter or HUD’s roster showing the
                             approval information for the non-profit in the loan file when submitting
                             to the Underwriting Department.

                •   If the non-profit agency is not listed on the HOC website, the non-profit agency is
                    not eligible at this time. Approval must be granted from the local HOC. The non-
                    profit may submit an application for approval following instructions established by
                    the local HOC.
                •   Additional guidelines are as follows:
                    • the approval is effective for two (2) years, after which time the non-profit
                         must submit updated program information to HUD for renewal, and
                    • the non-profit organization must furnish HUD’s approval or re-certification
                         letter to include in the loan submission package to underwriting if they are
                         not already listed on HUD’s roster.

                    References:
                    • See the non-profit organization’s website for specific procedures and forms.
                    • See the “Gift/Grant Funds” subtopic within the “Cash Requirements” topic for
                       down payment assistance programs and additional guidelines.
                    • See FHA Mortgagee Letter 2002-22 for additional information on down
                       payment assistance programs operated by Governmental Agencies and
                       Nonprofits using subordinate financing.

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 62 of 230
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Secondary Financing, Continued


Other           •   The repayment terms of the second mortgage must meet the following
Organizations       requirements:
and Private         • it cannot provide for a balloon payment before ten (10) years unless the
Individuals              property is sold or refinanced, and
                    • it must permit prepayment by the borrower, without penalty, after giving the
                         lender 30 days advance notice, and
                    • the required monthly payment under both the insured mortgage and the
                         second mortgage or lien, plus other housing expenses and all recurring
                         charges, cannot exceed the borrower’s reasonable ability to pay. Any
                         periodic payments due on the second mortgage are due monthly and are
                         substantially the same in amount.
                •   The combined first and second mortgages cannot exceed the applicable LTV
                    based on type of transaction or the maximum mortgage limit for the area.

                    Reference: See the topic “Refinances” for additional information.


Borrowers 60    Reference: See the “Borrowers 60 Years of Age” subtopic in the “Eligible Borrowers”
Years of Age    topic for additional information.


Family Member   •   Family members may lend up to 100% of the required down payment on a
Loans               secured or unsecured basis to the borrower to assist with the costs of acquiring
                    a home (i.e., down payment, closing costs, prepaid expenses, and discount
                    points). HUD defines family member for this purpose as only those listed below:
                    • child, stepchild, parent, or grandparent of the borrower or borrower’s spouse,
                    • legally adopted sons or daughters (and a child who is a member of
                        borrower’s household, if placed by an authorized agency for legal adoption
                        by the borrower), or
                    • foster children.
                •   The following terms and conditions apply when the borrower is obtaining a loan
                    from a family member.
                    • If the loan from the family member is secured by the subject property,
                        whether borrowed from an acceptable source or the family member’s own
                        savings, only the family member provider may be the note holder (i.e, cannot
                        be parent and brother). Additionally, the homebuyer (our borrower) cannot
                        be a co-obligor on that note.
                    • The combined amount of financing may not exceed 100% of the lesser of
                        the property’s value or sales price, plus normal closing costs, prepaid
                        expenses, and discount points.
                         • The maximum TLTV for SunTrust is 105%.
                    • Although the family member may lend 100% of the cash requirements, cash
                        back to the homebuyer (except for refund of earnest money deposit) at
                        closing is unacceptable.
                    • The secondary financing payments are included in the total debt-to-income
                        ratio (i.e., the back-end ratio) for qualifying purposes.

                                                                              Continued on next page



Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 63 of 230
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Secondary Financing, Continued


Family Member       •     The second lien may not have a balloon payment within five years from the
Loans,                    date of execution.
(continued)         •     If the family member providing the secondary financing borrowers those
                          funds, the source may not be any entity with an identity of interest in the sale
                          of the property. This includes the seller, builder, loan officer, real estate
                          agent, etc.
                    •     Mortgage companies that have retail banking affiliates may have that entity
                          make a loan to the family member providing the secondary financing to the
                          homebuyer (our borrower). However, the loan may not have more favorable
                          terms and conditions than to other borrowers.
                    •     An executed copy of the document outlining the terms of secondary
                          financing must be maintained in the lender’s file and also provided in the
                          FHA case binder file.


Documentation   The following items need to be indicated on the FHA Loan Underwriting and
                Transmittal Summary (HUD-92900-LT):
                • 2nd mortgage proceeds,
                • 2nd mortgage monthly payment, and
                • Underwriter comments - provide details on 2nd mortgage (i.e., lender, term,
                    payment).


Tracking        For all loans where secondary financing , including community seconds, is present,
Secondary       the following information must be appropriately identified in MLCS for tracking
Financing in    purposes:
MLCS            • Process Flow 05-12
                    • MOB Screen - “Other Lien Indictor” as “1” second lien (not combo); FTHB
(SunTrust                field (Y) if applicable; and input amount of secondary financing in “Loan
Internal                 Amount” under “Other Financing Info,” and
Information         • M81 Screen - complete “amount of secondary financing” input amount of
Only)                    secondary financing; “NP/Gov’t EIN field” - input EIN of secondary financing
                         provider; “source secondary financing” field with one of the following source
                         codes from the table below:

                                    Code                    Secondary Financing Source
                                     01          Originating Lender
                                     02          Other Financial Institution
                                     03          Federal Government Program
                                     04          State Government Program
                                     05          Local Government Program
                                     06          Employer
                                     08          Not Applicable
                                     09          Property Seller
                                     10          Other
                                     11          Non Profit Organization
                                     12          Relative




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                   Page 64 of 230
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Secondary Financing, Continued


Documenting a      The following table shows information regarding the modification of Home Equity
Modified           Lines of Credit (HELOCs).
HELOC

                   Non-AUS Loans                              Fannie Mae DU          Freddie Mac LP
                                                             “Approve/Eligible”     “Accept/Eligible”
                                                                   Loans                  Loans
•   Lenders in some cases must reduce the available         • Non-AUS              • Non-AUS
    line of credit on a HELOC to meet the new first            guidelines apply.       guidelines
    mortgage’s TLTV and HTLTV requirements.                                            apply.
    Obtain one of the following forms of documentation
    to show a modified line amount for a HELOC:
    1. A complete and recorded Modification
        Agreement (fully executed by the HELOC
        lender and all borrowers under the HELOC).
    2. In the event the recorded modification
        agreement is not back from recordation, an
        unrecorded modification agreement fully
        executed reflecting the instrument number or
        other evidence of submission for recordation
        stamped by the recorders’ office (certified by
        the clerk of court).
    3. A written agreement between the HELOC
        lender and the borrower agreeing to the
        reduction in the credit line amount to a specific
        amount as of a particular date. All borrowers
        must sign the written agreement.
    4. A cover letter from the HELOC lender on
        company letterhead reflecting a signature from
        the appropriate company representative that
        includes confirmation of the reduced credit line
        to a specific as of a specific date, along with
        evidence of the borrower’s request/consent to
        the reduction (preferably in writing).

    Note: Obtain items 1 or 2 for the best evidence of
    documenting this change whenever possible.
    Items 3 and 4 are acceptable when the first two are
    not available. In this case, it is mandatory to
    maintain appropriately signed documentation.

•   If you cannot obtain one of the above forms of
    documentation, use the original line amount of the
    HELOC to calculate the TLTV/HTLTV for the new
    first mortgage.




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 65 of 230
Broker Seller Guide
Geographic Restrictions

Introduction   The following table shows applicable geographic restrictions.

                       State                                 Restriction
                 Florida          • Condominium conversions are NOT eligible, unless the
                                      condominium project meets the definition of an established
                                      project AND the control of the homeowners’ association has
                                      been turned over to the unit owners for no less than twelve
                                      (12) months.
                                  • New condominium projects located in the state of Florida are
                                      not eligible.
                                  • Cash-out refinance transactions are limited to a LTV/TLTV of
                                      80.00%.
                 Georgia          Properties containing Georgia Power Company leasehold
                                  agreements are not eligible for financing with SunTrust.
                 Massachusetts    • As a result of state legislation, SunTrust has additional
                                      provisions that apply to any first-time home loan borrower(s)
                                      who is obtaining an adjustable or variable rate loan.

                                  Reference: See “Massachusetts ARM Parameters” located under
                                  the “Loan Terms” topic for additional information.
                 New Mexico       As a result of state legislation, borrowers must be qualified on all
                                  adjustable rate mortgages based on a fully indexed (index +
                                  margin), fully amortizing rate.
                 New York         As a result of state legislation, primary residences are not eligible
                                  if the transaction is determined to be a “subprime home loan”.
                 Texas            Cash-out refinances are not eligible.

               Reference: See Section 1.11: Geographic State Restrictions, of the Broker Seller Guide
               for SunTrust specific geographic restrictions and state specific predatory lending
               restrictions that may apply.




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                                Page 66 of 230
Broker Seller Guide
Occupancy/Property Types


General           HUD will accept 1-4 family units. The mortgaged premises must be a detached or
                  semi-detached dwelling, row dwelling, townhouse, or unit within a condominium or
                  PUD.



Primary           •   The property must be occupied by the primary borrowers for the majority of the
Residences            calendar year.
                  •   Occupancy must take place within 60 days after signing the security instrument,
                      with continued occupancy for one (1) year.

                  Reference: See the “Transactions Affecting Maximum Mortgage Calculations”
                  subtopic in the “Loan Terms” topic for additional information.



Three and Four    •   Three and four-unit properties, regardless of occupancy status, must be self-
Unit Properties       sufficient, i.e., the maximum mortgage is limited so that the ratio of the monthly
                      mortgage payment divided by the monthly net rental income does not exceed
                      100 percent.
                  •   The monthly payment is defined as principal, interest, taxes, and insurance,
                      including mortgage insurance (PITI), as well as any homeowner’s association
                      dues, computed at the note rate (no consideration for buydowns may be given).
                  •   Net rental income is the appraiser’s estimate of fair market rent from all units,
                      including the unit chosen by the borrower for occupancy, less the FHA office’s
                      allowance for vacancies and maintenance (or 25% if the local FHA has not
                      established a separate allowance).
                  •   The above calculation is used only to determine the maximum loan amount.
                      Borrowers must still qualify for the mortgage based on income, credit, cash to
                      close, and the projected rents received from the remaining units. The projected
                      rent may only be considered as gross income for qualifying purposes; it may not
                      be used to offset the monthly mortgage payment.
                  •   The borrower must have a reserve of three (3) months’ mortgage payments
                      (PITI) after closing on all transactions. The following assets are not considered
                      cash reserves:
                      •     equity in other properties,
                      •     proceeds from a cash-out refinance (if this is the subject transaction),
                      •     gift funds, and
                      •     funds that are borrowed against a liquid account (i.e., 401k loan).

                  •   FHA’s Hotel and Transient Use Certification (Form HUD 92561) must be signed
                      by the borrower and included in the case binder file

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 67 of 230
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Occupancy/Property Types, Continued


Second Homes    •   Second homes are not eligible for HUD financing; however, HUD will grant a
                    hardship exception on a case-by-case basis. The maximum LTV for such cases
                    is limited to 85%. Such an exception must be requested through the local HOC
                    in writing and must meet the conditions listed below.
                •   The secondary residence must not be a vacation home or otherwise used
                    primarily for recreational purposes.
                •   The borrower must require the secondary residence due to seasonal
                    employment, or employment relocation, or other circumstances not related to
                    recreational use.
                •   There must be a demonstrated lack of affordable rental housing in the area to
                    meet the needs of the borrower or to be within a reasonable commuting distance
                    of the borrower’s employment. Documentation to support this must include:
                    • satisfactory explanation from the borrower of his/her need and that rental
                         housing meeting these needs is not available, and
                    • written evidence from local real estate professionals showing a lack of rental
                         housing.
                •   HUD conditional commitments issued on or after February 5, 1988 but before
                    January 27, 1991 must bring the outstanding mortgage down to 85% LTV.
                •   Commitments issued after January 27, 1991 may NOT be assumed as second
                    homes.
                •   The original appraised value or current appraised value may be used to
                    determine LTV.

                Automated Underwriting System (AUS) Information
                Second homes are NOT eligible for DO/DU or LP.

                                                                             Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                             Page 68 of 230
Broker Seller Guide
Occupancy/Property Types, Continued


Investment      •   Investment properties are eligible for HUD-insured mortgages under the
Properties          following programs or circumstances:
                    • purchases of HUD owned (REO properties, when permitted by the local FHA
                         office selling the property (the max LTV is 75% for one-family dwellings and
                         85% for 2-4 family dwellings), and/or
                    • streamline refinances without an appraisal.
                •   SunTrust requires that borrowers financing an investment property MUST reside
                    in the state where the subject investment property is located, EXCEPT when the
                    property is located within a 100 mile radius of the borrower’s primary residence.
                    • If the subject property is located within a 100 mile radius of the borrower’s
                         primary residence, it remains acceptable for the subject property to be
                         located outside of the state where the borrower resides.
                •   Investors who meet the credit guidelines may assume mortgages on properties
                    purchased under these programs. This includes those mortgages on investment
                    properties that were purchased prior to 1989 that have since been streamline
                    refinanced.
                •   Investment properties are NOT eligible for ARM loans.

                References:
                • See the Streamline Refinance topic previously presented for additional
                   information.
                • See “HUD Property Disposition (PD) properties” in the “Occupancy/Property
                   Types” topic for additional information.

                Automated Underwriting System (AUS) Information
                Investment properties are NOT eligible for DO/DU or LP.

                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 69 of 230
Broker Seller Guide
Occupancy/Property Types, Continued


Condominiums    •   SunTrust requires a minimum square footage of 600 square feet for
                    condominiums.
                •   The accurate Condominium ID is required to order the FHA case number or
                    appraisal.

                    Note: Condominium units less than the 600 square foot minimum will be
                    considered on a case by case basis in urban areas where similar units are
                    readily marketable. The appraisal must include comparables supporting market
                    acceptance.

                •   Condominium units must include a kitchen serviced by full-sized appliances, and
                    cannot include any form of built-in sleeping accommodations.

                Reference:   See Section 1.13: SunTrust Condominium and PUD Approval
                Requirements of the Broker Seller Guide for a complete overview of FHA
                condominium guidelines and project approval requirements.


Planned Unit    •   PUDs do not require pre-approval by FHA or the underwriter.
Developments
(PUDs)          •   Note: PUDS with “Rights of First Refusal” are not eligible for FHA financing, per
                    SunTrust guidelines.

                •   A PUD is defined as a mixed-use residential development of single-family
                     dwellings in conjunction with rental, condominium, cooperative or town house
                     properties. A residential development should be processed as a PUD if it has
                     the following minimum characteristics:
                     • a homeowner association that holds either title in fee or a lease of
                         prescribed length on the common area,
                     • mandatory membership of all unit owners (or units) in the association,
                     • the right of all unit owners to participate by vote in the operation of the
                         association,
                     • lien supported assessment of the members to meet the association’s
                         budgeted operating costs (special assessments may be handled
                         differently), and
                     • the appraisal for a detached PUD must be ordered as a detached PUD, not
                         as a single family residence.

                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                              Page 70 of 230
Broker Seller Guide
Occupancy/Property Types, Continued

HUD REO         Although FHA allows repairs on HUD REO properties to be financed into the
Properties      loan amount, 203(k) loans and 203(b) loans with repair escrows are NOT
                eligible for financing through SunTrust Mortgage, Inc.

                General Information
                • HUD REO properties are parcels of U.S. government-owned real estate typically
                   located in urban or suburban areas.
                • HUD sells properties on a competitive basis with HUD awarding the contract to
                   the offer that realizes the highest net return to the government.
                • HUD has entered into contracts for the management and marketing of its
                   acquired family properties (HUD REO properties). Contractors are assigned
                   specific geographic locations for the properties they are managing. Contact your
                   local HUD office to determine which contractor manages your geographic
                   location.
                • PD sales are often eligible for HUD insured financing; however, the overall
                   condition of the property is usually the determining factor that may make
                   properties ineligible for HUD financing. Because of this, the property condition
                   should be determined prior to processing the application.
                • PD properties are purchased “as is” with no assurance as to the property’s
                   condition nor does HUD provide any type of government warranty.
                • Investors are eligible for financing under Section 203(b) only.
                • If a home inspection identifies required repairs, the property is no longer eligible
                   for FHA financing under Section 203(b) with SunTrust.

                Sales Contract Requirements
                • A fully executed copy of the HUD-9548 (Sales contract) must be provided.
                • A fully executed “Individual Owner-Occupant Certification” Addendum to the
                    sales contract (HUD-9548D) is required. If an individual owner-occupant does
                    not submit the required addendum, the sales offer is to be considered as an
                    investor offer.
                • The For Your Protection: Get a Home Inspection (HUD 92564-CN) form must
                    also be submitted through the broker to the purchaser. HUD has eliminated the
                    requirements that the form be signed by the purchaser and included in the case
                    binder.
                • The contract will specify the number of days (normally 45 or 60) in which the
                    borrower is required to close the sale (on line 9).
                • If the contract is not complete, there are questions concerning terms or
                    conditions, and/or the contract must be amended as a condition loan approval,
                    the M&M contractor must be contacted.
                • The first block on Line 4 of the contract must be checked, as well as the
                    applicable block for the FHA 203(b) program.

                    Note: If the sales contract lists the property as “insurable with repair escrow” in
                    order to meet FHA’s minimum property standards (MPRS) or if the property is
                    offered for sale “uninsured,” the loan is NOT eligible for FHA financing
                    through SunTrust Mortgage. SunTrust Mortgage does NOT offer financing for
                    203(b) with repair escrow or 203(k) transactions.

                                                                               Continued on next page


Section 2.90                                                                          October 19, 2012
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Occupancy/Property Types, Continued


HUD REO         Sales Contract Requirements, Continued
Properties,     • The mortgage amount and down payment amounts on the sales contract, as
(continued)         typically identified on Line 4 of the contract, will be blank, as instructed by HUD.
                • The amount identified on Line 5 of the contract represents actual borrower
                    financing and closing costs to be paid on the borrower’s behalf by HUD from
                    sales proceeds. It does not represent the amount that the borrower can finance
                    into the mortgage.
                • HUD may contribute up to three percent (3.00%) of the property’s gross
                    purchase price towards the borrower’s allowable closing costs, including up to
                    one percent (1.00%) of the loan origination fee.
                • If the borrower’s total closing costs reflected on the HUD-1 Settlement Statement
                    are less than the amount indicated as being paid by HUD on the sales contract,
                    HUD will credit ONLY the actual costs charged and will not credit the purchaser
                    with any difference, either in cash or through a reduced purchase price.
                • The percentage discount that is applied to the sales price at closing is identified
                    on Line 8 of the contract. If there is a discount, the mortgage amount will be
                    based on the discounted sales price, not the contract sales price. The sales
                    price is calculated as follows when a “discount” is offered:

                    Contract Sales Price (Line 3 of the contract)
                    -- (minus)         Discount (Line 8 of the contract)
                    + (plus)           HUD-Paid Closing Costs (Line 5 of the contract)
                    + (plus)           HUD-Paid Sales Commission (Line 6a of the contract)
                    = (equals)         Discounted Sales Price

                •     If a home inspection identifies required repairs, the property is no longer eligible
                      for FHA financing under Section 203(b). These properties are NOT eligible for
                      FHA financing with SunTrust Mortgage, Inc.

                      Reference: See Section 1.03c: Reviewing Sales Contracts, of the Broker Seller
                      Guide, for additional information.

                Maximum Mortgage Amount and Minimum Down Payment
                • In some cases, HUD may authorize sales incentives to be offered on a property.

                      Note: HUD single-family REO Properties that are approved for the reduced
                      down payment feature (HUD REO $100 Down Payment feature) may not be
                      registered on STMPartners and must be manually registered.

                •     If such authorization is absent, maximum mortgages and minimum down
                      payments are calculated in accordance with standard requirements under the
                      Section 203(b) HUD Program.
                      • The UFMIP can be financed into the total loan amount. The total loan
                          amount may never exceed 100% of the “as is” appraised value.
                •     Closing costs and prepaids may NOT be included in the mortgage.
                •     Investors are only eligible for financing under Section 203(b) to a maximum 75%
                      LTV for 1 unit properties and 85% LTV for 2-4 unit properties.

                                                                                  Continued on next page


Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                   Page 72 of 230
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Occupancy/Property Types, Continued

HUD REO         Allowable Closing Costs Paid by HUD
Properties,     • HUD issued Notice H 2005-12 to distinguish between closing costs that are
(continued)         automatically paid by HUD and those costs which may be paid if the amounts
                    are indicated on Lines 5 and/or 6a and 6b of the Sales Contract.
                • The following table lists the costs and information that are automatically paid by
                    HUD.

                      Closing Costs “Automatically”                          Notes
                              Paid by HUD
                 Broker’s Sales Commission for Broad        Amount stated on Lines 5 and/or 6a or
                 Listing Broker                             6b of form HUD 9548, Sales Contract.
                 Pro-ration of property taxes and any       No comments.
                 special      assessments    such    as
                 Homeowner’s Association (HOA) fees
                 and utility bills
                 Condominium or HOA Transfer Fee,           No comments.
                 if applicable
                 Cost      to      provide condominium      No comments.
                 documents to purchaser
                 Settlement or Closing Fee                  The Department will only pay HUD’s
                                                            contracted closing agent. This is the
                                                            purchaser’s cost if another agent is
                                                            chosen.
                 Recording Fees                             HUD will automatically pay recording
                                                            fees and charges for the deed only
                                                            (i.e., nominal amount charged per page
                                                            for recordation).

                •   Purchasers may specify a dollar amount of Line 5 of for HUD-9548, Sales
                    Contract that they expect HUD to pay toward the financing and closing costs.
                    Each HOC REO decides the maximum amount of closing costs HUD will pay
                    and notifies the M&M contractors. These costs typically range from three (3) to
                    five (5) percent. Any changes to these amounts are identified on the M&M
                    contractors website. HUD will pay the lesser of the amount requested in Line 5
                    or the actual cost of the items specified. Any funds remaining will NOT be
                    credited to the purchaser at closing.

                Processing Case Number
                • A new FHA case number is required for all applications and can be requested
                   through the FHA Connection. “Real Estate Owned” should be selected in FHA
                   Connection for the processing type.
                • When answering the question, “Was this case previously sold as a HUD REO
                   property?” in FHA Connection, lenders should always answer “Yes”. The
                   “Previous Case Number” field should also be completed.
                • If an appraisal is not being ordered, the appraiser fields should be left blank.
                • Condominium project approval is not required for FHA/HUD REO transactions.

                Reference: See “Case Number Assignment and Cancellation” in the “Workflow”
                topic for additional information.

                                                                             Continued on next page

Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 73 of 230
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Occupancy/Property Types, Continued


HUD REO          Appraisal Requirements
Properties       • Appraisals should be ordered by the M&M contractor prior to marketing the
(continued)         subject property and must be performed by an appraiser listed on the FHA
                    Appraiser Roster. The appraiser MUST be state certified with an unexpired
                    license. The borrower cannot be charged for the appraisal. The appraisal must
                    be ordered “as is” (not “as repaired”).
                 • Utilities should be turned on at the time of the appraisal, as indicated by the
                    appraiser on the appraisal unless there are extenuating circumstances noted on
                    the appraisal.
                 • In all cases, with few exceptions, the lender must obtain a complete copy of the
                    original appraisal from the M&M contractor.
                 • A new appraisal or an Appraisal Update and/or Completion Report (Fannie Mae
                    form 1004D/Freddie Mac form 442) may be ordered by the Wholesale Regional
                    Branch Office ONLY if the following applies:

                     Reference: See the “Fannie Mae Form 1004D/Freddie Mac Form 442
                     (Appraisal Update and/or Completion Report)” subtopic in the “Appraisal
                     Requirements” topic subsequently presented for additional information regarding
                     appraisal updates.

                     •    the appraisal obtained by the M&M contractor is more than 120 days old
                          and a valid HUD sales contract was not executed prior to the expiration date
                          of the appraisal – the appraisal should be ordered “as is”, or
                     •    there are material deficiencies with the current appraisal.
                          • The DE Underwriter is responsible for determining if there are material
                               deficiencies in the current HUD REO appraisal.

                     Note: The DU Underwriter must document why a second appraisal was ordered
                     and retain both appraisal copies in the loan file.

                 •   Updated appraisals cannot be ordered simply due to situations where the sales
                     price exceeds the “as is” value. In this situation, the borrower is responsible for
                     paying the difference from his/her own funds.
                 •   Ordering an appraisal in hopes of obtaining a higher value is not permissible.
                 •   In all cases, the lender is responsible for reviewing the property description,
                     comparables and adjustments specified on the appraisal, and for ensuring that
                     the stated value is accurate. The lender must also ensure that the properties
                     financed meet FHA’s minimum property standards.
                 •   If the borrower’s home inspection reveals a need for repairs that were not
                     identified on the appraisal, the underwriter must address such issues.
                 •   FHA financing should not be approved based on the terms of the sales contract.
                     Any discrepancies should be discussed with the M&M contractor for resolution.

                     Note: SunTrust Mortgage does not offer financing for 203(b) with repair
                     escrow or 203(k) transactions.


                                                                                Continued on next page



Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 74 of 230
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Occupancy/Property Types, Continued

HUD REO         Inspection Requirements
Properties      • A free copy of the termite & pest control inspection report can be obtained from
(continued)         the M&M Contractor.
                • If the property has a well and/or septic tank, contact the M&M contractor to
                    determine if an inspection has been performed. If not, the lender is responsible
                    for ensuring that state or local jurisdiction requirements have been met and there
                    are no adverse conditions noted.
                • The property must be inspected with the utilities turned on. If the utilities were
                    not on at the time of the appraisal, the M&M contractor shall permit entry during
                    the contract period to activate the utilities and for the inspection.
                • As a rule, the M&M contractor will not make repairs to HUD REO properties that
                    are necessary to bring them up to FHA’s MPRs. When repairs are determined to
                    be necessary, they will generally have to be accommodated through either
                    Section 203(b) with repair escrow or Section 203(k), which SunTrust does not
                    currently participate in.
                • The M&M contractor is required to determine any lead paint deficiencies.

                    Note: HUD may reduce the purchase price by the amount of a credit equal to
                    HUD’s contribution toward the cost of lead-based paint stabilization. Any lead-
                    based paint stabilization costs in excess of this credit become the responsibility
                    of the purchaser.

                •   A completed form HUD-92300, Mortgagee’s Assurance of Completion should be
                    included in the case binder submitted for insurance endorsement.
                •   A completed form HUD-92051, Compliance Inspection Report must be submitted
                    after the completion of repairs.

                Maximum Loan Amount
                • The maximum loan amount and minimum down payments are calculated as
                   specified in the topic “Loan Terms” in this product description.
                • The appraisal must be obtained to calculate the maximum loan amount. The
                   loan amount is no longer based solely on the sales price. The lesser of the sales
                   price or the “as-is” value specified in the Contractor’s appraisal is used to
                   calculate the maximum loan amount.
                • For purposes of determining the term of the annual premium, the contract sales
                   price is used.
                • Each HOC establishes marketing incentives for PD properties. Because these
                   incentives vary, it is imperative that the appropriate incentives be clarified prior to
                   processing. HUD will specify the down payment, the loan amount and the
                   incentives in the sales contract. Incentives not clearly stated in the sales
                   contract may be clarified by the HUD PD representative who signed the sales
                   contract.

                Automated Underwriting System (AUS) Information
                HUD REO properties are eligible for processing through DO/DU or LP. The
                underwriter will need to overcome the “Ineligibilty” due to the down payment
                calculation by noting on the Loan Underwriting Transmittal Summary (HUD 9200-LT)
                that the borrower was eligible for the $100 Down HUD REO down payment feature,
                as indicated by the HUD sales contract.

                                                                                 Continued on next page

Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                  Page 75 of 230
Broker Seller Guide
Occupancy/Property Types, Continued


Leasehold         Reference: See Section 1.26: Leasehold Estate Guidelines of the Broker Seller
Estates           Guide for a complete overview of leasehold estate requirements.


Resale/Deed       Reference: See Section 1.10a: Resale/Deed Restrictions Guidelines of the Broker
Restrictions      Seller Guide for a complete overview of resale/deed restrictions.



Manufactured      Manufactured housing (mobile homes) are NOT eligible for financing with SunTrust
Housing           Mortgage, Inc.


Properties        Reference: See Section 1.22: Properties Purchased at Auction, of the Broker Seller
Purchased at      guide, for additional information.
Auction


Properties        •   The appraiser must note on the appraisal if a property was listed for sale in the
Recently Listed       last 12 months.
For Sale              • If the property is currently listed for sale when the appraisal is completed, the
                           appraiser must note that it is currently listed for sale.
                  •   If a property was listed for sale in the last 12 months and the borrower was the
                      owner of the property at the time it was listed for sale, the following applies:
                      • for rate/term refinances,
                           • the property must be taken off the market on or prior to the application
                               (i.e., 1003) date,

                              Note: If the property is currently listed for sale, documentation must be
                              provided that the listing agreement is terminated (it is NOT okay just to
                              take the “For Sale” sign down).

                          •    when the subject property is the borrower’s primary residence, the
                               borrower must confirm in writing their intent to occupy the subject
                               property by signing an occupancy affidavit at closing, and
                          • the current maximum LTV/TLTV ratios for the transaction apply.
                      •   for cash-out refinances,
                          • the property must have been taken off the market for at least 90 days
                               prior to loan application, and
                          • if the property was listed for sale within the six (6) months preceding the
                               application (i.e., 1003) date, the maximum LTV/TLTV is limited to 70%.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                  Page 76 of 230
Broker Seller Guide
Occupancy/Property Types, Continued


Short Sale        Reference: See Section 1.24: Short Sales and Restructured Mortgage Loans of the
Property          Broker Seller Guide for additional information.


Properties with   •   All properties must meet city or county restrictions (i.e., a restriction that requires
City or County        all city/county employees to live within the city/county limits).
Restrictions      •   It is the lender’s responsibility to verify that any restrictions are met to assure
                      HUD’s issuance of the Mortgage Insurance Certificate (MIC).


Ineligible        The property types listed below are ineligible for HUD financing.
Property Types    • Commercial enterprises
                  • Boarding houses
                  • Hotels and motels
                  • Tourist houses
                  • Private clubs
                  • Bed and breakfast establishments
                  • Fraternity or sorority houses
                  • Sinkhole Homes (even if repaired)
                  • Co-ops
                  • Manufactured Housing




Section 2.90                                                                               October 19, 2012
FHA 203(b) Loan Program                                                                     Page 77 of 230
Broker Seller Guide
Eligible Borrowers


Number of       The following table shows information specific to AUS.
Borrowers on
One (1) Loan                Fannie Mae DO/DU                          Freddie Mac LP
                The number of borrowers on a loan is        The number of borrowers is limited to 5.
                limited to 4.


Borrowers 60    Borrowers 60 years of age or older may borrow the required down payment for
Years of Age    purchasing a principal residence, provided the guidelines listed below are met.
                • The donor or lender is a relative of the borrower, a close friend with clearly
                    defined interest in the borrower, the borrower’s employer, or an institution
                    established for humanitarian or welfare purposes.
                • The donor or lender is not one whose interest is solely in the sale of the property,
                    such as a builder or seller, or any person or organization associated with them.
                • The principal amount of the insured mortgage loan, plus the note or other
                    evidence of indebtedness in connections with the property, may not exceed 100
                    percent of the value plus prepaid expenses.
                • The note or other evidence of indebtedness may not bear interest exceeding that
                    of the insured mortgage.
                • Evidence that these conditions are met must accompany the application.

                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                               Page 78 of 230
Broker Seller Guide
Eligible Borrowers, Continued


Co-Borrowers    •   A co-borrower is eligible under the following conditions:
                    • must be on the title, note and security instrument,
                    • the co-borrower’s income, liabilities, assets and credit history is used to
                         determine creditworthiness,
                    • the co-borrower does not have an interest in the transaction (i.e., seller,
                         builder or real estate agent), exceptions may be granted if seller and co-
                         borrower/co-signer are related to the owner by blood, marriage or law),
                    • if the parent is selling to a child, the parent cannot be co-borrower with the
                         child on the new mortgage unless the loan-to-value is 75% or less, and
                    • the co-borrower must be eligible for participation (not suspended or debarred
                         or owe any delinquent Federal debts).
                •   Non-occupant co-borrowers must have a principal residence in the U.S. unless
                    otherwise exempted (i.e., military service with overseas assignments, U.S.
                    citizens living abroad). While FHA does not object to legitimate transactions
                    where non-occupant borrowers assist in the financing of the property, this
                    arrangement may not be used by non-occupant borrowers to develop a portfolio
                    of rental properties. A non-occupant co-borrower is only eligible on a one (1)
                    unit property.
                    • Non-occupant co-borrowers or co-signers are not permitted on any cash-out
                         transaction.
                •   When there are two (2) or more borrowers, but one or more will not occupy the
                    property as a principal residence, the maximum mortgage is usually limited to
                    75% LTV. However, maximum financing is available for borrowers related by
                    blood, marriage or law that meet the requirements under the topic “Maximum
                    Loan Amount and LTV.”

                    Note: All references to co-borrowers, including the 75% LTV limits, apply
                    equally to co-signers (except co-signers do not take title or sign the security
                    instrument).

                References:
                • See the “Co-signers” subtopic subsequently presented in this topic for additional
                   information.
                • See the “Maximum Loan Amount” subtopic within the topic “Loan Terms” for
                   additional information on non-occupying co-borrowers and Identity of Interest
                   transactions.

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 79 of 230
Broker Seller Guide
Eligible Borrowers, Continued


Co-Signers      •   A co-signer does not have an ownership interest in the property (does not take
                    title) but is liable for repaying the obligation and must sign all documents with the
                    exception of the security instruments.
                •   The co-signer’s income, assets, liabilities, and credit history are considered in
                    determining creditworthiness for the mortgage.
                •   The co-signer must complete and sign the application.
                •   All other items applicable to co-borrowers also apply to co-signers.
                •   Non-occupant co-signers are not permitted on any cash-out transactions.


First Time      Definition
Homebuyers      • An individual who has had no ownership in a principal residence in the three (3)
                    years prior to the closing date of the loan.
                • An individual who, though having owned a home in the previous three (3) years,
                    owned a home with a former spouse while married and is no longer living in the
                    property (as evidenced by the divorce decree and/or separation agreement).

                Counseling Requirement
                • HUD still recommends housing counseling for the purchase of a property.
                   However there is no reduction in UFMIP for attending housing counseling.
                • The FHA Lender Homebuyer Education Certification (BRO 0611) may be used
                   to document the loan file.


HUD             •   Loan applications for HUD employees may be processed and underwritten by
Employees           the lender; however, they must be submitted to the attention of the Processing
                    and Underwriting Division Direction at the jurisdictional HOC for final signoff and
                    approval PRIOR to closing.
                •   SunTrust will accept a Purchase, Streamline Refinance, Rate/Term or Cash Out
                    Refinance transaction.

                Note: Streamline refinance applications do not require final HUD sign-off prior to
                closing.

                                                                                 Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 80 of 230
Broker Seller Guide
Eligible Borrowers, Continued


Living Trusts     Living trusts are eligible for HUD financing under the following conditions:
                  • the borrower must remain the beneficiary,
                  • the borrower must occupy the subject property as a primary residence,
                  • the trust must provide reasonable means to assure the lender that it will be
                       notified of any subsequent change of occupancy or transfer of beneficial interest,
                  • the trust must appear on the security instrument (i.e., mortgage, deed of trust, or
                       security deed),
                  • the individual borrower must appear on the security instrument when required to
                       create a valid lien under state law (otherwise, he/she is not required to appear),
                       and
                  • the owner-occupant, if any, and other borrower(s) must appear on the note along
                       with the trust; however, the individual borrower is not required to appear on the
                       property deed or title.

                  Reference: See Section 1.15: Living Trusts in the Broker Seller Guide for additional
                  information.


Military          Military personnel are eligible for maximum financing if a member of the immediate
Personnel         family will occupy the subject property as a principal residence, even if the active
                  duty borrower is stationed elsewhere.


Non-Permanent     Reference: See Section 1.19: Non-Permanent Resident Alien of the Broker Seller
Resident Aliens   Guide for additional information.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                  Page 81 of 230
Broker Seller Guide
Eligible Borrowers, Continued


Non-Permanent •     If authorization for temporary residency status will expire within one (1) year from
Resident Aliens,    the date of closing, the conditions for borrower eligibility are as follows:
(continued)         • if it can be established that the borrowers have a history of prior renewals of
                         their temporary employment/residency status granted by the EAD of the
                         BCIS, it may be assumed that the continuation of the authorization for
                         residency/employment status will be granted, and
                    • if there is no evidence that the borrowers had a prior renewal of their
                         authorization for temporary residency/employment status, the lender must
                         develop the likelihood of renewal based on current information obtained from
                         the BCIS.

                    Note: Non-U.S. Citizens with no lawful residency in the U.S. are not eligible for
                    FHA mortgages.


Non-            •   If it is required by state law in order to perfect a valid and enforceable first lien,
Purchasing          the non-purchasing spouse may be required to sign either the security
Spouses             instrument or documentation evidencing that he/she is relinquishing all rights to
                    the property.
                •   If the non-purchasing spouse executes the security for such reasons, he/she is
                    not considered a borrower for HUD’s purposes and does not need to sign the
                    loan application.
                •   Except for those obligations specifically excluded by state law, the debts of the
                    non-purchasing spouse must be considered in the qualifying ratios if the
                    borrower resides in a community property state or the property to be insured is
                    located in a community property state.
                •   If the borrower resides in a community property state or the property is located in
                    a community property state, a credit report must be obtained. The non-
                    purchasing spouse’s credit history is not to be considered a reason for credit
                    denial.
                •   HUD requires that DE underwriters know the state laws concerning community
                    property and apply them appropriately to ensure that there is no increased risk to
                    HUD.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                  Page 82 of 230
Broker Seller Guide
Eligible Borrowers, Continued


Ownership in       •   If the borrower owns any type of financial interest (any type of ownership
Unit Limitation        regardless of type of financing) in seven (7) or more rental dwelling units when
                       the property is part of, adjacent to or contiguous to a property, subdivision, or
                       group of properties owned by the borrower, he/she is not eligible for FHA
                       financing on a property located within the contiguous area.
                   •   A contiguous area is typically defined as an area with a two (2) block radius (i.e.,
                       condo project or PUD).
                   •   Each dwelling unit in two-, three-, and four-family properties counts towards the
                       seven-unit limitation. The rental units in an owner-occupied two-, three-, or four-
                       unit property also count toward this limitation.
                   •   Hotel and Transient Use Certification (Form HUD 92561) signed by the borrower
                       must be obtained for every application on a two, three and four family dwelling,
                       OR a single family dwelling which is one of a group of five or more dwellings held
                       by the same borrower.

                       Reference: Click here to access the Hotel and Transient Use Certification (Form
                       HUD 92561)


Parties in Title   •   Non-borrowing spouses or other non-borrowing parties may hold title to an FHA
                       insured property; however, a valid and enforceable first lien on the property
                       under state law is still required.
                   •   All parties appearing on the property deed or title must also appear on the
                       security instrument (i.e., mortgage, deed of trust, security deed).
                   •   The only exception would be in the event of a Living Trust. The Trust must
                       appear on the security instrument (i.e., mortgage, deed of trust, security deed).
                       The individual borrower(s) is not required to appear on the property deed or title.

                       Reference: See “Living Trusts” within this topic for additional information.

                                                                                   Continued on next page




Section 2.90                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                    Page 83 of 230
Broker Seller Guide
Eligible Borrowers, Continued


Permanent         •   Lawful Permanent Resident aliens are given the same consideration as United
Resident Aliens       States citizens.
                  •   A permanent resident alien is an individual who is lawfully accorded the privilege
                      of residing permanently in the United States.
                  •   The borrower must have a valid social security number (a taxpayer ID number is
                      unacceptable).
                  •   The borrower must have evidence of permanent residency and indicate on the
                      Uniform Residential Loan Application (URLA) that he/she is a lawful permanent
                      resident alien.
                  •   The United States Citizenship and Immigration Services (USCIS) within the
                      Department of Homeland Security issues evidence of lawful permanent
                      residency.
                  •   The following documentation is acceptable proof of permanent resident status:
                      • USCIS Form I-551 Alien Registration Receipt (green card), with an
                           unexpired date on the front,
                      • USCIS Form I-551 Conditional Alien Registration Receipt, with an unexpired
                           USCIS I-751 Petition to Remove Conditions of Residence (green card by
                           marriage), or
                      • An unexpired passport with an unexpired stamp reading “Processed for I-
                           551. Temporary Evidence of Lawful Admission for Permanent Residence.
                           Valid until [date]. Employment Authorized.”

                  Note: A “green card” that has no expiration date (issued between March 1977 and
                  January 1987) is acceptable with no additional requirements.

                  •   If the green card will expire within six (6) months after closing, the borrower must
                      provide the following:
                      • A copy of the filed USCIS I-90 Application to Replace Permanent Resident
                           Card, and
                      • A copy of the USCIS I-797 Notice of Action for the I-90.
                  •   Borrowers with a conditional green card (issued for two years) cannot apply for
                      renewal earlier than three months prior to the expiration date. SunTrust
                      Mortgage requires the borrower to file one of the following forms prior to loan
                      application:
                      • I-751 Petition to Remove Conditions of Residence (green card by marriage),
                           or
                      • I-829 Petition by Entrepreneur to Remove Conditions.


Ineligible        Ineligible borrowers for FHA financing through SunTrust Mortgage include:
Borrowers         • Corporations
                  • Partnerships
                  • Sole proprietorships
                  • Non-profit organizations




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                   Page 84 of 230
Broker Seller Guide
Income


Income             The following table shows information regarding the Income Calculator Tool.
Calculator
Tool*                  References:
                   •   See General Section 1.31: Income Analysis document of the Broker Seller Guide
*STM Internal          for additional information.
Information        •   See the STM Internal “Income Calculator Tool Guidelines” document for
ONLY
                       additional information.

        Non-AUS Loans                     Fannie Mae DU Loans                       Freddie Mac LP
                                                                              “Accept/Eligible” Loans
•   Use of the Income Calculator      Non-AUS guidelines apply, in         Non-AUS guidelines apply, in
    Tool is mandatory for all         addition to the following:           addition to the following:
    income.                           •   Loans should not close until     •   Loans should not close until
•   In     all    cases,    without       the final loan application           the final loan application and
    exception, every eligible loan        and DU findings reflect the          LP findings reflect the
    file must include a copy of the       income as determined on              income as determined on the
    “Borrower      Total   Income”        the     Income      Calculator       Income               Calculator
    summary        screen,    each        Worksheet and used by the            Worksheet and used by the
    income screen where income            underwriter to approve the           underwriter to approve the
    calculations were performed           loan.                                loan.
    and     the    “Notes/Sign-Off”
    screen completed by the
    underwriter in determining
    income for loan approval.
•   Loans should not close until
    the final loan application
    reflect    the    income     as
    determined on the Income
    Calculator Worksheet and
    used by the underwriter to
    approve the loan.

                                                                                     Continued on next page




Section 2.90                                                                                October 19, 2012
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General         Income
                • HUD generally requires all income to continue through, at a minimum, the first
                    three (3) years of the mortgage loan. If the borrower intends to retire during this
                    period, the effective income must be the amount of documented retirement
                    benefits, social security payments, etc.
                • Borrowers that change jobs frequently within the same line of work, who continue
                    to advance in income or benefits, should be considered favorably. In this instance,
                    income stability takes precedence over job stability.

                Documentation
                • Faxed documentation may be used if the following applies:
                   • the employer’s name and source of information is clearly identified on the form,
                   • the document includes a name and telephone number of the individual with the
                       employer who can verify the accuracy of the data, and
                   • the lender verifies the document’s authenticity by reviewing, among other
                       things, the information included in the banner of the fax and conducting a
                       telephone verification.
                • Employment documentation downloaded from an Internet website may be used if
                   the following applies:
                   • The Verbal Verification of Employment (BRO 0050) form must include the
                       name and title of the SunTrust employee performing the verification of
                       employment for all FHA loan programs.

                          Reference: See the “Verbal Verification of Employment Requirements and
                          Workflow Procedures” topic in Section 1.05: Closing Information of the Broker
                          Seller Guide for additional documentation requirements for employed, self-
                          employed and military borrowers.

                    •     The employer’ name and source of information is clearly identified.
                    •     The printed pages of the document reflect the URL address with the date and
                          time it was printed.
                    •     The lender verifies the document’s authenticity by reviewing, among other
                          things, the information included on any header, footer and banner of the
                          printout and verifies the existence of the website from which the document was
                          derived.
                    •     The documents must be identifiable as belonging to the borrower.

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General,        Automated Underwriting Systems (AUS) Information
continued       The following table shows information specific to AUS.

                               Fannie Mae DO/DU                               Freddie Mac LP
                 •   The DO/DU Findings Report will provide       •      The LP Feedback Certificate
                     specific messages on the following income           will     provide    specific
                     types when identified correctly:                    messages on base salary for
                     • base salary for salaried borrower,                salaried and self-employed
                     • base salary for self-employed borrower,           borrowers.
                     • commission, bonus, and overtime            •      For all other income types,
                         income,                                         standard FHA guidelines
                     • positive net rental income,                       apply.
                     • social security and disability income,
                     • alimony and child support, and
                     • pension or retirement income.

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Salaried or     All of the following documentation is required:
Hourly Wage     • paystubs for the most recent 30 day period,
Income          • W-2’s for the previous two (2) years,
                • telephone verification of employment from the current employer, and
                • signed IRS Form 4506-T.

                Reference: See the “IRS 4506-T” subtopic in Section 1.05: Closing Information of
                the Broker Seller Guide for additional information regarding IRS Form 4506-T
                requirements at application and at closing.

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                                        Fannie Mae DO/DU, Freddie Mac LP
                Current Employment
                Obtain the most recent pay stub showing at least one month of year-to-date earnings
                and any one of the following:
                • written verification of employment (VOE) from current employer, or
                • verbal verification of employment from current employer, must document the
                   individual verifying employment, or
                • electronic verification acceptable to FHA.

                Employment History
                Verification of applicant’s previous 2-year employment history is required.

                Employment with the same employer for the previous 2 years does not require direct
                verification if all of the following conditions are met:
                • current employer confirms a 2 year employment history, or a paystub reflects a
                     hiring date, and
                • only base pay is used to qualify (no overtime or bonuses), and
                • the borrower executes form IRS 4506-T for previous 2 years.

                If employment has changed in the previous 2 years and/or not all conditions above
                can be met, one or a combination of the following are required to verify the
                applicants 2 year employment history:
                • W-2(s)
                • VOE(s)
                • Electronic verification acceptable to FHA
                • School – college transcripts
                • Military – discharge papers

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Alimony, Child   •   Income received from alimony, child support or maintenance payments must
Support or           continue the first three (3) years after closing.
Maintenance      •   A copy of the divorce decree, legal separation agreement, voluntary agreement,
Payments             or court order specifying the amount of support and the period of time over which
                     it will be received is required.
                 •   Evidence (i.e., deposit slips, bank statements, front and back of canceled
                     checks, court records or Federal tax returns) must be provided to reflect that the
                     funds have been received for the last 12 months.
                 •   Period of less than 12 months may be acceptable provided the payer’s ability
                     and willingness to make timely payments is adequately documented.
                 •   Properly documented child support income may be grossed up under the same
                     terms and conditions as other non-taxable sources.

                     Reference: See the subtopic “Non-Taxable Income” subsequently presented in
                     this topic for additional information.

                 Automated Underwriting Systems (AUS) Information
                 The following table shows information specific to AUS.

                             Fannie Mae DO/DU                               Freddie Mac LP
                 •   If “Approve/Eligible,” the following is   •   If “Accept,” the following is required:
                     required:                                     • a copy of the front page of the
                     • a copy of the front page of the                  divorce decree,
                          divorce decree,                          • copies of applicable pages
                     • copies of applicable pages                       from the divorce decree that
                          from the divorce decree that                  provide details of support
                          provide details of support                    payments,               including
                          payments,               including             verification that the income will
                          verification that the income will             continue for at least three (3)
                          continue for at least three (3)               years after loan closing, and
                          years after loan closing, and            • verification of receipt of
                     • verification of receipt of                       income for the last three (3)
                          income for the last three (3)                 months.
                          months. Bank statements or
                          cancelled        checks       are
                          acceptable.


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Automobile       •   Only the amount that an auto allowance and/or expense account exceeds actual
Allowances and       expenditures can be considered as income.
Expense          •   Income is documented with the most recent two (2) years’ tax returns (IRS Form
Account              2106 - Employee Business Expenses).
Payments         •   The employer must verify that the allowance/account will continue.
                 •   The borrower’s car payment is treated as a recurring debt and cannot be offset
                     by the car allowance.
                 •   If there is a loss between the allowance and actual expenditures, that amount is
                     considered a recurring debt and counted in the total debt ratio.
                 •   If the borrower uses the standard per-mile rate in calculating auto expenses, as
                     opposed to the “actual cost” method, the portion that the IRS considers
                     depreciation may be added back to income.


Capital Gains    •   Capital gains (or loss) as shown on Schedule D of the Individual Tax Returns
                     (IRS form 1040) generally occurs only one (1) time and should not be considered
                     in determining effective income.
                 •   If the borrower has a constant turn over of assets resulting in gains or losses, the
                     capital gain or loss may be considered in determining the income, provided the
                     borrower has at least three (3) years’ tax returns evidencing capital gains.

                     Example: An individual who purchases old houses, remodels them and sells
                     them for a profit.


Commission       Commission income can be used to qualify the borrower if the following guidelines
Income           are met.
                 • The borrower must furnish the most recent two (2) years’ Federal tax returns,
                     along with his/her most recent paystub.
                 • The commission income is averaged over the two (2) year period.
                 • Commission income showing a decrease requires significant compensating
                     factors to justify loan approval.
                 • Any unreimbursed business expenses (Schedule A of tax returns) must be
                     deducted from the borrower’s income.
                 • Income received between one (1) and two (2) years may be considered if the
                     underwriter is able to make a sound rationalization for acceptance and can
                     document the likelihood of continuance.


Employer         If the employer subsidizes the mortgage payment, the amount of the payments is
Differential     considered gross income. It may NOT be used to offset the mortgage payment
Payments         directly, even if the employer pays the servicing lender directly.

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Employment by   The borrower must provide the normal documentation for employment, income pay
Family-Owned    stub(s) and evidence of not being an owner of the business. This evidence may
Business        include one of the following:
                • a signed copy Federal personal tax returns, and/or
                • a signed copy of the Federal corporate tax return showing ownership
                     percentages (usually evidenced on the Schedule K-1).


Gaps in         If a borrower has a gap of employment spanning one (1) month or more, an
Employment      explanation from the borrower is required. Allowances for seasonal employment
                such as is typical in the building trades, etc. may be documented by the lender.

                Automatic Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                             Fannie Mae DO/DU                             Freddie Mac LP
                 •    If “Approve/Eligible,” an explanation   •   If “Accept,” an explanation is
                      of employment gaps greater than six         required if the gap was more than
                      months that have occurred in the            60 days.
                      last two years is required.


Government      •    Government assistance in the form of workman’s compensation, welfare
Assistance           programs, payments for foster children, unemployment income, etc. may be
Programs             used to qualify the borrower.
                •    Documentation must be provided from the agency paying benefits to verify that
                     the benefits are likely to continue for at least three (3) years after closing. If
                     continuance of such income is not expected for three (3) years, it may be
                     considered as a compensating factor.
                •    Unemployment income must be documented for two (2) years. Reasonable
                     assurance of its continuance is also required. This applies to individuals
                     employed on a seasonal basis, such as farm workers, resort employees, etc.

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Section 8 Home   Procedures for loan applications where the homebuyer receives a monthly
Ownership        homeownership assistance payment under the housing choice voucher
Vouchers         homeownership program (Section 8) are shown below.
                 • All Section 8 subsidized mortgage loans must have “88” entered as the program
                    identification code in the FHA Connection or its functional equivalent.
                 • FHA will assume that the subsidy will continue for at least three (3) years so that
                    it may be considered effective income.
                 • The methods for qualifying the borrower are shown below.
                    • The homeownership assistance payment must be paid directly to the
                        homeowner/borrower.
                    • The amount of the monthly subsidy may only be considered as income in
                        determining the borrower’s qualifying ratios.
                    • Qualifying instructions for this scenario are shown below.
                        • The amount of the non-taxable subsidy that is received directly by the
                             homeowner may be grossed up by 25%.
                        • The amount of the subsidy plus 25% of that subsidy may be added to the
                             borrower’s income from employment and/or other sources in calculating
                             the qualifying ratios.

                     Note: Although HUD allows the homeownership assistance payments to be
                     made directly to the servicing lender to offset the mortgage payment, SunTrust
                     servicing is unable to facilitate the procedure for receiving or allocating these
                     funds. Therefore, the requirements shown above must be adhered to for
                     eligibility purposes, without exception.

                 •   All other FHA requirements (i.e., employment stability, credit history, down
                     payments, etc.) as shown in this product description apply.


Interest and     •   Evidence required to show borrower still owns the assets generating the income
Dividend             used to qualify.
Income           •   Interest and dividend income must be documented as received for the past two
                     (2) years.
                 •   A two (2) year average is required to use such income to qualify for the
                     mortgage.
                 •   Two (2) years signed Federal tax returns or account statements must be
                     provided. Funds used for down payment and/or closing costs must be
                     subtracted before the interest is calculated.

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Military Income   In addition to base pay, military personnel may be entitled to additional forms of pay
                  provided its continuance is verified in writing:
                  • flight or hazard pay,
                  • BAS, Basic Allowance for subsistence (rations),
                  • clothing allowance,
                  • proficiency pay, and
                  • BAH, Basic Allowance for housing.


Mortgage          •   If a government entity subsidizes a mortgage payment, either through direct
Credit                payments or tax rebates, these payments are considered as acceptable income
Certificates          if verified in writing.
                  •   Either type of subsidy may be added to gross income or used to offset the
                      mortgage payment before calculating the qualifying ratios.


New               •   If a borrower is about to begin a new job, there must be a guaranteed, non-
Employment            revocable contract, fully executed by employee and employer, to begin the new
                      position within 60 days of closing, and the income is acceptable for qualifying
                      purposes.
                  •   If the loan will close more than 60 days before the employment begins, the loan
                      is not eligible for endorsement until the lender provides a paystub or other
                      acceptable evidence has actually begun the new job.
                  •   There must be sufficient, verified income/cash reserves to support debt during
                      the interim between closing and start of employment.


Non-Taxable       Non-taxable income may be “grossed-up” by using the published IRS tax tables or
Income            15%. If the borrower is not required to file a federal income tax return, the tax rate to
                  use is 25%.


Note              •   Income received from the repayment of a note must be verified by a copy of the
Receivable            note to establish the amount and length of payments.
Income            •   Payments must continue for the first three (3) years after closing.
                  •   Evidence (i.e., front and back of canceled checks, deposit slips or Federal tax
                      returns) must be provided evidencing that the funds have been received
                      consistently for the past 12 months.

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Overtime /      •   Overtime and bonus income is treated as salaried income.
Bonus Income
                    Reference: See “Salaried or Hourly Wage Income” previously presented in this
                    topic for additional information.

                •   Overtime or bonus income may be used to qualify the borrower if it meets the
                    following guidelines:
                    • There must be a two (2) year history.
                    • The likelihood that the overtime or bonus income will continue must be
                         verified on the written verification of employment or telephone certification
                         of employment.
                    • The income is averaged over the most recent two (2) year period. If there is
                         a decline in income, there must be justification for using it as qualifying
                         income. If the income is not consistent from year to year, more than two (2)
                         years’ income must be averaged to calculate an acceptable qualifying
                         income.
                    • If received less than two (2) years, the income may be acceptable if it can be
                         documented that it will continue. The VOE must show likelihood of
                         continuance. A trend must be established and analyzed. The reason for
                         using the income for qualifying purposes must be justified and documented
                         in writing.


Part-Time       •   HUD defines part-time income (second job income) as income from a job taken
Income              in addition to a borrower’s regular employment that supplements the borrower’s
(Second Job         income. If a borrower’s regular employment is less than the typical 40 hour work
Income)             week, the stability of that income should be evaluated as any other regular, on-
                    going primary employment.
                •   Part-time income from second job may be used if it can be verified as having
                    been uninterrupted for the previous two (2) years and if it has a strong likelihood
                    of continuation.
                •   A seasonal part-time or second job (such as that received by a person who
                    works part-time at a department store during the Christmas shopping period) can
                    be considered as uninterrupted if the borrower has worked in the same job “in
                    season” for the past two years and expects to be rehired for the next season
                    (i.e., umpiring baseball games in summer).
                •   Income from a part-time position that has been received for less than two (2)
                    years may be included as effective income provided that the continuance of such
                    income can be verified, and use of this income is justified and documented in the
                    file.
                •   Income that does not meet these requirements may be considered as a
                    compensating factor.

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Projected       •   Projected or hypothetical income is not acceptable for qualifying purposes.
Income              However, exceptions to this rule are permitted as shown below.
                    • Income from bonuses, cost-of-living adjustments, or performance raises
                        (must be well documented with verification from the borrower’s employer)
                        may be used if documentation verifies that it will be received within 60 days
                        after closing.
                    • Income from an accepted (but not yet started) job with a guaranteed, non-
                        revocable contract for employment beginning within 60 days of loan closing
                        may be used in qualifying. However, it must be verified that there will be
                        sufficient income or cash reserves to support the mortgage payment and
                        other obligations during the interim period between loan closing and start of
                        employment. (i.e., teachers whose contracts begin with the new school year,
                        or physicians who will begin residency after the loan is scheduled to close.)
                    • If the loan will close more than 60 days before the borrower’s employment
                        begins, the loan is NOT eligible for insuring until receipt of a pay stub or
                        other acceptable evidence that the borrower has begun the new job.


Recent Return   Borrowers who have been out of the work force for a significant period of time may use
to Work Force   income they receive from returning to work provided the following guidelines are met:
                • the borrower must be employed in his/her current job for at least six (6) months,
                • a two-year work history prior to the absence from the work force (i.e., written
                    verification of employment or W-2’s) must be documented, and
                • income from employment may only be considered as a compensating factor if
                    these requirements cannot be met.


Rental Income   •   Rent received for other properties owned by the borrower is acceptable if
                    documented that the rental income is stable.
                •   Rent received from additional units in the subject property (if a 2-4 unit property)
                    may be used for qualifying purposes.

                References:
                • See the subtopic “Rent Loss Insurance” subsequently presented for additional
                   information and requirements when using rental income.
                • See “Conversion of Existing Primary Residence to Rental Property or Second
                   Home” within the topic “Workflow” for additional information.

                •   Net rental income is calculated by taking the gross rents minus the 25% reduction
                    (or local office’s percentage reduction for vacancies and repairs) then subtract the
                    monthly payment of PITI. If this yields a positive number, add it to the borrower’s
                    monthly gross income; if negative, consider it a recurring monthly obligation.

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Income, Continued


Rental Income,   •   Rental income is verified using one (1) of the following documentation methods:
(continued)          •   Schedule E of IRS Form 1040 (any depreciation is added back to the net
                         income or loss reflected on the Schedule and the current ownership of the
                         properties listed on Schedule E must be compared to the real estate owned
                         section of the loan application), or
                          Note: To be considered stable income, when tax returns are used to
                          calculate the rental income and a current lease (or agreement to lease) is
                          not provided, the 24-month rental history must be free of any unexplained
                          gaps greater than three (3) months.
                     •    current leases (if the property was acquired since the last income tax year
                          and is not listed on Schedule E, a current signed lease or other rental
                          agreement must be provided and the gross rental is reduced by 25%* to
                          allow for vacancies and maintenance before calculating net rental income).

                          Note: *Please check the HOC for their specific vacancy factor.

                 •   Income from “boarders” is acceptable when it is received from a relative and can
                     be shown on the borrower’s Federal tax returns. Otherwise, it may be used as a
                     compensating factor.
                 •   If six (6) or more units are owned in the same general area, a map disclosing the
                     locations must be submitted evidencing compliance with FHA’s seven (7) unit
                     limitation.

                     Reference: See “Ownership in Unit Limitation” within in the topic “Eligible
                     Borrowers” for additional information.

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Rent Loss       When rental income is being used to qualify AND the subject property is secured by
Insurance       a 2-4 unit primary residence or 1-4 unit investment property, SunTrust will require the
                borrower to obtain rent loss insurance to cover at least six (6) months of gross
                monthly rent.

                Notes:
                • Rent loss insurance is not required if rental income from the subject property is
                   not being used to qualify.
                • Rent loss coverage must be included as a part of the hazard insurance policy as
                   an endorsement. The yearly hazard insurance premium must include the
                   additional premium the borrower must pay for this coverage. The rent loss
                   coverage provided in the hazard insurance policy must cover a minimum of six
                   (6) months of gross monthly rent.

                    Note: If the insurance company will not issue an endorsement to the hazard
                    insurance policy for the rent loss coverage, the acceptance of a separate
                    insurance policy will be considered on a case-by-case basis. Current published
                    hazard insurance policy requirements (i.e., policy term, policy prepayment,
                    escrow collection, etc.) will apply for the separate policy.

                •   Rent loss insurance covers rental losses that are incurred during the period that
                    a property is being rehabilitated following a casualty.

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Retirement and    •   Retirement and Social Security income must be verified from the third-party
Social Security       source (Social Security Administration and former employer) or from the most
Income                recent two (2) years’ Federal tax returns.
                  •   The income must continue for at least three (3) years after closing; otherwise, it
                      will be used only as a compensating factor.


Self-Employed     General Information
Borrowers         Individuals who own 25% or more interest in a business are considered self-
                  employed.

                  Effective Income
                  • The total net profit of the business if a sole proprietorship with depreciation or
                      depletion added back to the adjusted gross.
                  • The amount of the draw or bonus taken from the capital account if the business
                      is a partnership plus the borrower’s share of the net profit.
                  • The amount of wages or salary as shown on the W-2 if the business is a
                      corporation, plus any bonus or other compensation, deducting any spousal
                      income.

                  Income Analysis
                  • Establish an earnings trend over the previous two (2) years. Three (3) years
                      may be used if all three (3) years tax returns are provided.
                  • Quarterly tax return income may be included through the period covered by the
                      tax filings. If no quarterly returns, the income shown on the P&L statement may
                      be included provided the income stream is consistent with the previous years’
                      earnings. If the P&L shows an income stream considerably greater than
                      previous years, the analysis must be based solely on the income verified through
                      the tax returns.
                  • Careful analysis of the business’ financial strength, the source of its income, and
                      the general economic outlook for similar businesses in the area.
                  • A borrower whose business shows a significant decline in income over the
                      period analyzed is not acceptable, even if current income and debt ratios meet
                      HUD guidelines.
                  • A borrower’s withdrawal of cash from the business may have a severe negative
                      impact on the ability of the business to continue operating and must be carefully
                      considered in the analysis.

                  Length of Time in Business
                  • If the borrower has been in business for at least two (2) years, income may be
                     considered stable and effective.
                  • If the borrower has been in business between one (1) and two (2) years, he/she
                     must have at least two (2) years previous employment or a combination of one
                     (1) year employment and formal schooling or training in the occupation.
                  • If the borrower has been in business less than one year, income is not eligible
                     due to lack of earnings history.


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Income, Continued


Self-Employed   Documentation
Borrowers,      Signed and dated Federal individual income tax returns with all schedules for the two
(continued)     (2) most recent previous years (if current year taxes have been filed, proof of filing
                may be required (i.e., canceled checks or IRS stamp on the tax return).
                • Signed and dated current financial statement, including a year-to-date balance
                    sheet and income statement.
                • If the business is a corporation or partnership signed and dated Federal
                    business tax returns for the most recent two (2) years with all schedules (if
                    current year taxes have been filed, proof of filing may be required, i.e., canceled
                    checks or IRS stamp on the tax return).
                • Business credit report on corporations and “S” corporations.

                Reference: See HUD Handbook 4155.1, Chapter 4, Section D for additional
                information on analyzing Individual, Corporate, “S” Corporation, and Partnership tax
                returns.

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.


                                         Fannie Mae DO/DU, Freddie Mac LP
                •   Generally, standard FHA guidelines apply with some exceptions on
                    documentation requirements.
                •   The borrower must provide two (2) years of individual federal tax returns and
                    corporate partnership federal tax returns (if applicable to business).
                •   If “Approve/Eligible” or “Accept/Eligible,” the borrower is not required to provide
                    business tax returns if ALL of the following can be met:
                    • Individual Federal tax returns show increasing self employed income over
                         the past two (2) years,
                    • Funds to close are not coming from business accounts,
                    • The loan is not a cash-out refinance.

                    Note: If “Approve/Eligible” or “Accept/Eligible,” a business credit report is not
                    required for a corporation or “S” corporation.

                •   A profit and loss statement (P&L) and a balance sheet is required if more than a
                    calendar quarter has elapsed since date of most recent calendar year or fiscal-
                    year end tax return was filed by the borrower. If income used to qualify the
                    borrower exceeds the two-year average of tax returns, an audited P&L or signed
                    quarterly tax returns obtained from the IRS are required.
                •   If one borrower is self-employed while another on the same loan is salaried, the
                    DO/DU Findings Report will provide an employment message for the self-
                    employed borrower (ignore the employment message for the self-employed
                    borrower and provide self-employed documentation as identified in the rest of
                    the message).

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Income, Continued

Foreign Income   •   Borrower must be US citizens receiving foreign employment income generated
                     from a non-US source.
                     • Non-US source of income may not include sanctioned countries
                          administered by OFAC.
                 •   Foreign income (income generated from non-US sources) may be used only if its
                     stability and continuance for three (3) years can be verified.
                 •   Foreign income must be supported by:
                     • the most recent two (2) years signed federal tax returns, and
                     • standard income documentation (i.e., year-to-date paystub and W-2 forms
                          for prior years).
                 •   If the income is paid in a foreign currency, the income must be translated into US
                     dollars.

                 Note: AUS is not able to recognize foreign income, therefore, these changes will
                 need to be applied outside of AUS.


Tip Income       •   Must have been received for at least the most recent two (2) years.
                 •   Documentation that the current employer expects the tip income to continue is
                     required.
                 •   Tip income should be averaged over the past two (2) years to determine the
                     amount of income that may be considered in qualifying the borrower.

                 Note: Tip income must be entered in DU as “Other Types of Income.”

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
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Income, Continued

Temporary       •   Temporary leave from employment is generally short in duration and may
Leave and           encompass various circumstances such as maternity, medical, short-term
Short-term          disability, or other temporary leaves with or without pay.
Disability      •   The period of time that a borrower is on temporary leave is determined by
Income              various factors such as applicable law, employer policies, and short term
                    insurance and/or benefit terms.
                •   Leave from work ceases being considered temporary when the borrower does
                    not intend to return to the current employer or does not have a commitment from
                    the current employer to return to work.
                •   Underwriters must determine the allowable qualifying income as follows:
                    • If the borrower will return to work prior to the first mortgage payment, then
                        the borrower’s regular employment income that will be received upon their
                        return to work may be used for qualifying.
                    • If the borrower will return to work after the first mortgage payment, then the
                        borrower’s temporary leave income is used for qualifying.

                    Notes:
                    • Documentation evidencing amount, duration, and consistency for all
                       temporary leave income sources must be obtained when used for qualifying.
                    • Verify the borrower’s pre-leave income and employment, regardless of leave
                       status.
                    • Obtain documentation from current employer confirming the borrower’s
                       statutory right to return to work (or employer’s commitment to permit the
                       borrower to return to work), the confirmed date of return, and the borrower’s
                       post-leave employment and income.
                    • Obtain written statement signed by the borrower confirming that they will
                       return to their current employer and stating the confirmed date of return.
                    • When a borrower is currently receiving short-term disability payments that
                       will decrease to a lesser amount within the next three (3) years because they
                       are being converted to long-term benefits, the amount of the long-term
                       payments must be used in determining the borrower’s stable income.

                                                                             Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                             Page 101 of 230
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Income, Continued

Temporary       •   In addition to the above guidelines, the following applies for worker’s
Leave and           compensation:
Short-term          • Benefits that have a defined expiration date must have a remaining term of
Disability             at least three (3) years from the date of the mortgage application in order to
Income,                be used for qualifying the borrower.
(continued)         • A copy of the borrower’s disability policy or benefits statement must be
                       obtained to verify the amount of the disability payments and to determine
                       whether there is a contractually established termination or modification date.
                    • A statement from the benefits’ payer (insurance company, employer, or other
                       qualified and disinterested party) must be obtained to confirm the borrower’s
                       current eligibility for the disability benefits.

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                           Fannie Mae DO/DU                              Freddie Mac LP
                Non-AUS guidelines apply, except as         Non-AUS guidelines apply, except as
                follows:                                    follows:
                • If      using     borrower’s   regular    • If      using    borrower’s    regular
                     employment income, the amount is            employment income, the amount is
                     entered into DU using the applicable        entered into DU using the applicable
                     income type.                                income type.
                • If using borrower’s temporary leave       • If using borrower’s temporary leave
                     income, the amount is entered into          income, the amount is entered into
                     DU as “Other Monthly Income” under          DU as “Other Monthly Income”
                     “Other Types of Income”                     under “Other Types of Income”


                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                             Page 102 of 230
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Income, Continued

Trailing Spouse   The use of trailing co-borrower income is not permitted.


Trust Income      •   A copy of the Trust Agreement or the Trustee’s statement confirming the
                      amount, frequency and duration of payments must be provided.
                  •   The income must continue for at least three (3) years after closing.
                  •   Lump sum distributions made before loan closing may be used for down
                      payment or closing costs if they are verified by a copy of the check or the
                      Trustee’s letter that shows the distribution amount. If a distribution was made
                      that reduces the Trust income, the reduction must be taken into consideration in
                      computing the income.


VA Benefits       •   Income received in the form of VA benefits must be documented by a letter or
                      distribution form from the Veterans Administration.
                  •   The income must continue for at least three (3) years after closing.
                  •   Education benefits are not acceptable income, as it offsets education expenses.


Borrowers on      The guidelines below apply to a borrower who is currently out of work due to a strike
Strike            at his/her place of employment.
                  • The file must contain evidence that the borrower has returned to work.
                  • The branch must be sure that the information obtained is from a reliable source.
                  • One of the following methods may be used for confirmation:
                       • a written verification from the employer confirming the borrower is back to
                           work, or
                       • a verbal verification with either the Human Resources Department, Payroll
                           Department or the borrower’s supervisor.

                      Note: The SunTrust Wholesale Branch Office must verify and obtain the
                      information directly with the employer (no third party documentation).

                                                                                Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 103 of 230
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Income, Continued


Layoffs and      •   Borrowers may be considered on a case-by-case basis if the borrower has a
Plant Closings       minimum of one (1) year guaranteed employment remaining when he/she has
                     been notified of a pending layoff or closing.
                 •   Underwriters are to use caution when approving these loans and document each
                     file justifying why an approval was issued. WHEN THE PLANT CLOSING OR
                     LAYOFFS ARE EFFECTIVE IN LESS THAN ONE (1) YEAR, FHA RECOMMENDS
                     THAT THE LOAN NOT BE APPROVED.
                 •   The guidelines shown in the following table are provided to assist in reviewing
                     the applications from a borrower who is affected by job eliminations.

                 Note: Marginal loans are not acceptable under these circumstances.

                       Guidelines for Reviewing                              Examples
                    Borrower Applications Affected
                          by Job Eliminations
                 Analyze the overall strengths of the       •   Are the ratios low enough to support
                 file (i.e., credit, assets, ratios),           the loan if the borrower had to take a
                 including, but not limited to, the items       lesser paying job?
                 shown in the example.                      •   Has the borrower exhibited a savings
                                                                pattern? This is of particular interest if
                                                                the borrower’s current income is
                                                                unlikely to be equaled by a new
                                                                employer.
                                                            •   Will the borrower have cash reserves
                                                                available as a cushion for any period of
                                                                unemployment following closing?
                                                            •   Has the borrower established a
                                                                satisfactory credit history?
                                                            •   What has been the borrower’s
                                                                employment history?
                                                            •   What is the remaining length of time of
                                                                guaranteed employment?

                                                            Note: The SunTrust Wholesale Branch
                                                            Office will need to monitor the time frame
                                                            for sections of the business that are laying-
                                                            off (or closing) first.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 104 of 230
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Income, Continued


Layoffs and Plant Closings, (continued)

                        Guidelines for Reviewing                         Examples
                    Borrower Applications Affected
                           by Job Eliminations
                 Consideration of what other income      •   Does borrower have second job?
                 is coming into the household that is    •   Does borrower receive income from
                 verifiable.                                 rental properties?
                                                         •   Does borrower have any undisclosed
                                                             stable income?
                                                         •   Does a non-applicant spouse have
                                                             stable income?
                                                         •   Does the co-borrower have additional
                                                             stable income not disclosed?
                 Obtain     statements     from    the   •   Alternative plans,
                 borrower addressing the concerns        •   Job skills,
                 due to the pending layoff including     •   What prospects are available for those
                 but not limited to those shown in the       skills in the area with other employers,
                 example.                                •   How does borrower plan to repay the
                                                             mortgage, and
                                                         •   Other employment possibilities in the
                                                             area, salary prospects within commuting
                                                             distance.

                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 105 of 230
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Income, Continued


Documentation   An IRS form 4506-T must be executed (at application and again at closing) by the
                borrower(s) for all loans.

                Reference: See the “IRS 4506-T” subtopic in Section 1.05: Closing Information of
                the Broker Seller Guide for additional information regarding IRS Form 4506-T
                requirements at application and at closing.

                Written Verifications
                • If written verification forms are used, the lender’s file must contain the original
                    form (or a faxed form) with an original signature of the party completing the form.
                • Verification forms must pass directly between the lender and creditor without
                    being handled by a third party.
                • When using a written verification of employment, the file must also contain a
                    most recent (at time of application) paystub. This must be provided at the time
                    of underwriting.

                Alternate Documentation of Employment
                • Paystub(s) covering the most recent 30 day period. The paystub must show the
                    borrower’s name, social security number and year-to-date earnings.
                • W-2’s for the most recent two (2) years.
                • Telephone certification of current employment.
                • Certification that original documents were examined and the name, title, and
                    telephone number of the person with whom employment was verified.
                • Standard employment documentation must be used if the employer will not give
                    telephone confirmation of employment or if the W-2 indicates inconsistencies.

                    Note: Paystubs are required before FHA will guarantee the loan.




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 106 of 230
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Liabilities and Qualifying Ratios

Alimony and     •   The lender can choose to treat the payment of alimony one (1) of two (2) ways:
Child Support       • as a reduction from the borrower’s gross income, or
                    • as a monthly obligation.
                •   The lender should choose whichever method benefits the borrower the most.
                •   Child support must be treated as a monthly obligation.


Authorized      Credit report tradelines that list a borrower as an “authorized user” are not required
User Accounts   to be considered in the underwriting decision or the debt-to-income (DTI) ratios.


Compensating    Compensating factors may be used if a borrower’s debt ratios exceed the guidelines
Factors         if an approval is granted. Underwriters must state in the “underwriter comments”
                section of the FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT)
                the compensating factors used to justify their loan approval. Some common
                examples of compensating factors listed below.
                • Borrower has substantial documented cash reserves after closing. (At least three
                     (3) months’ worth of liquid or readily convertible to cash without retirement or job
                     termination. Other exclusions are gift funds, funds borrowed against IRAs, thrift
                     savings plans, 401(k)s, etc., equity in other properties or proceeds from a cash-
                     out refinance).
                • Borrower has demonstrated the ability to accumulate savings.
                • Borrower makes a large down payment (ten percent (10%) or more.).
                • Borrower has demonstrated a “conservative” use of credit.
                • Borrower has demonstrated the ability to pay housing expenses equal to or
                     greater than the proposed monthly housing expense for the new mortgage over
                     the past 12-24 months.
                • Previous credit history shows that the borrower has the ability to devote a
                     greater portion of income to housing expenses.
                • The borrower receives documented compensation or income not reflected in
                     effective income, but directly affecting the ability to pay the mortgage, including
                     food stamps and similar public benefits.
                • There is only a minimal increase in the borrower’s housing expense.
                • The borrower has substantial non-taxable income (if no adjustment made
                     previously in the ratio computations).
                • The borrower has potential for increased earnings, as indicated by job training or
                     education in the borrower’s profession.
                • The home is being purchased as the result of relocation of the primary wage-
                     earner and the secondary wage-earner has an established history of
                     employment, is expected to return to work, and there is reasonable prospects for
                     securing employment in a similar occupation in the new area. The Underwriter
                     must address the availability of such possible employment.

                    Note: It is not permissible to require the borrower to make advance payments
                    on his mortgage for consideration as a compensating factor.


Condominium     With proper verification, that portion of the condo fee that clearly covers the utilities
Fees            may be subtracted from the mortgage payment before computing ratios.

                                                                                 Continued on next page
Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                 Page 107 of 230
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Liabilities and Qualifying Ratios, Continued

Contingent      •   A contingent liability exists when a borrower holds a joint obligation with another
Liability           person or persons.
                •   Obligations where the borrower is a co-signer must be listed as the borrower’s
                    debt, unless the borrower can provide conclusive evidence from the debt holder
                    that there is no possibility the debt holder will pursue debt collection against
                    him/her should the other party default.
                •   The information listed below applies to contingent liabilities.
                    • Mortgage Debt: If a borrower is obligated on an outstanding HUD, VA or
                        conventional mortgage secured by a property which has been sold by
                        assumption, contract for Deed or traded within the last twelve months without
                        a release of liability, or a property was transferred because of divorce,
                        contingent liability must be considered a recurring liability unless the
                        following circumstances apply:
                        • the Servicer of the assumed loan provides a payment history showing
                             that the mortgage has been current during the previous twelve months, or
                        • an appraisal or closing statement from the sale of the property supports
                             a value that results in a 75% LTV ratio (i.e., the outstanding balance on
                             the mortgage loan, minus any UFMIP, cannot exceed 75% of the
                             appraised value or sales price).

                          Note: A copy of the divorce decree ordering the former/separated spouse to
                          make payments or the assumption agreement and the deed showing transfer
                          of title out of the borrower’s name is required.

                    •     Co-Signed Obligations:       If the borrower is a co-signer, or otherwise co-
                          obligated on a car loan, student loan, mortgage, or any other obligation,
                          contingent liability applies unless the lender obtains documented proof that
                          the primary obligor has been making payments during the previous 12
                          months on a regular basis and does not have a history of delinquent
                          payments on the loan.

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS for Contingent Liabilities on
                Mortgage Debt.

                            Fannie Mae DO/DU                               Freddie Mac LP
                •   If “Approve/Eligible,” the following is   •   If “Accept,” the following is required:
                    required:                                     • obtain a copy of the divorce
                    • obtain a copy of the divorce                     decree ordering the other
                         decree ordering the other spouse              spouse to make payments, or
                         to make payments, or                     • The assumption agreement and
                    • the assumption agreement and                     the deed showing transfer of title
                         the deed showing transfer of title            out of the borrower’s name.
                         out of the borrower’s name.
                                                              Note: There is no twelve (12) month
                Note: There is no twelve (12) month           payment history requirement.
                payment history requirement.

                                                                                Continued on next page



Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 108 of 230
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Liabilities and Qualifying Ratios, Continued


Conversion of     •   This guidance applies solely to a principal residence being vacated in favor of
Existing              another principal residence.
Primary           •   The housing payments for the current primary residence and the new proposed
Residence to          primary residence must be included in the debt to income calculation.
Rental Property   •   Underwriters are not permitted to include rental income from a primary residence
or Second             being vacated in favor of another principal residence unless one of the following
Home                  applies:
                      • the homebuyer has a 75% LTV/TLTV or less, as determined by a current
                          (dated within sixty [60] days of the Note date for the new transaction)
                          residential appraisal (may be exterior-only) on the current primary residence,
                          OR

                      Note: SunTrust requires borrowers with a current 2-4 unit primary residence
                      that will be converted to an investment property to meet the 25% required equity
                      position to utilize the rental income from ANY of the property’s units, regardless
                      if the units were previously occupied by the borrower or not.

                      •   the homebuyer is relocating with a new employer, or being transferred by the
                          current employer to an area that is not within a reasonable commuting
                          distance.
                          • Evidence of a properly executed lease agreement of at least one year in
                              term after the loan closing date and evidence of the security deposit
                              and/or the first month’s rent was paid to the homeowner must be in the
                              loan file.
                  •   Traditionally underwritten loans must document the following reserve
                      requirements:
                      • three (3) months reserves on BOTH properties, if the homebuyer cannot
                          provide evidence of a 75% LTV/TLTV or less on the current primary
                          residence,
                      • two (2) months reserves on BOTH properties, if the homebuyer can provide
                          evidence of a 75% LTV/TLTV or less on the current primary residence.

                      Note: TOTAL Scorecard will determine reserve requirements for AUS approved
                      transactions.


Energy            Ratios may be exceeded by up to 2% (becoming 33/45% respectively) if the property
Efficient         is an Energy Efficient home and the following conditions apply:
Properties        • the property is identified as an Energy Efficient Home (EEH) by the HUD Field
(EEH)                 Office, and
                  • evidence of the EEH designation must be provided to the buyer for eligibility to
                      be passed to subsequent owners.

                      Note: All properties meeting the 2000 International Energy Conservation Code
                      (IECC) are considered energy efficient and eligible for the two percentage points
                      increase in qualifying ratios.

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 109 of 230
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Liabilities and Qualifying Ratios, Continued


Installment       •    Generally, installment debt with less than ten (10) remaining payments is not
Debt                   considered in the qualifying ratios. If the debt is other than a fixed installment,
                       the underwriter must verify that the monthly installments plus interest are equal
                       to an amount that can be paid off within ten (10) months. Reliance solely on the
                       credit report is insufficient. Thus, it will be necessary to obtain a copy of the
                       borrower’s pay statement, or other documentation, to determine the interest rate
                       and number of payments required to satisfy the debt.
                  •    If the monthly payment on debts with less than ten (10) remaining payments is
                       large enough to seriously affect the borrower’s ability to make the mortgage
                       payment in the months immediately following closing, the monthly payment must
                       be included in the debt ratios. An exception may be granted if the borrower has
                       sufficient cash reserves after loan closing to supplement his/her income for
                       payment of the debt.

                  Automated Underwriting Systems (AUS) Information
                  The following table shows information specific to AUS.

                               Fannie Mae DO/DU                                  Freddie Mac LP
                   •    If a liability has less than ten (10)      All liabilities listed on the 1003 will be
                        remaining payments and the payment         considered in the borrower’s ratio.
                        is less than $100, it is not counted in
                        the borrower’s debt ratio.
                   •    All other liabilities listed on the 1003
                        will be considered in the borrower’s
                        ratio.


Obligations Not   •    Federal/state/local taxes,
Considered as     •    FICA or other retirement contributions such as 401Ks (including repayment of
Debt                   debt secured by these funds),
                  •    Commuting costs,
                  •    Union dues,
                  •    401(k) payments,
                  •    Automatic deductions to savings accounts,
                  •    Child care, and
                  •    Other voluntary deductions.


Projected Debt    If a debt, such as a student loan or balloon note, is scheduled to begin repayment or
                  to become due within the first 12 months of loan closing, the lender must include the
                  monthly obligation or take into consideration the note when qualifying the borrower.

                                                                                    Continued on next page




Section 2.90                                                                               October 19, 2012
FHA 203(b) Loan Program                                                                    Page 110 of 230
Broker Seller Guide
Liabilities and Qualifying Ratios, Continued


Property Taxes,   •   The taxes, insurance and HOA assessments, if applicable, due on a property
Insurance and         owned by a borrower must always be considered in the borrower’s debt to
HOA                   income ratios, including properties that are currently owned free and clear.
Assessments       •   Generally, it is assumed that, if the mortgage has been reported to the credit
                      repositories, the payment includes taxes and insurance. This assumption also
                      includes mortgages that are not on the credit report and other verification has
                      been provided.
                  •   If the mortgage is with a private individual, it is assumed that the payment does
                      NOT include taxes and insurance.

                      Reference:     See the “Privately Held Mortgages” subtopic subsequently
                      presented in the “Credit Requirements” topic for additional information regarding
                      payment verification requirements for privately held mortgages.

                  •   If the borrower discloses that the mortgage payment does not include taxes
                      and/or insurance or the mortgage is with a private individual, the following
                      applies:
                      • the borrower must provide the amount of taxes and/or insurance (translated
                           into a monthly figure),
                      • the monthly taxes and/or insurance must be treated as a liability, and
                      • documentation of the taxes and/or insurance is determined by underwriter
                           discretion based on the borrower’s cash reserves.


Qualifying Rate   Fixed Rate Mortgages
                  • Fixed rate loans-qualify at the Note rate.
                  • Temporary buydowns qualify at the Note rate.

                  Adjustable Rate Mortgages
                  • The 5 Year and 7 Year ARMs qualify at the Note rate.

                      Note: The LTV is calculated by dividing the base loan amount by the lesser of
                      the appraised value or sales price.

                                                                                Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 111 of 230
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Liabilities and Qualifying Ratios, Continued


Qualifying      •    The housing ratio includes the PITI of the new mortgage, mortgage insurance,
Ratios               homeowner’s association dues, and payments on secondary financing.
                •    Taxes included in the PITI for proposed/new construction properties must be
                     based on “improved” property taxes.
                •    The debt ratio includes housing ratio items, installment loans, revolving credit,
                     other mortgage payments, and any other monthly debt.
                •    Housing ratios exceeding 31% and debt ratios exceeding 43% may be
                     acceptable ONLY if significant compensating factors are documented and
                     recorded on the FHA Loan Underwriting and Transmittal Summary (HUD-92900-
                     LT).
                •    Compensating factors, used to support the loan approval, must be listed in the
                     underwriter comments section of the FHA Loan Underwriting and Transmittal
                     Summary (HUD-92900-LT) for non-AUS approved loans exceeding 31/43%
                     ratios.
                •    The maximum DTI for SunTrust on any AUS approved transaction is
                     50.00%, regardless of AUS findings.
                     • Traditionally underwritten loans are not subject to this restriction; however,
                          must continue to meet all other requirements, including credit scores,
                          published by SunTrust and current FHA guidelines.
                •    Victims of a Presidentially-Declared Major Disaster Area may have a debt ratio
                     up to 45% without compensating factors. This debt ratio may be exceeded with
                     appropriate compensating factors. Evidence that the borrower resided in the
                     disaster area during the occurrence must be provided. This remains in effect for
                     up to one-year from the date of the President’s declaration. Check the FEMA
                     website to obtain specific affected counties and corresponding declaration dates
                     for the Major Disaster Areas.

                     Reference: See the subtopic “Compensating Factors” previously presented in
                     this topic for additional information.

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                              Fannie Mae DO/DU                            Freddie Mac LP
                 •    If “Approve/Eligible,” no explanation   •   If “Accept,” no explanation is
                      is required for qualifying the              required for qualifying the borrower
                      borrower at ratios above FHA                at ratios above FHA guidelines
                      guidelines when this occurs.                when this occurs.
                      • The maximum DTI for SunTrust              • The maximum DTI for SunTrust
                           on    any      AUS     approved            on     any     AUS     approved
                           transaction      is     50.00%,            transaction       is    50.00%,
                           regardless of AUS findings.                regardless of AUS findings.

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 112 of 230
Broker Seller Guide
Liabilities and Qualifying Ratios, Continued


Undisclosed     •   Information disclosed on the loan application must be accurate and current
Debt                through loan closing. This information includes (but is not limited to) any
                    additional credit applied for or incurred during the application process and
                    through loan closing.
                •   If the borrower indicates new debt has been incurred which is not present on the
                    initial application or on the credit report, documentation must be obtained from
                    the borrower which indicates the balance and payment of the debt. This
                    information must be included as a liability on the 1003 and the borrower must be
                    requalified and/or the loan re-priced based on this new information.

                    Note: At this time, SunTrust will NOT be pulling a new credit report prior to
                    closing to validate if the borrower has incurred any additional liabilities.

                •   The Additional Credit and Debt Disclosure must be provided to ALL borrowers at
                    application and must be signed by ALL borrowers to acknowledge receipt of the
                    disclosure. The signed Additional Credit and Debt Disclosure must be present in
                    the mortgage loan file at the time of underwriting. If not present, the underwriter
                    must condition for the required disclosure.

                    Notes:
                    • An Additional Credit and Debt Disclosure must be provided by the Broker
                       and must contain the following disclosure information:
                       • the lender confirms and validates the information on the loan application
                       • the information provided must be accurate and current when the client
                           originally submits the application and at the time of loan closing
                       • loan approval (or denial) is based on the information disclosed on the
                           loan application, the client’s credit report, and other sources of
                           information used by the lender
                       • the client must immediately notify the lender of any new or additional
                           credit applied for, or any debt/liabilities incurred after the submission of
                           the original loan application
                       • prior to closing, if the lender discovers the client incurred any new credit
                           accounts or new debt/liabilities, their loan application will be requalified
                           based on this new information, which could result in an increase in
                           interest rate and/or a possible loan denial
                       • the client’s failure to report any new application for credit or new
                           debts/liabilities after submission of the original mortgage loan application
                           could be considered mortgage fraud.
                    • STM Internal Information ONLY:
                       • The Additional Credit and Debt Disclosure is available through Digital
                           Docs. This application disclosure automatically prints in the initial
                           disclosure package.
                       • If the above referenced disclosure is not present in the loan file at the
                           time of underwriting, the underwriter must utilize one of the
                           miscellaneous MISF underwriting codes to condition for the application
                           disclosure form. The underwriting level permitted to clear the
                           underwriting condition is Level 5.


                                                                               Continued on next page

Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 113 of 230
Broker Seller Guide
Liabilities and Qualifying Ratios, Continued


Undisclosed     •   The Notice to Borrower Additional Credit and Debt Not Disclosed must be
debt,               provided to ALL borrowers at closing. All borrowers must sign the disclosure to
(continued)         acknowledge they read, understand and received a copy of the disclosure. This
                    disclosure reminds borrowers that they must disclose all debts incurred during
                    the application process and through closing. These debts are included in the
                    qualification for the subject mortgage.

                    STM Internal Information ONLY:: The Notice to Borrower Additional Credit Not
                    Disclosed is available through Digital Docs.           This closing disclosure
                    automatically prints in the SunTrust Mortgage closing package.

                Reference: See the “Inquiries” subtopic subsequently presented in the “Credit
                Requirements” topic for additional information.


Revolving       •   Monthly payments on revolving or open-end accounts, regardless of balance,
and/or Open-        must be included in the borrower’s monthly debt payment. If there is no balance,
End Debt            there is no monthly payment.
                •   In the absence of a stated payment, the greater of 5% of the outstanding
                    balance or $10 will be used as the required monthly payment.

                                                                             Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                            Page 114 of 230
Broker Seller Guide
Liabilities and Qualifying Ratios, Continued


Student Loans   If the debt repayment is scheduled to begin within twelve months from the date of the
                mortgage loan closing, the anticipated monthly obligation must be included in the
                debt ratio unless written evidence that the debt will be deferred to a period outside of
                this timeframe is provided.

                Notes:
                • Student loans cannot be used towards the transaction as either income or
                   assets.
                • If the RMCR or Infile Credit Report does not reflect a monthly payment amount,
                   a copy of the Note or a letter from the lender must be used to determine the
                   monthly payment amount.


Unverified      •    If there are liabilities disclosed by the borrower but not on the credit report,
Liabilities          independent verification is required.
                •    Verification of such liabilities is based on underwriting discretion upon full
                     analysis of the loan file. The underwriter must determine if verification is
                     necessary to support an approval (if not verified, an explanation is required as to
                     why the liability is immaterial).

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                      Fannie Mae DO/DU                                Freddie Mac LP
                 •    If “Approve/Eligible” and    •   If “Accept” and liabilities disclosed by the
                      liabilities disclosed by         borrower are not on the credit report, the liability
                      the borrower are not on          must be verified according to non-AUS
                      the credit report, the           guidelines.
                      liability must be verified   •   If the verification reflects that the account is
                      according to non-AUS             currently more than 90 days past due, the loan
                      guidelines.                      must be downgraded to a “Refer”.




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 115 of 230
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Credit Requirements


General         •   The overall analysis of a borrower’s credit should be performed using the
                    following “hierarchy” order:
                    • payment history for current and previous housing payments,
                    • payment history for installment debts, and then
                    • payment history for revolving accounts.
                •   Generally, an individual with no late housing or installment debt payments should
                    be considered as having an acceptable credit history unless there is derogatory
                    credit on revolving accounts.

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                            Fannie Mae DO/DU                              Freddie Mac LP
                 If a borrower’s current address is outside   If a borrower’s current address is
                 of the United States, DO/DU will not         outside of the United States, LP will not
                 issue a recommendation. The loan must        issue a recommendation.        The loan
                 then be traditionally underwritten.          must then be traditionally underwritten.

                                                                                Continued on next page




Section 2.90                                                                          October 19, 2012
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Credit Requirements, Continued


Bankruptcy      Documentation
                • Copy of the bankruptcy petition,
                • Schedule of Debts and Discharge, and
                • Written explanation from borrower.

                Note: Documentation of the bankruptcy is not required if, TOTAL Scorecard
                approves the transaction and the findings do not need to be manually downgraded to
                a “Refer” and traditionally underwritten.

                Chapter 7 [liquidation] Bankruptcy
                • Bankruptcy must have been discharged for at least two (2) years.
                • If bankruptcy is discharged for at least one year (but not less than 12 months), it
                   may be acceptable if it occurred due to extenuating circumstances beyond the
                   borrower’s control (i.e., death of principal wage earner, or serious long-term
                   illness) and are not likely to reoccur.
                • Provide documentation that the borrower’s current situation indicates that the
                   events that led to the bankruptcy are not likely to reoccur.
                • The borrower must have re-established good credit, or has chosen not to incur
                   new credit obligations.
                • In lieu of an established credit history, credit letters covering the past 12 months
                   from two of the following are acceptable: telephone, cable, gas or electric
                   companies, etc.
                • There cannot be any new derogatory credit information, unless TOTAL
                   Scorecard approves the transaction and the credit report accurately reflects the
                   derogatory credit information.

                •   Note: If the bankruptcy included a foreclosure, the more restrictive three (3)
                    year wait still remains in effect. This three (3) year waiting period is based on
                    the date the claim is paid.

                    Reference: See “Foreclosures” subsequently presented within this topic for
                    additional information.

                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 117 of 230
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Credit Requirements, Continued


Bankruptcy,     Chapter 13 Bankruptcy
(continued)     • A borrower paying off debts under a court approved wage earner’s plan pursuant
                   to Chapter 13 of the Bankruptcy Act may be eligible if he/she is:
                   • otherwise acceptable,
                   • bankruptcy payments are included in the ratios,
                   • one (1) year of the pay-out period has elapsed,
                   • the performance under the plan has been satisfactory, and
                   • the borrower receives court approval to enter into the mortgage transaction.
                • The borrower must have re-established good credit, or has chosen not to incur
                   new credit obligations.
                • In lieu of an established credit history, credit letters covering the past 12 months
                   from two of the following are acceptable: telephone, cable, gas or electric
                   companies, etc.
                • There cannot be any new derogatory credit information.

                Note: Bankruptcy information through the Public Access to Court Electronic
                Records (PACER) service that matches the credit report is acceptable to FHA.
                However, if the borrower does not meet the standard requirement of two years (three
                years if part or a foreclosure), additional documentation may be required.

                Reference: See the “PACER” website at http://www.PACER.psc.uscourts.gov/ for
                more information.

                Automated Underwriting Systems (AUS) Information
                • The following table shows information specific to AUS.
                • To be eligible for AUS submission, the Chapter 13 Bankruptcy must have been
                   discharged for at least two years.

                              Fannie Mae DO/DU                              Freddie Mac LP
                •   Typically, the loan will receive an             Standard FHA guidelines apply.
                    “Approve/Ineligible” in DO/DU if there is
                    a bankruptcy less than two (2) years or
                    foreclosure less than three (3) years on
                    the credit report.
                •   If “Approve/Eligible”, the loan must be
                    manually downgraded to a “Refer” and
                    traditionally underwritten if the following
                    applies:
                    • the information was reported
                         incorrectly on the credit report, or
                    • the information was not reflected on
                         the credit report but disclosed by the
                         borrower, or
                    • the        credit    report    (or    other
                         documentation) does not show a
                         Chapter 13 Bankruptcy has been
                         discharged for at least two (2) years.


                                                                                Continued on next page

Section 2.90                                                                           October 19, 2012
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Credit Requirements, Continued


Collections     For Case Numbers Assigned prior to April 1, 2012 and after April 8, 2012, follow the
                guidelines below:
                • SunTrust requires for all AUS (DU and LP) processed loans, that collection and
                    charge off account(s) that total more than $5,000 must be paid off prior to
                    closing. Funds sufficient to settle the account(s) must be verified and
                    documented. It is not acceptable to pay down the aggregate balance of these
                    account(s) to $5,000 and allow them to remain open. Underwriter discretion will
                    be used on accounts under the $5,000 limit.
                • Account balances reduced to a judgment by a court must be paid in full or
                    subject to a repayment plan with a history of timely payments.
                • The following criteria apply to loans that do not receive an “Approve/Eligible”
                    through the TOTAL Scorecard:
                    • collections will be reviewed on a case-by-case basis depending on the
                        overall loan quality,
                    • major indications of derogatory credit require sufficient written explanation
                        from the borrower (i.e., collections judgments, and any other recent credit
                        problems) – the explanation must make sense and be consistent with other
                        credit information in the file,
                    • the collections may be required to be paid off by closing based upon
                        underwriter discretion after full review of the file, and
                    • the underwriter must provide comments on the FHA Loan Underwriting and
                        Transmittal Summary (HUD-92900-LT) regarding his/her analysis of the
                        collections and the borrower’s willingness to repay obligations.
                For Case Numbers Assigned between April 1, 2012 and April 8, 2012, follow the
                guidelines outlined here.
                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                             Fannie Mae DO/DU                                    Freddie Mac LP
                 •   If “Approve/Eligible,” explanations of late   •   If “Accept/Eligible,” explanations of late
                     payments are not required.                        payments are not required.
                 •   If “Approve/Eligible,” a hypothetical
                     monthly payment does not need to be
                     used in qualifying the borrower.




Disputed        For Case Numbers Assigned prior to April 1, 2012 and after April 8, 2012, follow the
Accounts        guidelines below:
                If the borrower is disputing any credit accounts or public records that appear on their
                credit report, submit the file to a direct endorsement underwriter for review unless:
                • the disputed account has a zero balance, is marked as “paid in full” or “resolved”
                     on the credit report, or
                • has both a balance less than $500 and the date of the dispute is more than 24
                     months old.

                For Case Numbers Assigned between April 1, 2012 and April 8, 2012, follow the
                guidelines outlined here.

                                                                                      Continued on next page
Section 2.90                                                                                  October 19, 2012
FHA 203(b) Loan Program                                                                       Page 119 of 230
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Credit Requirements, Continued


Consumer        •   If a borrower is in a Consumer Credit Counseling Program, HUD views such a
Credit              borrower in the same terms as a borrower who has gone through a Chapter 13
Counseling          bankruptcy.
                •   If the borrower has been paying at least 12 months satisfactorily and the
                    borrower receives written permission from the counseling agency to enter into
                    the mortgage transaction, the borrower may be acceptable.
                •   Since some creditors may still report the borrower as delinquent, even though
                    they have agreed to accept a lower payment, this must be considered in the
                    analysis of the borrower’s overall credit.
                •   These cases should be analyzed on a case-by-case basis. It is a judgment call
                    on the part of the DE underwriter after analyzing all the factors. The borrower
                    being in a Consumer Credit Counseling program is viewed as neither a positive
                    nor a negative.

                    Note: TOTAL Scorecard will not recognize the borrower being in a Consumer
                    Credit Counseling program.    The underwriter should ensure HUD/FHA
                    requirements are met.


Credit Alert    General Information
Interactive     • The CAIVRS code is required on all FHA loans except streamline refinances.
Voice           • The CAIVRS system will verify if the borrower(s) has had an insurance claim
Response           paid in the three (3) years prior to loan application on a previous HUD-insured
(CAIVRS)           mortgage or if there is a current delinquency on a HUD-insured mortgage.
System          • If CAIVRS results show a claim delinquency, the borrower is generally not
                   eligible for a FHA-insured mortgage. (see “Eligibility Exceptions” below.)
                • The CAIVRS system may be accessed by electronic response when ordering the
                   FHA Case Number in FHA Connection.
                • The authorization code and message provided for each borrower by the CAIVR
                   system must be written on the FHA Loan Underwriting and Transmittal Summary
                   (HUD-92900-LT).
                • HUD does not allow credit bureaus to obtain the CAIVRS numbers.
                • Lenders may not rely on a clear CAIVRS approval when in possession of
                   independent evidence of delinquent federal obligations and must document the
                   resolution of any conflicting information.
                • If there is a delinquency code, the lender must contact the appropriate HUD
                   HOC in order to obtain the necessary information to determine if the borrower
                   qualifies for the FHA mortgage:

                                   HOC                               Phone Number
                Philadelphia HOC                          1-215-656-0578, ext. 3059
                Atlanta HOC                               1-888-696-4687 (select an option)
                Denver HOC                                1-800-543-9378
                Santa Ana HOC                             1-888-827-5605, ext. 3171


                                                                            Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                            Page 120 of 230
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Credit Requirements, Continued

CAIVRS             Eligibility Exceptions
System,            If the default or claim was caused by one of the following, the borrower(s) is eligible
(continued)        to receive another HUD-insured mortgage providing the appropriate documentation
                   supporting the borrower(s) eligibility is attached to the FHA Loan Underwriting and
                   Transmittal Summary (HUD-92900-LT):
                   • Assumption: if the borrower sold the property with or without a release of liability,
                        to an individual who subsequently defaulted, the borrower is eligible provided
                        he/she can prove the loan was not in default at the time of the assumption,
                   • Divorce: if there was a default on a mortgage awarded to a former spouse and
                        the divorce decree or legal separation agreement awarded the property to that
                        spouse (if a claim was paid, the mortgage must have been in default after the
                        divorce decree or separation agreement was signed), or
                   • Bankruptcy: if the property was included in a bankruptcy that was caused by
                        circumstances beyond the borrower’s control.

                   Alpha Code Definitions
                   • A = No activity
                   • B = Title I claim and/or Title II default
                   • C = Title I and/or claim
                   • D = One or more Title II defaults
                   • E = One or more Title I claims

                   Steps to Cure Problems
                   If the code is “B-E” the borrower must contact the HUD Field Office for direction.
                   Instructions given by the HUD Field Office must be provided by the borrower and
                   must be followed to “cure” the problem.


Credit Inquiries   •   Documentation of inquires is based on underwriting discretion upon full analysis
                       of the loan file.
                   •   All inquiries within the last 90 days must be indicated on the credit report and
                       explained in writing by the borrower. Any new debt must be verified and
                       included in the debt ratio.
                   •   If the credit report reflects credit inquiries from lenders (including SunTrust Bank,
                       Inc.) within 120 days of the credit report date, explanation for all inquiries
                       referenced, except for the inquiry made by the originating lender that is directly
                       related to the subject mortgage loan application, is required.

                       Note: An explanation for the credit inquiry made by the originating lender that is
                       directly related to the subject mortgage loan application is not required.

                   •   If the explanation reveals that new debt has been incurred which is not present
                       on the initial application or on the credit report, documentation must be obtained
                       from the borrower which indicates the balance and payment of the debt. This
                       information must be included as a liability on the 1003 and the borrower must be
                       requalified and/or the loan re-priced based on this new information.

                   Note: At this time, SunTrust will NOT be pulling a new credit report prior to purchase
                   to validate if the borrower has incurred any additional liabilities.

                                                                                    Continued on next page

Section 2.90                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                   Page 121 of 230
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Credit Requirements, Continued


Credit           •   The Credit Inquiry Information Form (BRO 1418) must be provided to ALL
Inquiries,           borrowers to address each inquiry appearing on the credit report EXCEPT for
(continued)          the inquiry made by the originating lender that is directly related to the subject
                     mortgage loan application. An explanation for the credit inquiry made by the
                     originating lender that is directly related to the subject mortgage loan application
                     is not required.
                 •   This form must be completed and signed by ALL borrowers to certify that the
                     information provided is true and accurate. The completed Credit Inquiry
                     Information Form (BRO 1418) must be present in the mortgage loan file at the
                     time of underwriting. If not present, the underwriter must condition for the
                     processing form.

                     Notes:
                     • A Credit Inquiry Information Form provided by the Broker or a letter from the
                        borrower is acceptable in lieu of SunTrust’s form, provided the Broker’s form
                        and borrower’s explanation letter contains the SAME information as
                        SunTrust’s form.
                     • If a Credit Inquiry Information Form is used, prior to sending the form to the
                        borrower for completion, the Loan Officer must complete the “Name of the
                        Inquiring Lender” field on the Credit Inquiry Information Form (BRO 1418) for
                        each creditor/lender reflected in the inquiries section of the initial credit
                        report.
                     • STM Internal Information ONLY: If credit inquiries are present on the initial
                        credit report and the above referenced form or borrower explanation letter is
                        not present in the loan file at the time of underwriting, the underwriter must
                        utilize one of the miscellaneous MISF underwriting codes to condition for the
                        form/letter. The underwriting level permitted to clear the underwriting
                        condition is Level 5.

                     Reference: See the “Undisclosed Debts” subtopic previously presented in the
                     “Liabilities and Qualifying Ratios” topic for additional information.


Credit Reports   •   A merged in-file credit report from three (3) repositories is acceptable in lieu of a
                     full Residential Mortgage Credit Report (RMCR) on all FHA loan transactions.
                 •   Credit Reports with truncated SSN’s (Example: xxx-xx-1234) are acceptable
                     under the following guidelines:
                     • the credit report must reflect a minimum of the last four digits of the
                          borrower’s full social security number,
                     • the mortgage application (1003) must have the complete 9 digit social
                          security number,
                     • the borrower’s name, social security number and date of birth must be
                          validated through the FHA connection or its equivalent, and
                     • lenders are responsible for verifying each borrower’s social security number
                          as well as each borrower’s identity.

                                                                                  Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 122 of 230
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Credit Requirements, Continued


Credit Reports,   •   An RMCR is required under the following circumstances:
(continued)           • the borrower disputes the ownership of accounts on the TRMCR,
                      • the borrower claims that collections, judgments, or liens listed as open on
                           the TRMCR have been paid and cannot provide separate documentation
                           supporting this claim,
                      • the borrower claims that certain debts shown on the TRMCR have different
                           balances and/or payments and cannot provide current statements (less than
                           30 days old) attesting to this claim, or
                      • the underwriter determines that it would be prudent to use an RMCR in lieu
                           of a TRMCR to underwrite the loan properly.
                  •   All copies of all credit report must be retained along with a written analysis of the
                      reasons for any discrepancies between the credit reports. If any information is
                      received that is inconsistent with the information on the credit report, the
                      inconsistency must be reconciled.
                  •   A non-traditional credit report (NTMCR) may not be used to offset derogatory
                      references found in the borrower’s traditional credit, such as collections and
                      judgments.

                  Reference: See the HUD Handbook 4155.1, Chapter 1 for additional information on
                  TRMCRs, RMCRs and NTMCRs.

                  Automated Underwriting Systems (AUS) Information
                  The following table shows information specific to AUS.

                                            Fannie Mae DO/DU, Freddie Mac LP
                  •    Joint credit reports may be ordered for borrowers who are married to each
                       other.
                  •    If there are two (2) or more borrowers who are not married to each other,
                       individual credit reports must be ordered for each borrower, even if they live
                       together and co-mingle accounts.
                  •    A merged in-file credit report from three repositories is obtained through
                       DO/DU.
                  •    All credit reports for all borrowers must be reviewed.
                  •    The feedback certificate must identify the borrower’s credit report used for
                       TOTAL’s risk evaluation.
                  •    If the subject property is located in a community property state and the borrower
                       has a non-purchasing spouse, individual credit reports are required. The non-
                       purchasing spouse’s report should be ordered outside of DO/DU.
                  •    Credit Report Expiration Date: The credit documents may be up to 120 days old
                       at the time the loan closes unless the transaction is for new construction, in
                       which case the documents can be 180 days old.
                  •    DU will return a message identifying the final date the loan can close based on
                       the date the credit report will expire.

                                                                                   Continued on next page




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 123 of 230
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Credit Requirements, Continued


Minimum         •   A minimum 660 credit score is required. This applies to traditionally underwritten
Credit Score        and AUS (DU and LP) processed loans.
Requirements    •   ALL borrowers are required to meet the minimum credit score requirement of
                    660.

                    Reference: See the “Credit Requirements” subtopic previously presented in the
                    “Streamline Refinance” topic for additional information.

                    Notes:
                    • All data that has been input into the AUS engine MUST be validated and
                       deemed accurate.
                    • If the FHA product description includes a minimum credit score HIGHER
                       than the minimums outlined above, the HIGHER restriction still applies.

                •   If a borrower does not have traditional credit references with which to generate a
                    credit score, the borrower is considered “unscoreable” and is not eligible for
                    financing with SunTrust.
                •   The credit scores must be entered into FHA Connection (or its functional
                    equivalent).

                    Notes:
                    • HUD’s policy for credit scores has not changed. HUD does not require credit
                       scores.
                    • Loans that are risk scored by FHA’s TOTAL Scorecard will already have the
                       credit bureau scores entered and no additional credit score entries are
                       necessary.

                •   Credit scores not entered by TOTAL scorecard are entered during the Insurance
                    Application process by the Post-Closing Department at SunTrust.
                •   Only one credit score is required for an occupant borrower for the loan to be
                    eligible for the FHA TOTAL Scorecard.

                Note: Once a mortgage loan is scored through TOTAL Scorecard, the scores
                remain permanent (unless re-scored through TOTAL) and cannot be changed with
                manual input.

                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 124 of 230
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Credit Requirements, Continued


Debts Omitted     The lender must obtain a separate written verification (this includes accounts listed
or Not Verified   as “will rate by mail only” or “need written authorization”).
on Credit
Report


Delinquent        •   A borrower is not eligible for a HUD insured loan if he/she has any outstanding
Federal Debt          Federal debt (this includes debt of borrower sponsor, general contractor, and all
                      principal of these entities), until the delinquent account is brought current, paid,
                      or satisfied.
                  •   Federal debts include direct loans, HUD-insured mortgage loans, VA-insured
                      mortgages, student loans, Small Business Administration loans, or
                      judgments/liens against property for a debt owed the Federal Government.
                  •   A borrower with prior Federal defaults or claims must submit an explanation of
                      the circumstances surrounding the delinquency with the following documents:
                      • detailed explanation of how delinquent debt was incurred,
                      • letterhead advice from affected agency, signed by an officer and stating that
                          the delinquent debt is current or that satisfactory arrangement for repayment
                          has been made, and
                      • lender’s reason(s) for recommendation of the borrower (can include
                          worksheets and remark sections from processing documents or a cover
                          letter).

                      Exception: A tax lien may remain unpaid if the lien holder subordinates the lien
                      to the HUD insured mortgage and payment on the lien is included in the
                      qualifying ratios. If the lender has evidence that the IRS has demanded a first-
                      lien position, the lien must be satisfied prior to closing. The IRS routinely takes a
                      second lien position on a principal residence without the necessity of
                      independent documentation. Eligibility for FHA mortgage insurance will not be
                      jeopardized by outstanding IRS tax liens remaining on the property UNLESS
                      there is information that the IRS has demanded a first-lien position.

                      Note: Although eligibility for an FHA mortgage may be established by the
                      actions described above, the overall analysis of the creditworthiness must
                      include consideration of a borrower’s previous failure to make payments to the
                      Federal agency in the agreed to manner and must document its analysis of how
                      the previous failure does not represent a risk of mortgage default.

                  •   Delinquent payments must be explained in writing by the borrower to the
                      satisfaction of the underwriter. Supporting documentation may be required.
                  •   Documentation of late payments is based on underwriting discretion upon full
                      analysis of the loan file.

                                                                                   Continued on next page




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 125 of 230
Broker Seller Guide
Credit Requirements, Continued


Duplicate         If it is unclear from the credit report that an item is duplicated, each item should be
Public Records    treated individually and appropriate documentation must be obtained.


Foreclosure /     •   A foreclosure, deed-in-lieu of foreclosure, or short sale within the three (3) year
Deed in Lieu of       period prior to loan application is not acceptable on a HUD insured loan. If the
Foreclosure /         foreclosure was part of a bankruptcy, the more restrictive three (3) year wait
Short Sale            remains in effect.
                  •   There is an exception if the foreclosure was on the borrower’s principal
                      residence and was the result of extenuating circumstances beyond borrower’s
                      control (i.e., death of the principal wage earner, or serious long-term illness).
                  •   In the case of an exception, the borrower must have re-established new credit
                      with no derogatory credit since the foreclosure and he/she provide a letter from
                      the lender who held the lien showing no outstanding liability.
                  •   Inability of a borrower to sell his/her home when transferred from one area to
                      another is not an acceptable reason for foreclosure or deed-in lieu.

                  Reference: See Section 1.24: Short Sales and Restructured Mortgage Loans of the
                  Broker Seller Guide for additional information.


Judgments,        For Case Numbers Assigned prior to April 1, 2012 and after April 8, 2012, follow the
Garnishments,     guidelines below:
and Liens         • Judgments, garnishments and/or liens must be paid in full at or prior to closing.
                  • A letter of explanation written by the borrower is required.
                  • Borrower must provide documentation of payoff.
                  • The borrower must have reestablished credit, as reflected on the credit report in
                      the file.
                  • An exception may be made if the borrower has been making regular and timely
                      payments on the judgment and the creditor is willing to subordinate that
                      judgment to the insured first lien mortgage.
                  • Standard FHA guidelines apply on all AUS loans.

                  For Case Numbers Assigned between April 1, 2012 and April 8, 2012, follow the
                  guidelines outlined here.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 126 of 230
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Credit Requirements, Continued


Mortgage/Rental •     The borrower’s housing payment history is significant when evaluating credit.
Payment         •     The lender must determine the borrower’s housing payment history through a:
Histories             • credit report,
                      • verification of rent directly from the landlord (for landlords with no identity-of-
                         interest with the borrower),
                      • verification of the mortgage directly from the mortgage servicer, or
                      • the review of canceled checks that cover the most recent 12 month period.

                      Note: The lender must verify/document the previous 12 months housing history
                      even if the borrower states they are living rent free.

                  •   Mortgages with less than 6 months of payment history are not eligible for a cash-
                      out refinance.
                  •   Properties owned free and clear are eligible for cash-out refinances.
                  •   Traditional underwriting is required for streamline refinance, second home, and
                      investment property transactions or if the credit report used by TOTAL Scorecard
                      does not accurately reflect the mortgage payment history.

                  Reference: See “Privately Held Mortgages” subsequently presented for additional
                  information regarding payment verification requirements for privately held
                  mortgages.

                  Automated Underwriting Systems (AUS) Information
                  The following table shows information specific to AUS.

                                           Fannie Mae DO/DU, Freddie Mac LP
                  •    Typically, the loan will receive an “Approve/Ineligible” if there are any 30/60/90
                       day late payments in the last 12 months on the credit report.
                  •    If “Approve/Eligible,” rental payment history verification is not required.
                  •    If “Approve/Eligible,” the loan must be manually downgraded to a “Refer” and
                       traditionally underwritten if the following applies:
                       • The information was reported incorrectly on the credit report; or
                       • The account was not reflected on the credit report but direct verification
                            outside of DU reflects more than 1x30 day late in the last 12 months.
                       • The loan is a cash-out refinance and any mortgage trade line, including
                            mortgage line-of-credit payments, during the most recent 12 months
                            reflects
                            • Any mortgage delinquencies in the most recent 12 month period, or
                            • With less than 6 months payment history on the existing mortgage, or
                            • Currently delinquent.

                  Reference: See “Privately Held Mortgages” subsequently presented for additional
                  information regarding payment verification requirements for privately held
                  mortgages.


Non-Traditional   Borrowers who do not have a credit score are not eligible for financing with
Credit            SunTrust.

                                                                                   Continued on next page
Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 127 of 230
Broker Seller Guide
Credit Requirements, Continued


Privately Held   A “privately held mortgage” is a mortgage or trust deed which is granted to a
Mortgages        borrower with private monies and is between an individual investor, partnership,
                 LLC, trust, etc., who has interest in the property and/or the person who purchased
                 the property.

                 If a borrower is refinancing a privately held mortgage, the following payment
                 verification requirements apply:
                 • A mortgage payment history of 12 months must be met.
                      • At a minimum at least six (6) months mortgage payments on the current
                          privately held mortgage must be verified. The remaining six (6) months can
                          come from a previous mortgage or rental verifications.
                      • The privately held mortgage payments must be verified, with either cancelled
                          checks or bank statements (if the payment is automatically withdrawn from
                          the borrower’s account).
                      • If less than the minimum six (6) months mortgage payments on the current
                          privately held mortgage are verified and the property is a 1 unit primary
                          residence, then the following applies:
                           • The borrower’s previous mortgage or rental payments may be used to
                               supplement the required twelve (12) month payment history, but may not
                               be used solely to satisfy the required payment history.
                           • If previous mortgage or rental payments are used to supplement the
                               required twelve (12) month payment history, then the previous mortgage
                               or rental history must reflect no more than 1x30 late in the supplemental
                               history.
                           • The borrower’s previous rental payment history may be used to
                               supplement the twelve (12) month history only if the rental payments are
                               consistent with or within 20% of the total proposed PITIA mortgage
                               payment.
                      • If a mortgage payment is not required for the current privately held
                          mortgage, then non-AUS guidelines apply for ratio and reserve
                          requirements.
                      • If the property is a 2-4 unit primary residence, the minimum six (6) month
                          mortgage payment history on the current privately held mortgage must be
                          verified, no exceptions.
                 • Evidence must be included in the loan file that the lien being paid off is a current
                      recorded lien against the subject property.
                 • All other FHA credit history requirements apply.

                     Note: These guidelines apply for all traditionally underwritten AND AUS
                     processed FHA loans.


Recent and       •   The purpose of any recent debts must be determined as the indebtedness may
Undisclosed          have been incurred to obtain part of the required down payment on the property
Debts                being purchased. Unsecured debt may not be used for downpayment.
                 •   The borrower must also provide a satisfactory explanation for any significant
                     debt that is shown on the credit report but not listed on the loan application.

                                                                                Continued on next page


Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 128 of 230
Broker Seller Guide
Credit Requirements, Continued


Suspensions     •   A borrower who is suspended, debarred, or otherwise excluded from
and                 participation in HUD’s programs is not eligible for a HUD insured mortgage.
Debarments      •   This is verified on HUD’s “Limited Denial of Participation (LDP) List” and the
                    government wide General Services Administration’s (GSA) “List of Parties
                    Excluded from Federal Procurement or Non-procurement Programs”. The results
                    of reviewing these two lists must be documented in the file* with a copy of the
                    LDP/GSA computer printouts to be in the underwriting package BEFORE
                    submitting the loan to underwriting.
                •   The listing/selling Realtors, Builder, seller, and loan officer must also be verified
                    on the LDP/GSA lists.

                    Note: A company does not need to be verified on the LDP/GSA list, only the
                    agent that signs on behalf of the company.

                •   LDP/GSA lists can be accessed via FHA Connection or the Internet website.

                    Note: *LDP/GSA results must be noted on the FHA Loan Underwriting and
                    Transmittal Summary (HUD-92900-LT) that the LDP/GSA lists have been
                    checked and the underwriter must write “Cleared” under the LDP/GSA check
                    boxes.

                Exception: If the seller(s) is on the GSA list but the property being sold is the seller’s
                principal residence, the transaction is eligible for HUD financing (assuming that all
                other parties are eligible).

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 129 of 230
Broker Seller Guide
Credit Requirements, Continued


Documentation   Age of Credit Documents
                • If the property is existing, credit documents (credit reports, employment, income
                   and asset documentation) cannot be older than 120 days from the Note date.
                • If the property is new construction, credit documents (credit reports,
                   employment, income and asset documentation) cannot be older than 180 days
                   from the Note date.
                • The expiration date for the documents is based on the origination date on the
                   document and not on the underwriting date.
                • All accounts with a balance must have been checked with the creditor within 90
                   days of the credit report. All inquiries made within the last 90 days must also be
                   included on the credit report.

                Written, Faxed, or Internet Verifications of Employment and Assets
                • If written verification forms are used, the lender’s file must contain the original
                    form (or a faxed form) with an original signature of the party completing the form.
                • Verification forms must pass directly between the lender and creditor without
                    being handled by a third party.
                • Internet downloads may be used but must be placed in the file in paper form.
                    The documents must clearly identify the firm’s name and source of information.
                    The lender is accountable for ascertaining the authenticity of the document by
                    examining that information included on any headers, footers, and the banner
                    portion of the print outs of the downloaded web pages(s). The printed web
                    page(s) must also show the Uniform Resource Locator (URL) address and the
                    date and time printed. The lender is to verify the existence of the web site from
                    which the documents were derived.
                • The internet downloaded documents must be identifiable as belonging to the
                    borrower.
                • Documents relating to credit, employment or income of the borrowers that are
                    handled by, transmitted from or through interested third parties (i.e., real estate
                    agents, builders, sellers) or by using their equipment are not acceptable and may
                    not be used as documentation.


Alternate       Verification of Mortgage/Rental
Documentation   One (1) of the following is acceptable:
                • most recent 12 month history as reflected on the credit bureau report,
                • most recent 12 months canceled checks (front and back),
                • previous year end statement and canceled checks year-to-date (front and back),
                    or
                • written verification of mortgage or rental.

                Credit Report
                • An in-file credit report is acceptable, as long as it provides information from three
                   (3) repositories.
                • If an in-file cannot meet HUD’s requirements, a full RMCR is required.




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 130 of 230
Broker Seller Guide
FHA Social Security Number Validation


Social Security   General
Number            • FHA will validate social security numbers (SSN) for consistency with borrower
Validation and       names and dates of birth as a further means of reducing identity theft and fraud
Effect on Case       to protect the insurance funds managed by FHA.
Number            • This service is only for FHA loans, and may not be used to verify SSNs for other
Assignments          financing types.

                  Reference: See “Case Number Assignment and Cancellation” in the “Workflow”
                  topic for additional information.

                  Lender’s Responsibilities
                  • The modified Addendum to Uniform Residential Loan Application (HUD-92900-
                     A), pages 1 and 2 must be used for all new loan applications to provide
                     disclosure to and consent by the borrower to verify his/her SSN, as well as each
                     borrower’s identity.
                  • The borrower’s name, SSN and birth date are entered by the lender at the
                     borrower/address screen through the FHA Connection (FHAC) on all loans
                     except proposed new construction.
                  • It remains the lender’s responsibility to verify each borrower’s SSN and identity.
                  • Loans may not be closed or endorsed without an approved validation by FHA.

                      Reference: See “Social Security Numbers” in the “Application, Disclosures and
                      Consumer Compliance” topic for additional information.

                  FHA’s Online Validation System
                  • FHA’s on-line system provides an overall confidence rating. An acceptable
                     confidence rating allows a case number to be assigned and the lender may
                     continue to process the loan.
                  • Validation will also be performed when the borrower name, date of birth or SSN
                     is changed after the case number has been assigned. If the validation fails, a
                     case warning will remain on the loan and the lender will need to resolve the
                     inconsistency before the mortgage may be endorsed.
                  • If an acceptable confidence rating is NOT received, one of the following actions
                     may be taken by the lender:
                     • correct any or all of the three data fields to trigger additional verification
                         attempts, if incorrect data, or
                     • if it is believed the data is correct, override the online validation, continue
                         with all other data entries into FHA Connection. The results of this action are
                         shown below.
                         • The application is placed in the “holds tracking” mode resulting in an
                             overnight validation attempt with the SSA’s database.
                         • If successful, a case number is normally assigned the next day following
                             successful verification by SSA; however, a two-day case number
                             assignment may occur.
                         • If the overnight matching with SSA fails, FHA will communicate the
                             information regarding mismatched data fields, including transposed
                             numbers, date of birth inconsistency, complete failure to match, etc. No
                             case number will be issued.

                                                                                Continued on next page

Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 131 of 230
Broker Seller Guide
FHA Social Security Number Validation, Continued


Social Security   Evidence System is in Error
Number            • The lender may provide documentation to the jurisdictional Homeownership
Validation and        Center (HOC) if the borrower produces conclusive documentation that the SSA
Effect on Case        database is in error (i.e., borrower name change following recent marriage).
Number            • If the HOC staff believes the documentation to be valid, it will manually issue a
Assignments,          case number.
(continued)




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 132 of 230
Broker Seller Guide
Cash Requirements


General           In all cases, the source of funds for closing must be verified with acceptable
                  documentation, including Fannie Mae DU “Approve/Eligible” and Freddie Mac LP
                  “Accept” loans.


Advance           FHA does not permit a lender, as a condition for making a FHA mortgage, to collect
Mortgage          advance payments of the mortgage. Borrowers are not to be required to write post-
Payments          dated checks, give cash, or otherwise make mortgage payments in advance of the
Prohibited        borrowers mortgage payment requirements under the security instrument.


Bridal Registry   The intent of the Bridal registry program is to give couples planning to get married
                  the opportunity to amass monetary gifts from friends and family for the specific
                  purpose of making the down payment on a home. This initiative is not limited just to
                  couples that intend to get married, but is available for other situations where such
                  gifts are typically received by an individual or individuals.
                  • Only “first-time” homebuyers are eligible for this program.
                  • Borrowers must open an account with a supervised institution (FDIC or NCUSIF-
                       insured) in which funds may be deposited.
                  • The account may be set up by the borrower or by the lender on behalf of the
                       borrower.
                  • Funds may be deposited by friends and relatives directly into the Bridal Registry
                       Account, or given by cash or check to the couples or individuals for deposit.
                  • The lender must document the occasion and the receipt of these gift funds.
                  • The Bridal Registry Account Certification (BRO 0276) must be completed and
                       signed by the borrower(s) and the lender in lieu of gift letters and other gift
                       documentation.
                  • The borrower must also provide a copy of a bank statement(s) reflecting all
                       deposits into the account that represent the cash for closing.
                  • If deposits into the Bridal Registry account were made more than two (2) months
                       prior to loan application, normal verification procedures apply.


Borrowers at      Reference: See the subtopic “Borrowers 60 Years of Age” in the “Eligible Borrowers”
Least 60 Years    topic for additional information.
Old

                                                                               Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 133 of 230
Broker Seller Guide
Cash Requirements, Continued


Cash Reserve    General
Requirements    • Assets, other than those necessary to cover closing funds, must be liquid or
                   readily converted to cash (absent requirement or job termination) in order to be
                   considered as cash reserves).
                • If funds not considered for cash reserves are used for closing, they should be
                   considered assets only for the amount that is required for closing. Additional
                   funds would not be considered “cash reserves.”

                Cash Reserve Requirements
                There are no cash reserve requirements except under the following conditions:
                • three (3) months PITI reserves are required on all transactions for 3-4 unit
                   properties, or
                • cash reserves may be needed for a compensating factor if debt ratios exceed
                   the guidelines.

                Assets Not Considered Cash Reserves
                The following assets are not considered “cash reserves”:
                • equity in other properties (not including a primary residence being sold with
                   proceeds applied to the purchase of the subject property),
                • proceeds from a cash-out refinance (if this is the subject transaction),
                • gift funds, and
                • funds that are borrowed against a liquid account (i.e., 401k loan).

                    Note: Any gift funds that remain in the borrower’s account following closing,
                    subject to proper documentation, may be considered as cash reserves when
                    scoring the mortgage application through TOTAL Scorecard.

                Cash Reserves from Retirement Accounts
                A portion of the borrower’s retirement account may be used as cash reserves when
                scoring a mortgage application through TOTAL Scorecard subject to the conditions
                listed below.
                • Only 60% of the VESTED amount of the account may be used to account for
                     withdrawal penalties and taxes.
                • The lender must document the existence of the account with the most recent
                     depository or brokerage account statement.
                • Evidence must be provided that the retirement account allows for withdrawals for
                     conditions other than in connection with the borrower’s employment termination,
                     retirement, or death.
                • Retirement funds that can only be withdrawn under the conditions noted above
                     may not be used as cash reserves.
                • Any retirement funds that are also used for loan settlement must be subtracted
                     from the amount included in cash reserves.

                                                                             Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                            Page 134 of 230
Broker Seller Guide
Cash Requirements, Continued


Cash-on-Hand      Cash at Home
                  • Borrowers must be able to demonstrate the ability to save such funds.
                  • The cash must be verified as deposited in a financial institution or held by the
                     escrow/title company.
                  • The borrower is responsible for providing satisfactory evidence of the ability to
                     accumulate such savings (i.e., explanation of how funds were accumulated and
                     over what period of time and a completed budget plan).
                  • The reasonableness of the accumulation of the funds based on the borrower’s
                     income stream, the time period during which the funds were saved, the
                     borrower’s spending habits, documented expenses and history of using financial
                     institutions. (Individuals with checking and/or savings accounts are less likely to
                     save money at home than those with no history of such accounts.)
                  • Income that is not reported to the IRS cannot be used for source of cash saved
                     at home.

                  Cash From Private Savings Clubs
                  • Private savings clubs include those used by numerous ethnic groups.
                  • The borrower must be able to adequately document the accumulation of his/her
                     assets held with the club.
                  • There must exist, at minimum, account ledgers, receipts from the club, to enable
                     a lender to a verification from the club treasurer, as well as identification of the
                     club that would permit you to re-verify the information provided.
                  • The underwriter must be able to determine that it was reasonable for the
                     borrower to save the money claimed and that there is no evidence that these
                     funds are borrowed funds with an expectation of repayment.


Checking &        Automated Underwriting Systems (AUS) Information
Savings           The following table shows information specific to AUS.
Accounts and
Certificates of
Deposit
                                                 Fannie Mae DO/DU
                  The borrower must provide one of the following:
                  • most recent monthly bank statement showing the previous month’s ending
                     balance if received monthly. If previous month’s balance is not shown, the most
                     recent 2 monthly statements are required (in some cases, the AUS Findings
                     Report may require 2 months), or
                  • most recent quarterly bank statement, if received quarterly.

                  Explanations are required for large deposits on bank statements that may require
                  additional documentation.

                  Note: If the borrower does not hold the deposit account solely, all non-borrower’s on
                  the account must provide a written joint access letter stating that the borrower has
                  full access and use of the funds.

                                                                                 Continued on next page



Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 135 of 230
Broker Seller Guide
Cash Requirements, Continued


Large Deposits   •   A large deposit could be a single deposit or multiple deposits over a period of
                     time, which in aggregate, results in a large deposit. “Period of time” equals the
                     period covered by the bank statements reviewed by the underwriter which, in
                     aggregate, results in a large deposit.
                 •   We consider the following a large deposit:
                     • Single deposits that represent 10% of the borrower’s gross monthly income.
                         • If the bank account is joint with another borrower then review single
                              deposits of 10% or more of the joint borrower’s gross monthly income.
                         • If joint borrowers have separate account(s) then review single deposits
                              of 10% or more of the individual borrower’s gross monthly income.
                         • Self-employed borrower gross income is the monthly qualifying income
                              used for the self-employed borrower.
                     • Multiple aggregated deposits which represent 20% of the borrower’s gross
                         monthly income for the period covered on the bank statement.
                         • If the bank account is joint with another borrower then review multiple
                              deposits of 20% or more of the joint borrower’s gross monthly income.
                         • If joint borrowers have separate account(s) then review multiple deposits
                              of 20% or more of the individual borrower’s gross monthly income.
                         • Self-employed borrower gross income is the monthly qualifying income
                              used for the self-employed borrower.
                     • Account balance greater than the average balance over the previous two
                         months.
                 •   The following large deposit documentation requirements apply:
                     • Require a satisfactory signed letter of explanation from the borrower in all
                         circumstances regardless if funds are needed for closing.
                         • A letter of explanation is not required if funds are transferring from one
                              account to another (i.e., checking to savings, money market to savings
                              or checking, etc.) and both sides of the transfer(s) are tracked on the
                              bank statement(s) in the file.
                     • The appropriate level of due diligence must be used to ensure large deposits
                         are not the result of undisclosed debt or because of incentives from a seller,
                         realtor, builder, or developer.
                     • Using the funds in question for down payment, closing cost, earnest money
                         deposit, or reserves, requires additional supporting documentation to verify
                         the source of funds.
                     • If funds in question are not being used for down payment, closing costs,
                         earnest money deposit, or reserves, and due diligence has been performed
                         to ensure the funds are not from an unacceptable source, the underwriter
                         may deduct the large deposit from the balance of the account and allow
                         remaining funds to be used to qualify.
                     • When reducing the asset balance by the amount of the large deposit, the
                         reason for the change in the asset amount requires documentation, and
                         update to STMPartners and to AUS (if applicable) with the adjusted asset
                         balance, and rerun of AUS to update the AUS decision.

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 136 of 230
Broker Seller Guide
Cash Requirements, Continued

Large Deposit,    •   When identifying the source of deposits take into consideration:
(continued)           • Do the deposits reflect a normal deposit pattern from an identifiable source?
                      • Are the total monthly deposits consistent with the borrower’s income and
                        earnings profile?
                      • Does the borrower have direct deposits over a period of time which, in total,
                        result in a large deposit?
                      • Is the deposit possibly a loan?
                      • Are there credit inquiries which may be a red flag?
                      • Was the account recently opened?


Commission        •   If the borrower is a licensed real estate agent entitled to a real estate
from Sale             commission from the sale of the property being purchased, those funds may be
                      used as part of the down payment, however a letter from the Real Estate Agency
                      must state how much will be credited to the Sales Agent (after any commission
                      split or deduction of other fees) at closing on the HUD-1.
                  •   A family member entitled to the commission may also gift the funds to the
                      borrower.
                  •   There is no required adjustment to the maximum mortgage.


Credit Card       •   The actual cost of a credit report and appraisal may be charged on a credit card
Financing             when these cost are paid outside of closing under then following conditions:
                      • a payment for the amount charged is included in the total debt ratio, and
                      • the borrower has sufficient assets (documentation in file) to pay charged
                         fees, in addition to funds needed for other closing costs and the down
                         payment.


Disaster Relief   •   Eligible grants and loans that may be used for the down payment with no
Grants and            adjustment to the maximum mortgage include the following:
Loans                 • grants or loans from state and federal agencies that provide immediate
                           housing assistance to individuals displaced due to natural disaster, and
                      • secured or unsecured disaster relief loans administered by the Small
                           Business Administration (SBA).
                  •   If the SBA loan is secured by the subject property, it must be subordinate to the
                      HUD insured first mortgage lien and the monthly payment must be included in
                      the debt ratios.

                                                                                Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 137 of 230
Broker Seller Guide
Cash Requirements, Continued

Down Payment    •   HUD requires a minimum down payment of 3.5%.
                •   The minimum down payment is based on the lesser of the appraised value or
                    sales price (without considering closing costs) minus any required adjustments.
                •   The minimum down payment must be provided from borrower’s own cash funds
                    (“own cash” is defined as inclusive of gifts, loans from family members, or loans
                    from a governmental agency or instrumentality).


Earnest Money   •   The earnest money deposit (EMD) amount and source of funds must be verified
Deposit             if it is 2% or more of the sales price, if it appears excessive based on the
                    borrower’s previous savings pattern or if the borrower is “tight” on closing funds.
                •   A copy of the canceled check (front and back) must be provided and the source
                    of the funds must be verified.
                •   A certification from the deposit holder acknowledging receipt of funds is
                    acceptable as long as it accompanies separate evidence of the source of funds.
                •   Evidence of source of funds includes a verification of deposit or bank statement
                    showing at the time the deposit was made the average balance was sufficient to
                    cover the amount of the EMD.


Employer        •   If the employer, in order to entice or keep a valuable employee, pays the
Assistance          borrower’s closing costs, mortgage insurance premium, or any part of the down
Plans               payment, no adjustment to the maximum mortgage amount is required.
                •   If the employer does this as a reimbursement after closing the borrower must
                    show evidence of sufficient funds to close.
                •   Salary advances are not allowed as these are considered an unsecured loan.


Employer        If the employer guarantees to purchase the borrower’s previous residence as the
Guarantee       result of relocation, the borrower must submit evidence of a relocation agreement
Plans           and the net proceeds guaranteed.

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 138 of 230
Broker Seller Guide
Cash Requirements, Continued


Gift/Grant      General Information
Funds           • A gift may be used for 100% of the borrower’s closing costs and down payment.
                • Gift funds cannot be used as reserves. If the borrower is receiving a gift for
                   more than the amount to close, the “excess” cannot be used as reserves. Only
                   the amount of funds that will be used for closing should be shown as gift funds
                   not received, or as an asset.

                    Note: Any gift funds that remain in the borrower’s account following closing,
                    subject to proper documentation, may be considered as cash reserves when
                    scoring the mortgage application through TOTAL Scorecard.

                •   Eligible donors include the following:
                    • Federal/State/Local government agency or instrumentality,

                    Note: Federal Home Loan Bank (FHLB) funds are eligible, as they are
                    considered an instrumentality of the government, and may be used towards the
                    borrower’s required down payment.

                    •     close relative of the borrower,
                    •     close friend with a clearly defined and documented interest in the borrower,
                    •     a corporation established for humanitarian, welfare, or charitable purposes, or
                    •     borrower’s employer or labor union.

                •   The donor of the gift cannot be a person or entity whose interest is in the sale of
                    the property (i.e., builder or seller, real estate broker, marketing agent, or any
                    person/corporation/organization associated with them). Gifts or credits from
                    these sources are considered inducements to purchase and must be subtracted
                    from the contract sales price.
                •   Only family members may provide equity credit as a gift on a property being sold
                    to other family members. This must be reflected on the HUD-1.

                                                                                  Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 139 of 230
Broker Seller Guide
Cash Requirements, Continued


Gift/Grant      General Information, Continued
Funds,          • If a gift is being provided by a nonprofit, government entity or other business
(continued)        entity, the following is required:
                   • employer identification number (EIN) must be noted in the appropriate line(s)
                        of the “Mortgage Information” section of the FHA Loan Underwriting and
                        Transmittal Summary (HUD-92900-LT), and
                   • mark the correct provider box below the space where the EIN is entered.
                        • When the “Other” box is marked as the provider of secondary financing,
                             the type of provider (i.e., employer, labor union, etc.) must also be
                             identified.

                Notes:
                • Nonprofit entities are not allowed to provide gifts to homebuyers for the purpose
                   of paying off installment loans, credit cards, collections, judgments, and similar
                   debts.
                • Soft seconds are shown as second mortgages and not as a gift.

                Documentation Requirements
                • Documentation of gift funds must include the following:
                   • a gift letter (BRO 0373) with donor’s and borrower’s signature that
                     specifically states the following information:
                     • dollar amount given,
                     • no repayment is necessary,
                     • the donor’s name, address, telephone number and relationship to
                         borrower,
                     • the address of the property being purchased/refinanced, and
                     • donor’s signature.

                    Note: It is not acceptable to notate the loan file/application with the above gift
                    donor information in lieu of a gift letter.

                •   If the gift funds transfer before closing, the following documentation is required:
                    • a copy of the donor’s canceled check or withdrawal document showing that
                         the withdrawal is from the donor’s account, and
                    • the borrower’s deposit receipt and bank statement showing the deposit.
                •   When gift funds are transferred at closing, the lender is responsible for obtaining
                    the following verifications:
                    • the closing agent’s receipt of the gift funds from the donor for the amount of
                         the gift, and
                    • evidence that those funds came from an acceptable source.
                •   If the gift funds transfer at closing and the transfer of funds is by certified check
                    from the donor’s account, the donor must provide the following documentation:
                    • a bank statement reflecting the withdrawal from the donor’s personal
                         account, and
                    • a copy of the certified check.

                                                                                 Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 140 of 230
Broker Seller Guide
Cash Requirements, Continued


Gift/Grant      Documentation Requirements, continued
Funds,          • If the gift funds transfer at closing and the donor purchased a cashier’s check,
(continued)        money order, or other official bank check, the donor must provide a withdrawal
                   document or canceled check for the amount of the gift to verify that the funds
                   came from the donor’s personal account.
                • If the donor borrowed the gift funds and cannot provide the documentation from
                   his/her bank or other savings account, the donor must provide evidence that
                   those funds were borrowed from an acceptable source (i.e., not from a party to
                   the transaction including the mortgage lender). Donors may borrow gift funds
                   from any other acceptable source provided that the borrowers are not obligors to
                   any note to secure money borrowed to give the gift.
                • “Cash on hand” or “mattress money” is NOT an acceptable source of the donor’s
                   gift funds. The source of funds must be verifiable.

                     Note: Gift letters do not need to be redone if the gift amount is less than stated.

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                              Fannie Mae DO/DU                                 Freddie Mac LP
                 •    If “Approve/Eligible,” a gift letter and   •   If “Accept,” a gift letter and
                      documentation of the transfer of               documentation of the transfer of
                      funds is not required if all of the            funds is not required if all of the
                      following applies:                             following applies:
                      • gift funds were deposited into               • gift funds were deposited in the
                           the borrower’s account by no                   borrower’s account by no later
                           later than the first time of                   than the first time of LP
                           DO/DU submission; and                          submission; and
                      • the loan application lists the               • the loan application lists the
                           donor’s name, address, phone                   donor’s name, address, phone
                           number and relationship to the                 number and relationship to the
                           borrower, as well as the amount                borrower, as well as the amount
                           of the gift.                                   of the gift.
                 •    If “Approve/Eligible” and gift funds       •   If “Accept” and gift funds were not
                      were not deposited into the                    deposited into the borrower’s
                      borrower’s account by the first time           account by the first time of LP
                      of DO/DU submission, standard                  submission,         standard     FHA
                      FHA guidelines apply.                          guidelines apply.
                 •    If the borrower is receiving a gift for    •   If the borrower is receiving a gift for
                      more than the amount to close, the             more than the amount to close, the
                      “excess” may be considered as cash             “excess” may be considered as
                      reserves when scoring the mortgage             cash reserves when scoring the
                      application through TOTAL.                     mortgage         application  through
                                                                     TOTAL.

                                                                                   Continued on next page




Section 2.90                                                                              October 19, 2012
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Cash Requirements, Continued


Seller Funded   The Seller Funded down payment assistance programs are not eligible.
Non-Profit
Down Payment
Assistance
Programs


Loans from      •   HUD will allow family member to make loans to borrowers for 100% of the funds
Family              required for closing.
Members         •   The loans may be secured or unsecured.
                •   A family member includes a child, parent, grandparent, (biological, foster or
                    step), sister, step-sister, brother, step-brother, legally adopted son or daughter, a
                    child who is a member of the borrower’s household due to placement by an
                    authorized agency for legal adoption, aunt, and uncle.
                •   The following conditions must be met:
                    • the borrower cannot receive any cash back at closing (beyond the refund of
                        any earnest money deposit),
                    • if period payments are required, the borrower must still qualify with the
                        payment added to the total debt ratio (not housing ratio),
                    • the financing cannot provide for balloon payments within five (5) years from
                        the date of the note,
                    • if the family member borrows the funds, the initial source of loan funds
                        cannot be any party with an identity of interest in the sale of the property
                        (i.e., seller, builder, loan officer, or real estate agent), and
                    • a family member can borrow the loan funds from the retail banking affiliate of
                        a mortgage company as long as the financing made available is made under
                        the terms and conditions that are available to all other borrowers (special
                        considerations are not allowed).

                                                                                 Continued on next page




Section 2.90                                                                           October 19, 2012
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Cash Requirements, Continued


Loans Secured   General Information
by an Asset     • Funds may be borrowed for the total required investment as long as satisfactory
                   evidence is provided that the funds are fully secured (collateralized) by
                   investment accounts or real property.
                • Sources of acceptable and unacceptable collateral (asset) for loans used to
                   assist in the required downpayment or closing costs include, but are not limited
                   to, those shown below.

                HUD Acceptable Sources of Collateralized Loans
                • HUD will accept collateralized loans for the total required investment as long as
                  satisfactory evidence is provided that the funds are fully secured by investment
                  accounts or real property and the borrower can qualify with the repayment. The
                  payment is included in the total debt ratio.
                • Such assets include those listed below.
                  • Investment Accounts
                  • Real Property (i.e., cars, trucks, boats)
                  • Real Estate (other than the property being purchased)
                  • Stocks and Bonds
                • Certain types of loans that are secured against deposited funds in which
                  repayment may be obtained through extinguishing the asset do not require
                  consideration of a repayment for qualifying purposes. The asset securing the
                  loan may not be included as assets to close or otherwise be considered as
                  available to the borrower. The assets listed below are included in this category.
                  • Cash value of life insurance policies
                  • Loans secured by 401(k)s
                  • Loans secured by a Certificate of Deposit
                • Verification of the loan terms (i.e., copy of the note) must be provided. If the loan
                  was made after verification of deposit was completed, a copy of the check and
                  the borrower’s deposit receipt or bank statement must be furnished.
                • The real estate agent or broker, lender, seller or other party to the transaction
                  may not provide these funds.

                HUD Unacceptable Sources of Collateralized Loans
                • Signature loans
                • Cash advances on credit cards
                • Borrowing against household goods and furniture
                • Other similar unsecured financing (i.e., jewelry, tools)

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
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Cash Requirements, Continued


Mutual Funds    •   The borrower must provide one of the following:
                    • two (2) months of account statements if received monthly, or
                    • most recent quarterly account statement, if received quarterly.
                •   Proof of liquidation is required.
                •   Explanations (with additional documentation) are required for large deposits.

                Automated Underwriting Systems (AUS) Information
                The following table shows information specific to AUS.

                                       Fannie Mae DO/DU, Freddie Mac LP
                 The borrower must provide one of the following:
                 • most recent monthly bank statement showing the previous month’s ending
                    balance if received monthly. If previous month’s balance is not shown most
                    recent 2 monthly statements are required (in some cases, the AUS Findings
                    Report may require 2 months), or
                 • most recent quarterly bank statement, if received quarterly.
                 • If “Approve/Eligible” or “Accept/Eligible,” proof of liquidation is not required.

                 Explanations (with additional documentation) are required for large deposits.

                 Note: If the borrower does not hold the deposit account solely, all non-borrower’s
                 on the account must provide a written joint access letter stating that the borrower
                 has full access and use of the funds.


Real Estate     •   The net proceeds from the sale of a currently owned property may be used for
Proceeds            the down payment requirement.
                •   A fully executed HUD-1 Settlement Statement must be provided as satisfactory
                    evidence of the proceeds to the borrower.
                •   If the borrower has not settled on the property prior to the underwriting of the
                    loan, it must be a condition of the loan approval.

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
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Cash Requirements, Continued


Real Estate Tax   In some states it is customary for a borrower to pay property taxes in arrears, (and
Credit            he/she may not pay property taxes on the improvements until a year or more after
                  closing). The credit from the seller at closing for the seller’s portion of those taxes
                  may be used to reduce the actual amount of cash that needs to be brought to the
                  closing table. It may not be used to offset minimum investment or cash to close
                  requirements.

                  The use of the tax credit only facilitates the exchange of cash. All cash to close
                  documentation requirements must be met such (i.e., the mortgage amount is
                  calculated the same, down payment requirements are the same, the verification of
                  the money is the same.)

                  Sufficient assets to close must be verified from the borrower’s own funds without
                  consideration to the tax credit. However, the borrower only needs to bring funds to
                  the closing for the amount of the bottom line on the HUD-1 Settlement Statement,
                  after the tax credit has been applied.


Rent Credit       •   The cumulative amount of the rental payments that exceed the appraiser’s
                      estimate of fair market rent may be considered towards the borrower’s down
                      payment.
                  •   Both the rent-with-option to purchase agreement and the appraiser’s estimate of
                      market rent must be included in the case binder file.
                  •   If the sales agreement provides for a rent credit or a reduced rent and states that
                      the credit is to apply toward the down payment requirement, one of the following
                      applies:
                      • if the rent paid prior to the sale is less than the appraiser’s estimate of rental
                           value, the difference between the rent paid and the appraiser’s estimate
                           (multiplied by the number of months the borrower was living in the property)
                           is deducted from the contract sales price,
                      • if the rent paid prior to the sale exceeds the appraiser’s estimate of rental
                           value, the amount paid in excess of the appraiser’s estimate (multiplied by
                           the number of months the borrower was living in the property) is applied
                           towards closing funds, or
                      • if the borrower occupied the property (or one owned by the seller) “rent free”
                           as an inducement prior to the sale, the appraiser’s estimate of rental value
                           (multiplied by the number of months the borrower was living in the property)
                           is deducted from the sales price.

                  Note: Exceptions may be granted in a situation whereby a builder fails to deliver a
                  property at an agreed-to-time and then permits the borrower to occupy that or
                  another unit for less-than-market rent “temporarily” until construction is complete.

                                                                                  Continued on next page




Section 2.90                                                                             October 19, 2012
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Cash Requirements, Continued


Retirement      •   If non-AUS underwriting, the borrower must provide all of the following:
Funds               • copy of the most current retirement account statement,
                    • copy of the check representing account funds, and
                    • copy of the deposit receipt where funds were deposited into the borrower’s
                         account) or copy of the bank statement reflecting the deposit).
                •   If TOTAL, documentation of terms and conditions to include the following:
                    • copy of the most current retirement account statement,
                    • evidence that the account allows for withdrawals for conditions other than
                         that related to the borrower’s employment or death, and that the borrower
                         qualifies for withdrawal and/or borrowing, and
                    • evidence of liquidation is not required.
                •   When utilizing retirement accounts as assets (even if not using for closing), 60%
                    of the borrower’s vested interest may be used unless the borrower provides
                    documentation that a higher percentage may be withdrawn after subtracting any
                    federal income tax and withdrawal penalties.
                •   If the fund is a 401(k) and there is an outstanding loan, the account value must
                    be reduced by the principal balance on the loan BEFORE using as an asset.
                •   Funds from retirement accounts may be used as cash reserves.

                    Reference:     See the subtopic “Cash Reserve Requirements” previously
                    presented in this topic for additional information.

                •   If using funds for closing, applicable withdrawal or income tax penalties must be
                    deducted from the account balance to determine value.
                •   Proof of liquidation is required.

                Automated Underwriting System (AUS) Information
                The following table shows information specific to AUS.

                            Fannie Mae DO/DU                               Freddie Mac LP
                 Proof of liquidation is not required if       Proof of liquidation is required in LP.
                 “Approve/Eligible” on DO/DU.


Sale of         •   If a borrower sells personal property for funds to close (i.e., cars, recreational
Personal            vehicles, stamp or coin collections), conclusive evidence of the sale and an
Property            estimate of the value of the item being sold must be obtained.
                •   Value must be established through the Blue Book for cars, Philatelic Association
                    for stamps, Numismatic Association for coins, or a qualified appraiser with no
                    financial interest in the transaction who could provide a written appraisal of the
                    item. The lesser of the estimate of value or actual sales price is used as assets
                    to close.


Savings Bonds   •   Government issued bonds are given to the value at the original purchase price.
                •   Exceptions may be made if eligibility for redemption and the redemption value
                    are confirmed.
                •   The borrower’s receipt of the funds at redemption must be verified.

                                                                               Continued on next page
Section 2.90                                                                         October 19, 2012
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Cash Requirements, Continued


Stocks and      •   The value of securities must be verified through the borrower’s stockbroker or
Bonds               financial institution.
                •   If statements are available, the borrower must provide one of the following:
                    • two (2) months of account statements, if received monthly, or
                    • most recent quarterly account statement if received quarterly.
                •   Evidence of liquidation and borrower’s receipt of the funds must be documented.

                Automated Underwriting Systems (AUS) Information
                • The following table shows information specific to AUS.

                                       Fannie Mae DO/DU, Freddie Mac LP
                 The borrower must provide one of the following:
                 • most recent monthly bank statement showing the previous month’s ending
                    balance if received monthly. If previous month’s balance is not shown most
                    recent 2 monthly statements are required (in some cases, the AUS Findings
                    Report may require 2 months), or
                 • most recent quarterly bank statement, if received quarterly.
                 • If “Approve/Eligible” or “Accept/Eligible,” proof of liquidation is not required.

                 Note: If the borrower does not hold the deposit account solely, all non-borrower’s
                 on the account must provide a written joint access letter stating that the borrower
                 has full access and use of the funds.


Sweat Equity    •   Labor performed or materials furnished by the borrower prior to closing are
                    considered the equivalent of a down payment to the extent of the estimated cost
                    of the work or materials.
                •   Work completed prior to the appraisal or after closing is not eligible for sweat
                    equity.
                •   Sweat equity may be “gifted” subject to both the gift requirements and the sweat
                    equity requirements.
                •   The following requirements apply to sweat equity:
                    • on existing construction, only the repairs and/or improvements listed on the
                         appraisal are eligible (work or materials provided before the appraisal are not
                         eligible),
                    • on proposed construction, the tasks the borrower will perform during
                         construction are indicated in the sales contract,

                          Reference: See Section 1.03c: Reviewing Sales Contracts, of the Broker
                          Seller Guide, for additional information.

                    •     the borrower must demonstrate his/her ability to complete the work in a
                          satisfactory manner and the contributory value of the labor is documented
                          through either an appraiser’s cost estimate or through a cost estimating
                          service such as “Marshall and Swift” or through the local HUD office,

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
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Broker Seller Guide
Cash Requirements, Continued


Sweat Equity,   •   Requirements that apply to sweat equity (continued from previous page):
(continued)         • the work does not include delayed work (on-site escrow), clean up, debris
                       removal and other general maintenance (these are not sweat equity items),
                    • the borrower does not receive any cash back at closing,
                    • sweat equity is provided only on the subject property (work performed on
                       other properties must be in cash and properly documented), and
                    • if the borrower furnishes materials, verification of the source of funds used to
                       purchase and the market value of the materials is provided.


Trade Equity    •   The borrower may agree to trade his or her real property to the seller as part of
                    the down payment.
                •   The amount of the borrower’s equity contribution is determined by subtracting all
                    liens against the property being traded (including real estate commission) from
                    the lesser of that property’s appraised value or sales/trade price.
                •   An appraisal on the trade property is required as well as evidence of ownership.
                •   The appraisal must be a residential appraisal (conventional, FHA, or VA) and
                    cannot be more than six (6) months old.
                •   If the property being traded has an FHA mortgage, assumption processing
                    requirements and restrictions apply.

                    Reference: See “Assumptions” in the topic “Loan Terms” for additional
                    information.


Documentation   Verification of Deposit
                • A written verification of deposit and a most recent bank statement are used to
                    verify savings and checking accounts.
                • Credible explanations (and/or documentation) are required for large deposits on
                    bank statements and recently opened accounts for the source of those funds.

                Alternate Documentation
                • Bank statements for the most recent two (2) month consecutive period if
                    received monthly, or most recent quarterly bank statement, if received quarterly.
                • ATM slips cannot be used as verification of assets.




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 148 of 230
Broker Seller Guide
Contributions by Interested Parties


Lender Credit   Lender credit resulting from premium pricing is allowable by HUD under the
                requirements shown below.
                • Lender credit may be applied to closing costs, prepaid items and discount points,
                    however, it may not exceed the allowable fee permitted by the jurisdictional FHA
                    Home Ownership Center (HOC).
                • Lender credit cannot be applied to down payment nor to outstanding obligations
                    of the borrower, including missed (delinquent) mortgage payments.
                • Lender credit is not considered a seller concession and is not subject to any
                    limitations.
                • If lender credit is applied to closing costs that are being financed into the loan in
                    a refinance transaction, the amount of these closing costs must be deducted
                    from the total acquisition before calculating the maximum base loan amount.
                • Lender credit must be used to reduce the principal balance if the premium
                    pricing agreement establishes a specific dollar amount for closing costs and
                    prepaid expenses with any remaining funds, in excess of actual costs, reverting
                    to the borrower.
                • If the premium pricing agreement establishes a specific dollar amount for closing
                    costs and prepaid expenses, any remaining funds must be used to reduce the
                    principal balance. These excess funds are applied as a principal curtailment
                    after closing and are not used to reduce the loan amount prior to loan closing.


                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 149 of 230
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Contributions by Interested Parties, Continued


Seller          •   Sellers (or other interested third parties such as real estate agents, builders, or
Contributions       developers) may contribute up to 6% of the sales price towards actual closing
                    costs, prepaid expenses, discount points and other financing concessions
                    allowable by HUD.
                •   HUD does not require or permit the presentation or disclosure of “seller-paid
                    credits” on the Good Faith Estimate (GFE).
                •   Seller credits must be entered as a “lump sum credit” on the HUD-1.

                    Note: When the seller makes a contribution to more than one expense for the
                    borrower, the seller credits shown on the HUD-1 MUST reflect the “lump sum
                    payment.”

                •   Seller contributions may not be used toward borrower’s outstanding obligations.
                •   Contributions from sellers or other interested third parties to the transaction that
                    exceed 6% of the sales price, or other financing concessions, are to be treated as
                    inducements to purchase, thereby reducing the amount of the mortgage. Each
                    dollar exceeding the six (6) percent limit must be subtracted from the property’s
                    sales price before applying the appropriate loan-to-value (LTV) ratio.
                •   Job Loss Insurance is considered a “sales concession,” but does not require a
                    dollar-for-dollar reduction from the sales price when calculating the LTV and TLTV
                    ratios.
                •   The dollar-for-dollar reduction to the sales price also applies when gift funds do
                    not meet FHA requirements.
                •   All DU loans submitted to SunTrust Mortgage must reflect zero in the new
                    interested party contribution field and underwriters will manually calculate the
                    limits.
                •   Items typically paid by the seller (i.e., real estate commissions, charges for pest
                    inspections, fees paid to release a deed of trust) are not considered contributions.
                •   If a seller (builder) is paying HOA dues or taxes that come due during the first
                    year of the mortgage, the borrower must qualify on the full PITI (including the
                    monthly tax escrow and HOA fee). In addition, when determining the borrower’s
                    3.5% investment, these “advance” payments cannot lower the borrower’s cash to
                    close.
                •   Real estate broker fees paid to a buyer-broker by the seller on behalf of the
                    borrower are not considered a seller concession as long as the seller is paying the
                    sales commission that is typical for that market. The HUD-1 Settlement
                    Statement must be reviewed to ensure that the seller did not pay a sales
                    commission separately inclusive of the buyer-broker fee.
                •   If the seller is charged for closing costs that are “unallowable” to the borrower by
                    HUD (i.e., tax service fee), the payment on such costs must be OUTSIDE of seller
                    contributions listed on the contract. In addition, these “unallowable” costs should
                    not be reflected on the GFE.
                •   Unacceptable fees for seller contributions:
                    • one (1) year golf course fees,
                    • initiation fees into a club, etc.

                Reference: See Section 1.18: Interested Party Contributions in the Broker Seller
                Guide for additional information.

                                                                               Continued on next page

Section 2.90                                                                          October 19, 2012
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Broker Seller Guide
Contributions by Interested Parties, Continued


Seller-Paid     •   The seller-paid interest payment reductions are also known as “Ease-In Payment
Interest            Reduction” feature for SunTrust marketing purposes.
Payment         •   Seller-paid interest payment reductions are available only on fixed rate loans.
Reduction/          The FHA 5 Year and 7 Year ARMs are not eligible, nor are temporary buydowns
Ease-In             eligible, when the seller-paid interest payment reduction is utilized.
Payment         •   It is similar to a buydown and must be in a fixed amount (amount of interest
Reduction           applied to the PITI cannot change from month to month).
Feature         •   The borrower(s) qualify at the note rate using the full PITI.

                    Reference: See the “Ease-In Payment Reduction Feature” topic for more
                    information regarding seller-paid interest payment reductions.




Section 2.90                                                                       October 19, 2012
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Broker Seller Guide
HUD Allowable Closing Costs

General         •   The homebuyer may pay customary and reasonable costs that are necessary to
                    close the mortgage loan.

                    Note: Discount points may be acquisitioned on some refinances, BUT NEVER
                    ON PURCHASE LOANS. Discount points may not be used to meet the buyer’s
                    minimum investment requirements.

                •   All closing costs, including any costs paid outside of closing (POC), lender credit,
                    or seller construction items, must be itemized on the HUD-1.
                •   FHA will not allow “mark-up’s” (i.e., charging a fee to the mortgagor for an
                    amount greater than that charged by the service provider). Only the actual cost
                    for a service may be charged to the mortgagor.
                •   It is expected that “Actual Costs” will not exceed what is reasonable and
                    customary for the area.

                Notes:
                • All fees and charges must comply with Federal and State disclosure laws and
                   other applicable laws and regulations.
                • The Lock-in Confirmation must be executed by the borrower(s) at least 15 DAYS
                   prior to the date of the Note, if a commitment fee is collected.


Allowable       Closing costs and related information, pertaining to some of the fees that may be
Costs/ Not      charged to the borrower and NOT included in the acquisition cost, are shown in
Included in     the table below
Acquisition

                 Allowable Fees/Costs                            Related Information
               Not Included in Acquisition
               Appraisal Fees                   The fee for the actual completion of an FHA appraisal
                                                may not include a fee for management of the appraisal
                                                process, or any other activity other than the
                                                performance of completing the appraisal report.
               Appraisal Management             • Any management fees charged by an AMC or other
               Company (AMC) Fees                   third party must be for actual services related to
                                                    ordering, processing or reviewing of appraisals
                                                    performed for FHA financing.
                                                • AMC and other third party fees must not exceed
                                                    what is customary and reasonable for such services
                                                    provided in the market area of the property being
                                                    appraised.
               Reasonable Discount Points       (May be financed in the mortgage on some refinance
                                                transactions, but may never be part of the minimum
                                                3.5% down payment on a purchase transaction.)
              Escrow Deposit (Property Taxes    Buyer may pay a maximum of two (2) months.
              and      Assessments,      and
              Insurance Premium)                (May be financed in the mortgage on a refinance, but
                                                may not be part of the minimum 3.5% down payment on
                                                a purchase transaction.)

                                                                                Continued on next page

Section 2.90                                                                           October 19, 2012
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HUD Allowable Closing Costs, Continued


Allowable Costs/ Not Included in Acquisition, (continued)

                   Allowable Fees/Costs                          Related Information
                 Not Included in Acquisition
                Hazard Insurance Premium        Actual cost for first year only (plus 2 months, subject to
                                                aggregate adjustment requirements.)

                                                Note: May be financed in the mortgage on refinances.
                Interest                        Actual cost.
                                                Calculated on 360 days per year basis. Interest may
                                                only be collected from the mortgagor from the date the
                                                mortgage proceeds are actually disbursed by the
                                                mortgagee.
                                                Interest may be paid by the borrower, or financed in the
                                                mortgage on refinances.


Unallowable       Below is a list of unallowable closing costs and fees, which may not be charged to
Costs             the borrower.

                   Unallowable Fees/Costs                        Related Information
                Finders fees & kickback         UNALLOWED in transaction
                payments

                Commitment Fee                  Unallowed if the loan has not been locked at least 15
                                                days prior to the date on the Note.
                Tax service fee                 Buyer cannot be charged.

                Fees Charged by Non-approved    FHA does not permit loan origination services to be
                Mortgage Brokers                performed by non-approved mortgage brokers.

                                                Note: FHA considers a mortgage broker as “a person
                                                (not employee or exclusive agent of a lender) who
                                                brings a borrower and lender together to obtain an FHA
                                                loan, and who provides settlement or closing services.”




Section 2.90                                                                            October 19, 2012
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Mortgage Insurance


General            An annual Mortgage Insurance Premium (MIP) is charged and collected in monthly
                   installments on most FHA loans. The percentage amount of the annual premium is
                   based upon the LTV and the term of the mortgage.

                   There is also an initial Upfront Mortgage Insurance Premium (UFMIP) required on
                   certain FHA loans which can be financed in the loan amount or paid in cash at
                   closing. If any of the UFMIP is paid in cash, then the entire amount must be paid in
                   cash.

                   Reference: See the “Determining UFMIP” subtopic subsequently presented in this
                   topic for additional information on the rounding of the UFMIP.



Mortgage           When making changes to the loan amount, appraised value, processing type, or any
Insurance          other data affecting either the UFMIP or the monthly MIP, it is extremely important to
Verification       validate the M25 screen in MLCS to ensure the mortgage insurance factors are
Prior to Closing   correct. The FHA UFMIP section on M25, the Default UFMIP is systematically
                   calculated and must match the Final UFMIP exactly.
(STM Internal
Information        For STMPartners loans, the Override UFMIP flag on M25 is checked. For
Only)              STMPartners loans that were taken offline and where changes were made to the
                   loan parameters, the Override UFMIP flag may cause issues with the Default UFMIP
                   and Final UFMIP matching. Contact your Regional Underwriting Manager to remove
                   the Override UFMIP flag.


Determining        •   UFMIP is determined by multiplying the initial premium percentage by the base
UFMIP                  loan amount. The total FHA-insured mortgage amount is limited to 100% of the
                       appraised value, and the UFMIP is required to be included within that limit.
                   •   The UFMIP must be either:
                       • entirely financed into the mortgage, with the mortgage amount rounded
                            down to a while dollar (with the exception of instances in which the borrower
                            chooses to pay up to $49.99 of the UFMIP in cash, in which case it would
                            not then be reflected in the total mortgage amount), or
                       • paid entirely in cash and all mortgage amounts must be rounded down to a
                            multiple of $1.00.
                   •   The mortgage amount must be rounded down to a multiple of $1.00, regardless
                       of whether the UFMIP is financed or paid in cash. The UFMIP amount, that is
                       part of the total mortgage amount, is not considered when determining
                       compliance with statutory loan limits or LTV limits. The base mortgage amount
                       must comply with the requirements. The total mortgage amount may exceed this
                       limit by the financed UFMIP amount.

                       Note: Any UFMIP amounts paid in cash are added to the total cash settlement
                       amount.

                                                                                 Continued on next page



Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 154 of 230
Broker Seller Guide
Mortgage Insurance, Continued


MIP Premiums        The following table shows Upfront Mortgage Insurance Premiums and Annual
for Purchase        Monthly (UFMIP and Monthly), for FHA Case Numbers assigned on or after June
and Refinances      11, 2012.
(EXCLUDING
Streamline
Refinances)

                                   FHA Single Family Mortgage Insurance
                             Upfront and Annual Mortgage Insurance Premiums
                                              (All Loan Terms)
                     Effective with case number assignments on or after June 11, 2012
 Base Loan         LTV                 Loan Term                 Purchase & Refinance Transactions
  Amount                                                          (excluding Streamline Refinances)
                                                                      FHA 203(b) Loan Program
 < $625,500       > 95%           Greater than 15 Years                     1.75% / 1.25%
 > $625,500       > 95%           Greater than 15 Years                     1.75% / 1.50%
 < $625,500       < 95%           Greater than 15 Years                     1.75% / 1.20%
 > $625,500       < 95%           Greater than 15 Years                     1.75% / 1.45%
 < $625,500       > 90%       Less than or equal to 15 Years                 1.75% / .60%
 > $625,500       > 90%       Less than or equal to 15 Years                 1.75% / .85%
 < $625,500      78.01 to     Less than or equal to 15 Years
                                                                             1.75% / .35%
                   90%
 > $625,500      78.01 to     Less than or equal to 15 Years
                                                                             1.75% / .60%
                   90%
     All          < 78%       Less than or equal to 15 Years              1.75%/ No Monthly

Note: FHA is not authorized, and will not, insure any mortgages for which new FHA case number assignments are
made on or after June 11, 2012, where the above premium structure has not been utilized.




                                                                                      Continued on next page




Section 2.90                                                                                 October 19, 2012
FHA 203(b) Loan Program                                                                      Page 155 of 230
Broker Seller Guide
Mortgage Insurance, Continued


MIP Premiums          The following table shows Upfront Mortgage Insurance Premiums and Annual
for Purchase          Monthly (UFMIP and Monthly), for FHA Case Numbers assigned on or after April 9,
and Refinances        2012 but prior to June 11, 2012.
(EXCLUDING
Streamline
Refinances),
(continued)

                                      FHA Single Family Mortgage Insurance
                               Upfront and Annual Mortgage Insurance Premiums
                                                  (All Loan Terms)
        Effective with case number assignments on or after April 9, 2012 but prior to June 11, 2012
Base Loan          LTV                       Loan Term                   Purchase & Refinance Transactions
 Amount                                                                   (excluding Streamline Refinances)
                                                                              FHA 203(b) Loan Program
    All           > 95%               Greater than 15 Years                         1.75% / 1.25%
    All           < 95%               Greater than 15 Years                         1.75% / 1.20%
    All           > 90%          Less than or equal to 15 Years                      1.75% / .60%
    All        78.01 to 90%      Less than or equal to 15 Years                      1.75% / .35%
    All           < 78%          Less than or equal to 15 Years                   1.75%/ No Monthly
Note: FHA is not authorized, and will not, insure any mortgages for which new FHA case number assignments are
made on or after April 9, 2012 but prior to June 11, 2012, where the above premium structure has not been utilized.


                      The following table shows Upfront Mortgage Insurance Premiums and Annual
                      Monthly (UFMIP and Monthly), for FHA Case Numbers assigned on or after April
                      18, 2011 but before April 9, 2012.

                                      FHA Single Family Mortgage Insurance
                               Upfront and Annual Mortgage Insurance Premiums
                                                    (All Loan Terms)
        Effective with case number assignments on or after April 18, 2011 but prior to April 9, 2012
  Base        LTV                 Loan Term                      Purchase & Refinance Transactions (excluding
 Loan                                                                        Streamline Refinances)
Amount                                                                      FHA 203(b) Loan Program
   All      > 95%            Greater than 15 Years                                1.00% / 1.15%
   All      < 95%            Greater than 15 Years                                1.00% / 1.10%
   All      > 90%        Less than or equal to 15 Years                            1.00% / .50%
   All       78.01       Less than or equal to 15 Years
                                                                                   1.00% / .25%
            to 90%
   All      < 78%        Less than or equal to 15 Years                         1.00%/ No Monthly
Note: FHA is not authorized, and will not, insure any mortgages for which new FHA case number assignments are
made on or after April 18, 2011 but prior to April 9, 2012, where the above premium structure has not been utilized.


                                                                                           Continued on next page




Section 2.90                                                                                       October 19, 2012
FHA 203(b) Loan Program                                                                            Page 156 of 230
Broker Seller Guide
Mortgage Insurance, Continued


MIP Premiums         The following table shows the Upfront Mortgage Insurance Premiums and Annual
for Streamline       Monthly (UFMIP and Monthly) for streamline refinances with case numbers assigned
Refinances           on or after June 11, 2012 when the existing loan being paid off was endorsed
ONLY                 by FHA on or before May 31, 2009.

                                  FHA Single Family Mortgage Insurance
                           Upfront and Annual Mortgage Insurance Premiums
                                             (All Loan Terms)
  Effective with case number assignments on or after June 11, 2012, when the existing loan being paid off
                             was endorsed by FHA on or before May 31, 2009.
  Base            LTV              Loan Term                Endorsement Date        Streamline Refinances
  Loan                                                                                 FHA 203(b) Loan
 Amount                                                                                     Program
   All         Any LTV           Any Loan Term           on or before May 31, 2009       0.01% / 0.55%
   All         Any LTV           Any Loan Term           on or before May 31, 2009       0.01% / 0.55%
   All         Any LTV           Any Loan Term           on or before May 31, 2009       0.01% / 0.55%
   All         Any LTV           Any Loan Term           on or before May 31, 2009       0.01% / 0.55%
   All           < 78%       Less than or equal to 15    on or before May 31, 2009
                                                                                       0.01%/ No Monthly
                                      Years

Note: FHA is not authorized, and will not, insure any Streamline Refinance mortgages for which new FHA case
number assignments are made on or after June 11, 2012, when the existing FHA loan being paid off was endorsed
by FHA on or before May 31, 2009, where the above premium structure has not been utilized.

Reference: See the FHA Case Number Assignments and Cancellation subtopic of the Workflow topic subsequently
presented for additional information regarding bulk cancellation of case numbers in order to take advantage of the
lower MIP premiums for Streamline Refinance transactions


                                                                                         Continued on next page




Section 2.90                                                                                    October 19, 2012
FHA 203(b) Loan Program                                                                         Page 157 of 230
Broker Seller Guide
Mortgage Insurance, Continued


MIP Premiums        The following table shows the Upfront Mortgage Insurance Premiums and Annual
for Streamline      Monthly (UFMIP and Monthly) for streamline refinances with case numbers assigned
Refinances          on or after June 11, 2012 when the existing loan being paid off was endorsed
ONLY,               by FHA after May 31, 2009.
(continued)

                                  FHA Single Family Mortgage Insurance
                            Upfront and Annual Mortgage Insurance Premiums
                                              (All Loan Terms)
  Effective with case number assignments on or after June 11, 2012, when the existing loan being paid off
                                 was endorsed by FHA after May 31, 2009.
Base Loan          LTV                 Loan Term               Endorsement Date             Streamline
 Amount                                                                                     Refinances
                                                                                        FHA 203(b) Loan
                                                                                             Program
< $625,500        > 95%           Greater than 15 Years        After May 31, 2009         1.75% / 1.25%
> $625,500        > 95%           Greater than 15 Years        After May 31, 2009         1.75% / 1.50%
< $625,500        < 95%           Greater than 15 Years        After May 31, 2009         1.75% / 1.20%
> $625,500        < 95%           Greater than 15 Years        After May 31, 2009         1.75% / 1.45%
< $625,500        > 90%       Less than or equal to 15 Years   After May 31, 2009          1.75% / .60%
> $625,500        > 90%       Less than or equal to 15 Years   After May 31, 2009          1.75% / .85%
< $625,500     78.01 to 90%   Less than or equal to 15 Years   After May 31, 2009          1.75% / .35%
> $625,500     78.01 to 90%   Less than or equal to 15 Years   After May 31, 2009          1.75% / .60%
    All           < 78%       Less than or equal to 15 Years   After May 31, 2009       1.75%/ No Monthly

Note: FHA is not authorized, and will not, insure any Streamline Refinance mortgages for which new FHA case
number assignments are made on or after June 11, 2012, when the existing loan being paid off was endorsed by
FHA after May 31, 2009, where the above premium structure has not been utilized.


                                                                                       Continued on next page




Section 2.90                                                                                  October 19, 2012
FHA 203(b) Loan Program                                                                       Page 158 of 230
Broker Seller Guide
Mortgage Insurance, Continued


MIP Premiums         The following table shows the Upfront Mortgage Insurance Premiums and Annual
for Streamline       Monthly (UFMIP and Monthly) for streamline refinances with case numbers assigned
Refinances           on or after April 9, 2012 but prior to June 11, 2012, regardless of the
ONLY,                endorsement date of the existing loan being paid off.
(continued)

                                   FHA Single Family Mortgage Insurance
                             Upfront and Annual Mortgage Insurance Premiums
                                               (All Loan Terms)
 Effective with case number assignments on or after April 9, 2012 but prior to June 11, 2012, regardless of
                          the endorsement date of the existing loan being paid off.
Base Loan         LTV                   Loan Term                Endorsement        Streamline Refinances
 Amount                                                              Date              FHA 203(b) Loan
                                                                                            Program
    All          > 95%             Greater than 15 Years             Any                 1.75% / 1.25%
    All          < 95%             Greater than 15 Years             Any                 1.75% / 1.20%
    All          > 90%         Less than or equal to 15 Years        Any                  1.75% / .60%
    All       78.01 to 90%     Less than or equal to 15 Years        Any                  1.75% / .35%
    All          < 78%         Less than or equal to 15 Years        Any              1.75%/ No Monthly

Note: FHA is not authorized, and will not, insure any Streamline Refinance mortgages for which new FHA case
number assignments are made on or after April 9, 2012 but prior to June 11, 2012, regardless of the endorsement
date of the existing loan being paid off, where the above premium structure has not been utilized.


                     The following table shows the Upfront Mortgage Insurance Premiums and Annual
                     Monthly (UFMIP and Monthly) for streamline refinances with case numbers assigned
                     on or after April 18, 2011 but prior to April 9, 2012 regardless of the
                     endorsement date of the existing loan being paid off.

                                FHA Single Family Mortgage Insurance
                          Upfront and Annual Mortgage Insurance Premiums
                                            (All Loan Terms)
Effective with case numbers assigned on or after April 18, 2011 but prior to April 9, 2012 regardless of the
                         endorsement date of the existing loan being paid off.
 Base            LTV                 Loan Term                Endorsement Date         Streamline Refinances
 Loan                                                                                     FHA 203(b) Loan
Amount                                                                                        Program
  All           > 95%           Greater than 15 Years                 Any                  1.00% / 1.15%
  All           < 95%           Greater than 15 Years                 Any                  1.00% / 1.10%
  All           > 90%       Less than or equal to 15 Years            Any                   1.00% / .50%
  All       78.01 to 90%    Less than or equal to 15 Years            Any                   1.00% / .25%
  All           < 78%       Less than or equal to 15 Years            Any                1.00%/ No Monthly

Note: FHA is not authorized, and will not, insure any Streamline Refinance mortgages for which new FHA case
number assignments are made on or after April 18, 2011 but prior to April 9, 2012 regardless of the endorsement
date of the existing loan being paid off, where the above premium structure has not been utilized.


                                                                                         Continued on next page




Section 2.90                                                                                    October 19, 2012
FHA 203(b) Loan Program                                                                         Page 159 of 230
Broker Seller Guide
Mortgage Insurance, Continued


UFMIP Refunds   All refunds for FHA upfront mortgage insurance premiums have been eliminated,
                except for FHA-to-FHA refinance transactions.

                If the borrower is refinancing their current FHA loan to another FHA loan within three
                (3) years from the date of closing, a refund credit may be applied to the new loan
                transaction. The amount of the refund cannot exceed the new UFMIP being charged
                on the new loan transaction.

                The following table shows the three (3) year UFMIP refund schedule.

                            Upfront Mortgage Insurance Premium Refund Percentages
                                                     Month of Year
                 Year      1      2    3    4     5     6     7     8    9    10            11    12
                  1        80    78   76   74    72    70    68    66   64    62            60    58
                  2        56    54   52   50    48    46    44    42   40    38            36    34
                  3        32    30   28   26    24    22    20    18   16    14            12    10

                STM Internal Information
                • MLCS Screen Input – Closing Issues
                   • On the Z43 screen in the 05/14 process flow, enter the full amount of the
                       UFMIP refund in the “FHA Refund Cr” field.

                          Note: SunTrust will not credit the borrower with a UFMIP refund in excess
                          of the UFMIP being charged on the new transaction.

                •   HUD-1 Settlement Statement – Closing Issues
                    • Page one – show the amount of the UFMIP refund credit as a FHA Refund
                      Credit in the 200 Series, and
                    • Page two – show the amount of the amount of the New UFMIP on line 902.



Streamline      •   For loans without an appraisal, use FHA’s computed value from the existing loan
Refinance           to calculate the LTV.
                •   If FHA does not have a computed value, only then may 89.99% be considered
                    as the LTV.

                Reference: See the “Streamline Refinance” topic previously presented for additional
                information.

                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 160 of 230
Broker Seller Guide
Mortgage Insurance, Continued


Annual           •   FHA’s annual mortgage insurance premiums will be automatically canceled
Mortgage             under the following conditions:
Insurance        •   For mortgages with terms greater than 15 years, the annual mortgage insurance
Premium              premiums will be canceled when the LTV ratio reaches 78% provided the
Cancellation         mortgagor has paid the annual MIPs for at least 5 years.
                 •   For mortgages with terms of 15 years or less the annual MIPs will be canceled
                     when the LTV ratio reaches 78%, regardless of the length of time the borrower
                     has paid the annual mortgage premiums.
                 •   FHA determines when the 78% LTV ratio is reached based on the lesser of the
                     sales price or appraised value at origination (new appraised values will not be
                     considered).
                 •   Cancellation of the annual MIP is normally based on scheduled amortization of
                     the loan. However, in cases where the loan payments have been accelerated or
                     modified, cancellation can be based on the actual amortization of the loan.
                     Under this circumstance a borrower may request cancellation from their loan
                     servicer.

                     Note: The borrower cannot order a new appraisal to meet the 78% threshold.
                     HUD will only base the LTV calculation off of the lesser of the sales price or
                     appraised value that is in their data-base when the loan is closed.


Condominiums     Condominium loans are subject to the same upfront and monthly premium charge
                 and termination schedule as reflected in this topic for all other 203(b) loans.


Gross Loan       When UFMIP is financed into the loan amount, the total loan may exceed HUD’s
Amount           maximum loan limit for the area by the amount of UFMIP.


Special          •   The origination fee is calculated on the base loan amount only.
Considerations   •   The discount points are calculated on the gross loan amount.
                 •   The entire UFMIP premium may be paid by a person other than the borrower.
                     However, if any part is paid by a non-borrower, the entire UFMIP must be paid in
                     cash. If the non-borrower is the seller, the amount paid must be considered a
                     sales concession subject to FHA limits.
                 •   If the borrower is paying UFMIP, it must be 100% financed or 100% paid in cash.
                 •   The UFMIP is a pre-paid finance charge to be disclosed on the Good Faith Estimate
                     and in the Truth-In-Lending Disclosure whether it is financed or paid in cash.




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 161 of 230
Broker Seller Guide
Appraisal Requirements


General         •   The following appraisal forms are mandatory for FHA loans.
                    • Uniform Residential Appraisal Report (Fannie Mae Form 1004) for all 1 unit
                       single family dwellings.
                    • Manufactured Home Appraisal Report (Fannie Mae Form 1004C) for all
                       manufactured homes.

                          Note:   Manufactured homes are NOT eligible for financing with SunTrust
                          Mortgage.

                    •     Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073) for all
                          individual condominium units.
                    •     Small Residential Income Property Appraisal Report (Fannie Mae Form 1025)
                          for all 2-4 unit single family dwellings.

                    Reference: See Section 1.06: Appraisal Guidelines in the Broker Seller Guide for
                    additional information about UAD requirements.

                •   Appraisal reports must include color photographs.
                •   Appraisal must be in original AI Ready format. Facsimile (faxed) appraisal reports
                    are not acceptable.
                •   All property conditions, including repairs, alterations and/or required inspections
                    must be reported within the appropriate section of the applicable Fannie Mae
                    appraisal reporting form.

                    Note: FHA does not require any home to have any appliances to be eligible for
                    FHA financing.

                •   Upon receipt of a completed appraisal report prepared on one of the revised
                    Fannie Mae forms, the underwriter/processor must note any physical deficiency or
                    adverse condition requiring repair, alteration or further inspection on Conditional
                    Commitment Direct Endorsement Statement of Appraised Value (form HUD-
                    92800.5B).
                •   All loans must have a FHA case number assigned to the subject property. Case
                    numbers are assigned by HUD through the FHA Connection.

                    Reference: See the topic “FHA Social Security Number Validation” subsequently
                    presented in this product description for information relating to the assigning of
                    FHA case numbers.

                •   The accurate Condominium ID is required to order the FHA case number or
                    appraisal.
                •   New FHA case numbers are required if the borrower changes properties.
                •   The FHA case number must be provided to the appraiser before the appraiser
                    may release the appraisal to the lender.

                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 162 of 230
Broker Seller Guide
Appraisal Requirements, Continued


General,        •   HUD allows for the lender selection of the appraiser, however, the appraiser
(continued)         must be on FHA’s most current approved appraiser list and must perform the
                    inspection of the subject property as well as all comparables. This same
                    appraiser’s signature is required as “appraiser” on the left side of page 2 of the
                    appraisal report (URAR). A supervisory signature is not permitted. Reference
                    can be made in the “Comments” section of the URAR regarding a trainee’s
                    assistance with the appraisal.
                •   Underwriters (or other members of lender’s staff) are not to mark on the URAR.
                    The Direct Endorsement Underwriter/HUD Reviewer Analysis of Appraisal
                    Report (Form HUD 54114) is used for comments.
                •   HUD requires that the DE lender notify the borrower of the property’s appraised
                    value before the credit file is underwritten. HUD will accept a simultaneous
                    review of the appraisal and mortgage credit application if the DE lender discloses
                    to the borrower that the DE underwriter may adjust the appraised value.
                •   The simultaneous review notification requirement is met by one of the following
                    forms:
                    • the Appraised Value Adjustment Disclosure (Form LGEN0067L1-which prints
                         off with HUD/VA Addendum to Uniform Residential Loan Application), or
                    • an initial URLA Addendum (HUD 92900-A) if completed and fully executed
                         prior to the underwriting of the loan.
                •   New construction properties must have at least one comparable from outside the
                    subdivision. All builder sales must not be used in the same subdivision.
                •   New construction properties that are 90% complete, with only minor finish work
                    remaining, may be appraised without the appraiser having plans and
                    specifications.
                •   For new construction where the house is 100% complete at the time of the
                    appraisal, the appraiser must take a clear photograph (in addition to the standard
                    appraisal photos) of each diagonally opposite front and rear corner of the house
                    to record adequate grading and drainage of the site.

                    Note: "Complete" means everything is complete including the installation of
                    buyer preferences (flooring, appliances, etc.), utilities are on and fully functioning
                    and all site improvements completed at the time of appraisal (Ready for
                    Occupancy). If no repair or correction conditions are made by the appraiser, the
                    appraisal serves as the final inspection.

                •   If the appraisal is ordered as “proposed construction” and is fully completed, a
                    final inspection is still required regardless if property is 100% complete.
                •   If the appraisal is ordered as “new construction, existing” and is 100% complete,
                    a final inspection is not required providing the appraiser states that “the dwelling
                    was built in accordance with the submitted plans and specifications and drainage
                    and grading are adequate.”

                Note: For identity of interest transactions, a full appraisal is required and must
                include verification of the purchase price, last sale date, and recent listing of the
                subject property regardless of the feedback provided in the AUS messaging.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 163 of 230
Broker Seller Guide
Appraisal Requirements, Continued


Appraisal       Reference: See Section 1.06: Appraisal Guidelines of the Broker Seller Guide for
Ordering        additional information on the appraisal ordering process.
Process


Appraisal       •   The FHA Appraisal Logging screen in FHA Connection must be completed prior
Logging             to approving the FHA appraisal and issuing the Conditional Commitment Direct
                    Endorsement Statement of Appraised Value form (HUD-92800.5B).
                •   A print-out of the completed FHA Appraisal Logging screen must be placed in
                    the file prior to submission for underwriting.

                    Note: It is the underwriter’s responsibility to review the FHA Case Number
                    Assignment, Social Security Number Validation and Appraisal Logging document
                    that generates off of FHA Connection at the time of underwriting. The
                    underwriter is responsible for making any property, borrower and/or appraisal
                    logging corrections in FHA connection prior to closing.


Appraiser       FHA has established the requirements listed below for the appraiser regarding Seller
Requirements    Concessions and Verification of Sales.
                • Report the total dollar amount of the loan charges and/or concessions to be paid
                   by any party on behalf of the borrower and describe which party provided the
                   concession in the “Subject Section” of the appraisal report. Use of an addendum
                   with the heading “Loan Charges /Sales Concessions” may be required due to
                   limited space on the report.
                • Verify all sales transactions for seller concessions and report those findings in
                   the appraisal. If the sales cannot be verified with someone having first-hand
                   knowledge of the transaction (i.e., seller, buyer, or one of their representatives),
                   the appraiser must state how and to what extent the sale was verified.
                • Provide the appraiser with a complete copy of the ratified sales contract,
                   including all addenda, for the subject property that is to be appraised.
                • Provide the appraiser with all financing data and sales concessions for the
                   subject property granted by anyone associated with the transaction. Sales
                   concessions information must include gifts and/or down payment assistance,
                   which may or may not be included in the contract of sale.
                • Report the type and the amount of sales or financing concessions for each
                   comparable sale listed in the “Sales Comparison Analysis, Sales or Concession
                   Section” for each comparable listed. If no concessions exist, the appraiser must
                   state “none.”


                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 164 of 230
Broker Seller Guide
Appraisal Requirements, Continued


Appraiser         •   Make market-based adjustments to the comparable sales for any sales or
Requirements,         financing concessions that may have affected the sales price. Adjustment for
(continued)           each comparable sale must reflect the difference between the sales price with
                      the sales concessions and what the property would have sold for without the
                      concessions.
                  •   Provide an analysis of the current agreement of sale, contract, option or listing
                      for the subject property and an analysis of all prior transfers that occurred within
                      three (3) years prior to the effective date of the appraisal. If the contract is not
                      provided to the appraiser, he/she must report the steps or efforts taken to obtain
                      the current agreement of sale.
                  •   Provide analysis of all prior transfers of the comparable sales that occurred with
                      one (1) year prior to the effective date of the appraisal in the “Sales Comparison
                      Analysis, Sales or Financing Concessions” section. If the data is unavailable,
                      the appraiser must note what steps were taken during the normal course of
                      business to obtain and report the information.


Mortgagee         FHA has established mortgagee requirements relating to appraisals. These
Requirements      requirements are listed below.
                  • Provide the appraiser with a complete copy of the ratified sales contract,
                      including all addenda, for the subject property that is to be appraised.
                  • Provide the appraiser with all financing data and sales concessions for the
                      subject property granted by anyone associated with the transaction. Sales
                      concessions information must include gifts which may or may not be included in
                      the contract of sale.
                  • If a reconsideration of value is requested, the appraiser must be provided with
                      any amendments to the contract that occurred after the effective date of the
                      appraisal.
                  • For proposed/under construction loans with less than a 90% LTV, the lender
                      should provide a complete set of the approved plans and specifications the
                      builder submitted to the local building authority to obtain the building permits. In
                      the event the property is located in a jurisdiction that does not approve plans
                      then the plans and specifications are required.
                  • Appraisers must receive a fully executed, Builder’s Certification of Plans,
                      Specifications, and Site (HUD form 92541) before performing the appraisal on
                      proposed, under construction or less than one year old properties. Appraisers
                      must review Item 1 on the form and note in the Appraisal Report any
                      discrepancies between the information in Item 1 and the actual conditions
                      observed on site. The lender is responsible to address any yes answer in Item 1.


Market            Reference: See the “Market Conditions Addendum to the Appraisal Report (Freddie
Conditions        Mac 71/Fannie Mae 1004MC)” subtopic in the “Appraisal Reports and Exhibits” topic
Addendum to       within Section 1.06: Appraisal Guidelines of the Broker Seller Guide for additional
the Appraisal     information.
Report (Freddie
Mac 71/Fannie
Mae 1004MC)

                                                                                  Continued on next page

Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 165 of 230
Broker Seller Guide
Appraisal Requirements, Continued


Properties in    Reference: See Section 1.12: SunTrust Disaster Area Procedures for additional
Disaster Areas   information.


Properties       •   The subject property is considered to be in a declining area when the SunTrust
Located in           Mortgage Declining Market Index list indicates a severely declining or declining
Declining            market, or the appraiser has marked the appraisal that property values are
Market Areas         declining or referenced that values are declining in the appraisal comments,
                     including the Market Conditions Addendum to the Appraisal Report.
                 •   At least two (2) comparable sales, as similar as possible to the subject property,
                     that have closed within ninety (90) days prior to the effective date of the
                     appraisal.
                     • In some areas this may not be possible due to lack of market information
                          and, in these cases, a detailed explanation is required.
                 •   At least two (2) comparable listing and/or pending sales, as similar as possible to
                     the subject property, are required.
                     • Listings and pending sales must be reported on the appraisal grid of the
                          applicable appraisal form in comparable position four (4) or higher.
                     • Listings and pending sales should bracket the listing, using both dwelling
                          size and sales price whenever possible to insure that these comparables are
                          market tested and have reasonable market exposure to avoid the use of
                          over priced properties as comparables.

                          Note: Reasonable market exposure is reflected by typical marketing times
                          for the neighborhood.

                     •    Active listings must be adjusted to reflect list to sale price ratios for the
                          market.
                     •    Pending sales must be adjusted to reflect the contract purchase price
                          whenever possible or adjust pending sales to reflect list to sale price ratios.

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 166 of 230
Broker Seller Guide
Appraisal Requirements, Continued


Properties          •   Original list price, any revised list prices, and total days on the market
Located in              (DOM), must be included.
Declining               • An explanation is required for DOM that do not approximate time frames
Market Areas,               reported in the Neighborhood section of the appraisal reporting form or
(continued)                 that do not coincide with the DOM noted in the Market Conditions
                            Addendum to the Appraisal Report.
                    • Reconcile the adjusted values of active listings or pending sales with the
                        adjusted values of the settled sales provided.
                        • If the adjusted values of the settled comparables are higher than the
                            adjusted values of the active listings or pending sales, the appraiser
                            must determine if a market condition adjustment is appropriate.
                        • The final value conclusion should not be based solely on the comparable
                            listing or pending sales data.
                •   Data regarding market trends is available from multiple local and nationwide
                    sources. Appraisers must be diligent in using only impartial sources of data.
                    • The appraiser must verify data via local parties to the transaction: agents,
                        buyers, sellers, lenders, etc.
                        • If a sale cannot be verified by a party then public records or other
                            impartial data source that can be replicated may be used.
                        • A Multiple Listing Service (MLS) by itself is not considered a verification
                            source.
                    • Unacceptable data sources include media and other sources considered not
                        readily verifiable and should be able to be replicated.
                    • Known or reported incentives or sales concessions must be noted in the
                        financing section of the grid for any active or pending comparable used.


Construction    Proposed
Status Types    No concrete or permanent material has been placed.          Digging of footing and
                placement of re-bar is not considered permanent.

                Under Construction
                From the first placement of concrete (permanent material) to 100% completion.
                (Finalized and ready to occupy.)

                Existing
                100% complete and has an occupancy permit.

                Existing less than one (1) year
                Appraisal performed less than one (1) year since final occupancy permit was issued.
                For model homes, age begins with issuing of permit to use as a model.

                Note: Any home built less than two (2) years must list the month and year
                completed in the age box on the Uniform Residential Appraisal Report (URAR).
                Complete is defined as 100% complete and nothing remains to be done.

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Comprehensive   The table below shows the CVP (appraisal package) requirements for various
Valuation       property or loan types.
Package (CVP)
Requirements
                                                     URAR                  For Your Protection:
                                                  (Fannie Mae             Get a Home Inspection
                                                 1004, 1073, and             (HUD 92564-CN)
                                                      1025)
                Proposed/Under                         Yes                           No
                Construction
                Existing Construction                  Yes            •   Yes (for a previously
                < 12 months old                                           occupied home < 12 mos.
                                                                          old.)
                                                                      •   No (for a home that has
                                                                          never been occupied.)
                Existing Property                      Yes                         Yes

                Streamline Refinance with              Yes                           No
                an Appraisal
                Streamline Refinance                    No                           No
                without an Appraisal
                HUD Real Estate Owned                  Yes                          Yes



Excess Land     •   Excess land occurs when the subject lot is considerably larger than typical lots in
                    the neighborhood, and the excess is capable of separate use.
                •   In small communities and outlying areas different criteria must be used since the
                    market may readily accept a wide variance in lot sizes due to wide differences in
                    lot use by this segment of the market.
                •   SunTrust requires the property to be legally subdivided, with separate tax
                    identification numbers, prior to the appraisal being completed.
                •   SunTrust will not finance the purchase of excess land.
                •   When it has been determined that the plot contains excess land, the area of the
                    readily marketable real estate entity, together with the existing or proposed
                    improvements, is delineated and is appraised in the prescribed manner. The
                    excess land is described but is not appraised. A requirement is made that the
                    excess land be excluded from the mortgage security.
                •   The highest and best use of the site must also be given close evaluation.

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Appraisal Date   •   Appraisals are valid for 120 days on existing, proposed or under construction
                     properties and cannot be “re-used” during this period once the mortgage for
                     which the appraisal was ordered has closed.
                 •   The effective date of an FHA appraisal cannot be before the FHA case number
                     assignment date, unless:
                     • the appraisal was originally ordered for conventional lending, HUD REO or
                         government guaranteed loan purposes, but was performed by a FHA Roster
                         Appraiser and is being converted to a FHA insured mortgage, and
                     • when applicable, the certification field in the Appraisal Logging Screen in
                         FHA Connection is completed.

                     Notes:
                     • The certification field in the Appraisal Logging Screen will only appear
                        when the appraisal effective date is more than ten (10) days prior to the
                        case number assignment date and the appraisal must have been originally
                        ordered for conventional lending, HUD REO or government guaranteed loan
                        purposes.
                     • For transactions where the original appraisal was not ordered for an FHA
                        transaction, documentation must be retained in the loan file to evidence
                        conversion of mortgage programs.
                     • The lender is responsible for ensuring that the appraisal was performed in
                        accordance with FHA appraisal reporting requirements. Validating this
                        requirement may entail a re-inspection of the property by the appraiser.
                     • If the original appraisal was not performed by a FHA Roster Appraiser, then
                        a new FHA appraisal must be ordered, and the effective date may not be
                        before the case number assignment date.

                 •   A new appraisal is required for each refinance transaction requiring an appraisal.
                 •   MCRVs are valid for 12 months from the issue date.
                 •   Extensions may be granted for 30 days, at the option of the lender, to allow for
                     approval of the borrower and closing of the loan subject to the items listed below.
                     • The borrower signs a valid sales contract or is approved for a loan prior to
                        the expiration date of the appraisal.
                     • The approval of the borrower occurs when the DE underwriter signs the FHA
                        Loan Underwriting Transmittal Summary (HUD-92900-LT) or the loan is
                        approved by TOTAL.
                     • 30 day extensions are not eligible on transactions that receive a “Summary
                        Appraisal Update Report.”

                 References:
                 • See the “Fannie Mae Form 1004D/Freddie Mac Form 442 (Appraisal Update
                    and/or Completion Report)” subtopic subsequently presented in this topic for
                    additional information on updating an existing appraisal.
                 • See the HUD REO Properties subtopic previously presented in the
                    “Occupancy/Property Types” topic for additional information regarding HUD REO
                    properties.

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Assignments of   General Information
Appraisals       Upon written request from the borrower or the seller (if the borrower is not involved),
(Commitments)    appraisal reports and/or mortgage credit packages may be assigned to another lender,
and/or Cases     but does not need to include lender processing documents.

                 Procedures
                 • HUD must be notified when a transfer occurs in order to avoid problems with the
                    issuance of MIC. An FHA case number is assigned to a specific lender and
                    property. Such notification must be made on FHA Connection.
                 • The receiving mortgagee must also place in the case binder to HUD, evidence of
                    the CHUMS system reassignment.
                 • If the receiving mortgagee approves the application and submits the case for
                    endorsement, the case file does not need to include a copy of the original
                    mortgagee’s FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT)
                    from the transferring lender, but does need to include explanatory comments
                    from the receiving (approving) mortgagee’s underwriter.
                 • FAILURE TO COOPERATE IN THE TRANSFER/ASSIGNMENT OF CASES
                    JEOPARDIZES THE MORTGAGEE’S HUD APPROVAL AS WELL AS ITS
                    DIRECT ENDORSEMENT APPROVAL.
                 • FHA does not require a change in either the lender’s name or the borrower’s
                    name when an appraisal is transferred.

                     References:
                     • See the subtopic, “FHA Appraisals Transferred to SunTrust from Another
                        Lender” within the “Home Valuation Code of Conduct” topic in Section 1.06:
                        Appraisal Guidelines of the Broker Seller Guide for specific guidelines on
                        transferring appraisals to SunTrust.
                     • See the subtopic, “FHA Appraisals Transferred from SunTrust to Another
                        Lender” within the “Home Valuation Code of Conduct” topic in Section 1.06:
                        Appraisal Guidelines of the Broker Seller Guide for specific guidelines on
                        transferring appraisals from SunTrust.

                 Maximum Compensation to Mortgagee
                 • Any lock-in fee collected from the borrower at the time of application.
                 • Any out-of-pocket expenses, appraised fees, credit reports, surveys, etc.
                 • A pro-rated portion of the origination fee for reasonable costs incurred for the
                    work performed:
                    • if the DE underwriter has issued the 92800.5B only - 1/2 of original fee.
                    • if the DE underwriter has issued the 92800.5B and a firm commitment
                       (approval of property/borrower) - 1% origination fee.

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Fannie Mae      •   The Appraisal Update and/or Completion Report (Fannie Mae form
Form                1004D/Freddie Mac form 442), may be used in the following circumstances:
1004D/Freddie       • to extend the validity period of an existing appraisal that is due to expire,
Mac Form 442        • to extend the validity period of an existing appraisal for new construction that
(Appraisal             is incomplete, and
Update and/or       • as an additional option to report completion of a repair and/or the satisfaction
Completion             of requirements and conditions noted in the original appraisal report.
Report)
                    Notes:
                    • Only the FHA appraiser that performed the original appraisal, if currently in good
                          standing on the FHA Appraiser Roster, is permitted to complete a “Summary
                          Appraisal Update Report.”
                    •     Any FHA appraiser that is currently in good standing on the FHA Appraiser
                          Roster may complete a “Certification of Completion.”
                          • Other methods used (i.e., contractor, home inspector and mortgagee
                               certifications) may continue to be used as applicable.
                    •     Only one (1) “Summary Appraisal Update Report” may be completed per
                          appraisal report received.
                    •     The effective date of the “Summary Appraisal Update Report” must be on or
                          before the original expiration date of the original appraisal report.
                    •     A “Summary Appraisal Update Report” extends the original appraisal expiration
                          date by up to 120 days. Therefore, a loan must be closed within 120 days of the
                          effective date of the “Summary Appraisal Update Report.”
                    •     The Appraisal Update and/or Completion Report (Fannie Mae form
                          1004D/Freddie Mac form 442) may only be used when ordered by a lender who
                          is identified as an intended user in the original appraisal report, unless the
                          appraiser incorporates the original report being updated as an attachment, rather
                          than as a reference.
                    •     When a “Summary Appraisal Update Report” is issued, the appraiser must
                          include a completed Market Conditions Addendum (Fannie Mae form
                          1004MC/Freddie Mac form 71) for the subject property that is reflective of the
                          current market conditions as of the effective date of the Appraisal Update and/or
                          Completion Report (Fannie Mae form 1004D/Freddie Mac form 442).

                •   The Appraisal Update and/or Completion Report (Fannie Mae form
                    1004D/Freddie Mac form 442), may NOT be used in the following
                    circumstances:
                    • the property value has declined,
                    • building improvements that contribute value to the property cannot be
                        observed from the street or a public way,

                          Note: FHA requires that all improvements must be observable from a street or
                          public way to utilize the Appraisal Update and/or Completion Report (Fannie
                          Mae form 1004D/Freddie Mac form 442).

                    •     the exterior inspection of the property reveals deficiencies or other significant
                          changes that did not exist as of the effective date of the appraisal report
                          being updated, or
                    •     as a substitute for the Compliance Inspection Report (HUD 92051), when
                          required, for new construction

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Second          •   In instances where the first appraisal was ordered by another lender, a second
Appraisal           appraisal may be ordered under the following circumstances:
Options             • the first appraisal contains material deficiencies as determined by the D.E.
                        Underwriter,
                    • the appraiser performing the first appraisal is on the SunTrust Mortgage
                        Ineligible Appraiser and Appraisal Company List,
                    • failure of the first lender, including cases where the first lender has since
                        gone out of business, to provide a copy of the appraisal to SunTrust in a
                        timely manner which would cause a delay in closing, posing a potential harm
                        to the borrower.
                        • Potential harm includes events outside the control of the borrower such
                             as loss of interest rate lock, purchase contract deadline, foreclosure
                             proceedings, late fees.
                        • Both appraisals must be retained in the case binder; however, the first
                             appraisal may be added to the case binder when it is received.

                    Notes:
                    • The loan file must be documented with why a second appraisal was
                       obtained AND both appraisals must be retained in the loan file.
                    • The cost of the second appraisal may be charged to the borrower.
                    • The lender name does not need to be changed on appraisals being
                       transferred from one lender to another.
                    • A second appraisal may NOT be ordered in an attempt to obtain a higher
                       property value or lesser number of deficiencies/repair requirements.

                Reference: See the subtopic, “FHA Appraisals Transferred from SunTrust to Another
                Lender” within the “Home Valuation Code of Conduct” topic in Section 1.06:
                Appraisal Guidelines of the Broker Seller Guide for more information and workflows
                for ordering second appraisals for FHA loans.


Converting VA   General
Appraisals to   • HUD will accept single family (excluding condominiums), existing construction,
an FHA             proposed construction, under construction, and newly constructed properties one
Appraisal          year old or less which were pre-approved by VA (this includes CRVs,
                   LNOV/LAPPs), and these properties are eligible for high ratio (greater than 90%)
                   loans using FHA mortgage insurance.
                • The appraiser must be on the FHA Roster of Approved Appraisers and be state
                   certified with an unexpired license.
                • A HUD case number must be obtained through FHA Connection. The VA CRV
                   (or LAPP appraisal) is sent to underwriting at loan submission and the DE
                   underwriter processes the conversion and completes the 92800.5B conditional
                   commitment. The conditions of the VA appraisal will become conditions of the
                   FHA appraisal with the addition of the Lead Based Paint Hazard, when
                   applicable.

                Reference: See the subtopic, “Property Requirements” under the topic, “Appraisal
                Requirements” subsequently presented in this product description for additional
                requirements for lead based paint repairs and inspections.

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Converting VA   General, (continued)
Appraisals to   • Circumstances under which a CRV/MCRV may not be converted include those
an FHA             listed below.
Appraisal,         • Property has an outstanding FHA Conditional Commitment issued by HUD.
(continued)             Conditional Commitments are no longer issued by HUD except for HUD
                        employees only, others are issued by the DE underwriter.
                   • Property or site is known to be unacceptable (i.e., subject to periodic
                        flooding).
                   • FHA previously rejected property or site.
                   • The VA-MCRV or NOV expired before the sales contract was signed.
                   • Case is processed under the DE program and property does not qualify as
                        proposed construction.

                    Reference: See HUD Handbook 4000.4, Chapter 1, paragraph 1-2 for additional
                    information on using a VA-MCRV in the DE program.

                    •     Property is a unit in a condominium project that does not meet FHA criteria.

                Extension of Validity Period
                FHA will not get involved in extending a VA appraisal. Generally, extension requests
                are sent to the VA office of jurisdiction, which will contact the fee appraiser involved,
                if appropriate, and issue an endorsement to the notice of value, if justified. The
                borrower must have signed the purchase agreement during the validity period for the
                extension to be considered “New Construction Properties”.

                New Construction Properties
                • If the appraisal is for new construction, whoever is shown on the LAPP NOV as
                   the inspector will perform the final inspection.
                • The builder must complete the Builders Certification (HUD-92541).The
                   information must be reviewed by the DE Underwriter who is responsible for
                   resolving discrepancies and inconsistencies, if any.
                • The conditions of the VA appraisal will become conditions of the FHA appraisal.
                • The builder must be a VA approved builder.
                • Subdivisions, PUDs, and builders do not need HUD approval.

                VA Master CRV’s
                • A VA master CRV may be converted to FHA; however, each case must have an
                   individual and separate case number.
                • The builder does not need HUD approval, however, the builder must be VA
                   approved.
                • A Builders Certification form (HUD 92541) is required.

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Converting a    General
VA MCRV for     MCRVs are valid for 12 months from the date of issue. If a loan is submitted with an
an FHA Loan     expired MCRV, the sales contract and FHA case number assignment must predate
                the MCRV expiration date.

                Reference: See “Extension of Validity Period” shown previously within this subtopic
                for additional information.

                Reciprocity – Proposed Construction
                Condos
                • VA MCRVs are acceptable as long as a HUD Approval letter of the project is
                   provided and current.
                • All conditions of the HUD approval letter must be met prior to or at closing, in
                   addition to all of the MCRV conditions.

                Subdivisions
                • VA MCRVs are acceptable provided that they have not expired and a
                   satisfactorily completed Builder Certification form is obtained at the time of loan
                   submission to the DE underwriter.
                • All MCRV conditions are to be met prior to closing.

                Conversion of MCV
                To convert an MCRV for use on an FHA loan, the following documentation must be
                in the loan file for the DE underwriter to arrive at a final valuation:
                • A complete copy of the sales contract including an itemization of options and
                     charges to the borrower for those options.
                • A current and complete MCRV (if not sure of what “complete” refers to, contact
                     underwriting for definition).
                • A MCRV option sheet completed by processor listing MCRV number, property
                     address, lot number, block number, name of subdivision, model name/type, base
                     value of model, list of all options from sales contract and MCRV values, total of
                     options, total value of MCRV, sales price and maximum loan.
                • Square footage measurements for areas in each model type where upgrades for
                     competing, resilient flooring and padding are options with additional values. This
                     should be provided by the builder.
                • Evidence of HUD project approval if a condominium, must be current and reflect
                     all conditions.
                • A Builder Certification form (HUD 92541) for property types other than a
                     condominium.
                • WSSC letter (applicable only in Prince George and Montgomery Counties in MD).

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FHA Appraised   •   The FHA Appraised Value Adjustment Disclosure is signed by the borrower(s) at
Value               the same time the HUD/VA Addendum to Uniform Residential Loan Application
Adjustment          (URLA) is signed.
Disclosure      •   The form must be signed and dated prior to submission to underwriting and
                    included in the guaranty submission package sent to HUD.
                •   This form is not required if the initial URLA Addendum (HUD 92900-a) is
                    completed and signed before the loan is underwritten.


Property        General
Requirements    • HUD requires the approved appraiser to determine whether the property meets
                   HUD Guidelines as specified in HUD Handbook 4150.2 and Appendix D. To
                   perform this analysis, the appraiser must have full access to all property
                   improvements, including crawl space and attic.

                    References:
                    • See the HUD Handbook for specific property requirements established by
                       HUD.
                    • See the “Streamline Refinance” topic for additional information regarding
                       streamlines with an appraisal.

                •   FHA requires that appraisers be provided with all financing data and sales
                    concessions for properties to be a security for an FHA-insured loan.
                •   The appraiser must provide a meaningful explanation to support any “Best comp
                    available” statement.
                •   Current owner space must contain name of actual owner and cannot just state
                    “Owner of record.”
                •   Time adjustments are considered a “red flag;” however are allowed if the
                    rationale is documented and supported with a paired sales analysis.
                •   Appraiser needs to inspect the exterior of all comparable sales. If the
                    comparables are located in a gated community and the appraiser is unable to
                    gain entry, other comparables need to be provided. MLS pictures are not
                    acceptable.
                •   Appraisers are required to identify and report sales concessions and properly
                    address and/or adjust the comparable sale transactions to account for sales
                    concessions in the appraisal of all properties.


Unacceptable    •   The appraiser must consider factors such as location requirements,
Locations           neighborhood hazards and nuisances, site analysis, condition of physical
                    improvements, economic life, code enforcements, and any other criteria HUD
                    requires.
                •   A site is required to be rejected if the property being appraised is subject to
                    hazards, environmental contaminants, noxious odors, offensive sights or
                    excessive noises to the point of endangering the physical improvements or
                    affecting the livability of the property, its marketability, or the health and safety of
                    its occupants. Rejections may also be appropriate if the future economic life of
                    the property is shortened by obvious and compelling pressure to a higher use,
                    making a long-term mortgage impractical.

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Site Hazards    •   The appraiser must indicate all hazards and nuisances affecting the subject
and Nuisances       property that may endanger the health and safety of the occupants and/or the
                    structural integrity or marketability of the property in the applicable section of the
                    appraisal form.
                •   If hazards or nuisances are observed, the appraiser must describe the conditions
                    and make a requirement for repair and/or for further inspection, and prepare the
                    appraisal “subject to repairs” and/or “subject to inspection” in the site section of
                    the report. These hazards or nuisances may include the following:
                     • subsidence, operating and abandoned gas wells, abandoned wells, slush
                         pits,
                     • heavy traffic, airport noise and hazards, runway clear zones/clear zones,
                     • proximity to high pressure gas, liquid petroleum pipelines or other volatile
                         and explosive products,
                     • residential structures located within the fall distance of a high-voltage
                         transmission line, radio/TV transmission tower, etc.,
                     • excessive hazard from smoke fumes, odors, and stationary storage tanks
                         containing flammable or explosive material.


Soil            •   The appraiser must notate the proximity to dumps, landfills, industrial sites or
Contamination       other sites that could contain hazardous wastes. Additionally to notate any
                    readily observable evidence of hazardous substances in the soil (on-site
                    contamination) and make a requirement for further inspection in the site section.
                •   Conditions that could indicate soil contamination include pools or liquid, pits,
                    ponds, lagoons, stressed vegetation, stained soils or pavement, drums or odors.
                    If any of these conditions exist, further analysis or testing is required.


Grading and     •   Proper drainage control measures may include gutters and downspouts or
Drainage            appropriate grading or landscaping to divert the flow of water away from the
                    foundation.
                •   If the grading does not provide positive drainage from the improvements, the
                    appraiser should make a repair requirement.
                •   Any readily observable evidence of standing water near the property could
                    indicate improper drainage. IF the standing water is problematic, a repair
                    requirement is made in the site section of the report.

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Individual         •   When water and sewer are private, well and septic testing is governed by state
Water Supply           or local requirements; however, the appraiser must note any observable
and Sewage             deficiencies.
System             •   The appraiser must also report on the availability of connection to public and/or
                       community water/sewer systems.               The lender is responsible for the
                       determination of the feasibility for requiring connection.


Distances          •   The appraiser should request a copy of a survey from the homeowner, if
Between                available, that would show the distances between well/septic drainfield,
Well/Septic/Etc.       well/foundation and well/property line.
                   •   The appraiser is not required to sketch the distances but should note in the
                       appraisal if the distances appear to be met and note any adverse site conditions
                       that might warrant further inspections or due diligence.
                   •
                                                                                     rd
                       It is the lender’s decision as to whether a qualified third (3 ) party should map
                       out these distances. In cases where the lot is particularly small and depending
                       on the location of the well, the lender may want to require the survey to reflect
                       these distances.


Lead Based         •   For all FHA insured properties, correction is required for all defective paint
Paint Hazards          surfaces in or on structures and/or property improvements built before January
                       1, 1978.
                   •   The appraiser must provide a detailed description and identify the exact location
                       of any deficiency under physical deficiencies affecting livability.
                   •   For HUD REO properties, HUD will only order a lead-based paint evaluation for
                       properties constructed before 1978 and purchased with FHA-insured financing.

                       Notes:
                       • If the appraiser observes defective paint in a home that was built before
                          1978, then the appraiser must enter an “X” in the “Yes” box and note all
                          areas affected in the physical deficiencies or adverse conditions section of
                          the appraisal report.
                       • If the appraiser does not observe defective paint in a home that was built
                          before 1978, an explanation is not required in the physical deficiencies or
                          adverse conditions section of the appraisal report.

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Lead Based       •   For all FHA loans secured by properties built prior to 1978 where lead-based
Paint Hazards,       paint is present and the appraiser noted defective paint in the home, SunTrust
(continued)          will require the following:
                     • homeowners performing renovation, repair, or painting on their primary
                          residence must provide a letter stating they made the repairs.
                     • Any firm, renovator, contractor, or investment property owner completing the
                          repairs must provide a copy of the EPA or State-Lead Training Certificate in
                          the name of the party who performed the renovation, repair, and painting of
                          defective paint surfaces to be reviewed by the Underwriter.
                     • an inspection must be completed by an FHA Roster Appraiser or Inspector,
                          verifying the repairs have been completed as required by the appraiser.

                     Note: Inspections verifying completion of required repairs may also be
                     performed by an independent third party.

                 •   For all other FHA transactions on properties built prior to 1978, all currently
                     published lead-based paint guidelines continue to apply.


Private Road     •   Each property must have vehicular or pedestrian access.
Access and       •   The property must have an all-weather road surface. (An all-weather surface is
Maintenance          a road surface over which emergency vehicles can pass in all types of weather.)
                 •   Private streets or shared driveways are addressed under “offsite improvements”
                     and must be protected by permanent recorded easements or be owned and
                     maintained by a HOA.

                 Reference: See the “Private Roads” subtopic under the “Closing and Loan
                 Settlement Documentation” for additional requirements.

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Minimum         •   New construction properties must comply with HUD’s Minimum Property
Property            Standards (MPS).
Requirements/   •   Existing construction must comply with HUD’s Minimum Property Requirements
Minimum             (MPR).
Property
Standards           Note: FHA does not require any home to have any appliances to be eligible for
                    FHA financing.

                •   The appraiser must denote any deficiency in the appropriate section(s) (i.e., site
                    issues in site sections, improvement issues in improvement section) of the
                    appraisal report. The appraiser is to note those repairs necessary to make the
                    property comply with FHA’s MPR or MPS together with the estimated cost to
                    cure. The lender will determine which repairs for existing properties must be
                    made for the property to be eligible for FHA-insured financing.
                •   Cosmetic repairs are not required; however, they are to be considered in the
                    overall condition rating and valuation of the property. (I.e., surface treatments,
                    beautification or adornment not required for the preservation of the property such
                    as worn floor finishes, carpeting, holes in window screens, small crack in a
                    windowpane are examples of deferred maintenance that do not require repairs
                    but must be reported by the appraiser.)
                •   The physical condition of existing building improvements is examined at the time
                    of the appraisal to determine whether repairs, alterations or inspections are
                    necessary. This is essential to eliminate conditions threatening the continued
                    physical security of the property.
                •   Required repairs are limited to the necessary requirements for the following:
                     • protect the health and safety of the occupants (Safety),
                     • protect the security of the property (Security), and
                     • correct physical deficiencies or conditions affecting structural integrity
                         (Soundness).
                •   A property with defective conditions is unacceptable until the defects or
                    conditions have been remedied and the probability of further damage eliminated.
                    Defective conditions include those listed below.
                    • Defective construction.
                    • Other readily observable conditions that impair the safety, sanitation or
                        structural soundness of the dwelling.
                •   The appraiser must provide the reason or an indication of a particular problem
                    when requiring an inspection of any mechanical system, structural system, etc.
                    Typical conditions that require further inspection or testing by qualified
                    individuals or entities include those shown below:
                    • infestation – evidence of termites
                    • inoperative or inadequate plumbing, heating or electrical systems
                    • structural failure in framing members
                    • leaking or worn-out roofs
                    • cracked masonry or foundation damage
                    • drainage problems

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Appraisal Requirements, Continued


Repair and      FHA now permits “as-is” appraisals and “subject to” appraisals. The table below
Inspection      shows the conditions under which each category is selected in the reconciliation
Requirements    section of the appraisal report.

                                        Reconciliation – How the appraisal is made
                    The FHA appraisal                  Under the following conditions…
                           is made
                             As Is         • There is/are no repairs, alterations or inspection
                                              conditions noted by the appraiser.
                                           • The property is recommended for rejection.
                          Subject to       • Proposed construction where constructions has not
                      Completion per          started.
                          Plans and        • Under construction but not yet complete and less than
                       Specifications         90% LTV.
                       Subject to the      • Repair or alteration condition(s) noted by the appraiser.
                    following repairs or • Under construction, more than 90% complete with only
                         alternations        minor finish work remaining (buyer preference items, i.e.,
                                             floor, coverings, appliances, fixtures, landscaping, etc.).
                                             Note: This eliminates the need for construction exhibits.
                       Subject to the      • Required inspection(s) noted by the appraiser.
                     following required
                          inspection

                •     Minor property conditions NOT requiring automatic repairs for existing
                      properties include but are not limited to those listed below.
                      • Missing hand rails
                      • Cracked or damaged exit doors that are otherwise operable
                      • Cracked window glass
                      • Defective paint surfaces in homes constructed post-1978
                      • Minor plumbing leaks (i.e., leaky faucets)
                      •   Defective floor finish or covering (worn through the finish, badly soiled carpeting)
                      •   Evidence of previous (non-active) Wood Destroying Insect/Organism
                          damage where there is no evidence of unrepaired structural damage
                      • Rotten or worn-out counter tops
                      • Damaged plaster, sheetrock or other wall and ceiling materials in homes
                          (constructed pre-1978)
                      • Poor workmanship
                      • Trip hazards (cracked or partially heaving sidewalks, poorly installed carpeting)
                      • Crawl space with debris and trash
                      • Lack of an all weather driveway surface
                •     Property conditions that may represent a risk to the health and safety of
                      the occupants or the soundness of the property that will require automatic
                      repair conditions include, but are not limited to those listed below.
                      • Inadequate access/egress from bedrooms to exterior of home.
                      • Leaking or worn out roofs (if three or more layers of shingles on leaking or
                          worn out roof, all existing shingles must be removed before re-roofing).

                                                                                     Continued on next page


Section 2.90                                                                                 October 19, 2012
FHA 203(b) Loan Program                                                                      Page 180 of 230
Broker Seller Guide
Appraisal Requirements, Continued


Repair and      •   Property conditions that may represent a risk to the health and safety of
Inspection          the occupants or the soundness of the property that will require automatic
Requirements,       repair conditions: (Continued)
(continued)         • Evidence of structural problems (such as foundation damage caused by
                        excessive settlement).
                    • Defective paint surfaces in homes constructed pre-1978.
                    • Defective exterior paint surfaces in homes constructed post-1978 where the
                        finish is otherwise unprotected.
                •   Inspections for the following items and/or conditions are no longer
                    mandated in existing properties:
                    • Wood Destroying Insect/Organisms: required if evidence of active
                        infestation, if mandated by state or local jurisdiction, if customary to the area
                        or if a condition of the contract.

                          Reference: See the topic “Wood Destroying Insects” in Section 1.05:
                          Closing Information of the Broker Seller Guide for additional information.

                    •   Well (individual water system): test or inspection required only if there is
                        knowledge that well water may be contaminated, if mandated by state or
                        local jurisdiction, when the water system relies on a purification system due
                        to presence of contaminants, or when there is evidence of corrosion of
                        pipes/plumbing, areas of intensive agricultural within ¼ mile, coal mining or
                        gas drilling operations within ¼ mile, or dump, junkyard, landfill, factory gas
                        station, or dry cleaning operation within ¼ mile; unusually objectionable
                        taste, smell or appearance of the well water.
                    • Septic: test or inspection required only if evidence of system failure, if
                        mandated by state or local jurisdiction, if customary to the area, or at lender’s
                        discretion.
                    • Roof: Flat or unobservable roof inspections not required.
                •   Conditions that DO require automatic inspections include the following
                    items and/or conditions in existing properties:
                    • Standing water against foundation and/or excessively damp basements.
                    • Hazardous materials on the site or within the improvements.
                    • Faulty or defective mechanical systems (electrical, plumbing, or heating).
                    • Evidence of possible structural failure (i.e., settlement or bulging foundation
                        wall).

                                                                                 Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 181 of 230
Broker Seller Guide
Appraisal Requirements, Continued


Required Use    FHA requires the lender to select an inspector listed on the FHA Inspector Roster
of FHA Roster   under the circumstances shown below. Lenders may access an FHA Inspector for
Inspector or    their area through HUD’s website using the web link listed below:
Other           https://entp.hud.gov//idapp/html/insplook.cfm?in_fha=No
Authorized
Parties         New Construction
                • If the mortgagee elects not to have inspections performed by the local
                   jurisdiction in accordance with HUD Mortgagee Letter 01-27, or the local
                   jurisdiction does not issue a Certificate of Occupancy (or its equivalent), FHA
                   requires inspections by a FHA Roster Inspector.
                • FHA requires inspections by a FHA Roster Inspector when the subject property
                   is new construction or manufactured housing.
                • When a Mortgagee Certification is used to clear minor conditions, the
                   Compliance Inspection Report (HUD-92051) must be used by the FHA Roster
                   Compliance Inspector.
                • The FHA compliance inspector that performed the inspection must complete the
                   Compliance Inspection Report (HUD-92051).
                • In addition to the signature of the inspector, the DE Underwriter would sign the
                   form in Section III when and where appropriate.

                Existing Construction
                Other parties eligible to perform inspections are shown below.
                • An FHA Roster Inspector must conduct an inspection, when structural or basic
                    system repairs require architectural expertise, and complete a Compliance
                    Inspection Report (HUD-92051).
                • Inspection reports that are conducted by the FHA appraiser are completed using
                    the Appraisal Update and/or Completion Report (Fannie Mae Form
                    1004D/Freddie Mac Form 442/March 2005) in accordance with Mortgagee Letter
                    09-51.
                • The same appraiser, who placed a repair requirement not requiring architectural
                    expertise, may determine satisfactory completion of the repair.
                • A licensed bonded and registered engineer, a licensed home inspector, or other
                    person specifically registered or licensed may provide documentation to support
                    that all deficiencies noted by the FHA appraiser have been acceptably corrected.
                    These professionals may use their company’s forms and letterhead to make the
                    certification. The report must be reviewed by the either FHA or the DE
                    underwriter, as appropriate.
                • When a Mortgagee Certification is used to clear minor conditions, the
                    Compliance Inspection Report (HUD-92051) must be used.
                • The FHA compliance inspector that performed the inspection must complete the
                    Compliance Inspection Report (HUD-92051). In addition to the signature of the
                    inspector, the DE Underwriter would sign the form in Section III when and where
                    appropriate.

                                                                             Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                            Page 182 of 230
Broker Seller Guide
Appraisal Requirements, Continued


Re-             •   The decision for a reconsideration of value must be made by the HUD staff
consideration       review appraiser or the DE underwriter.
of Appraised    •   Before a request for reconsideration of value is accepted, the appraisal report
Value               and evidence to support a higher value must be reviewed by the DE underwriter.
                    Three (3) new comparables (no more than six [6] months old) must be submitted
                    before sending the request back to the appraiser.
                •   A request for reconsideration of value can be submitted after receipt of the
                    official Conditional Commitment/Statement of Appraised Value. Submission to
                    the DE underwriter must be accompanied by original photographs of each
                    comparable used to support the higher value.
                •   If the new comparables are not similar or acceptable to support the increase, the
                    reviewer will reject the request for reconsideration. If the reviewer does not
                    reject the request but the appraiser performs a review on the new comparables
                    and finds that incorrect information was provided on size, design, sales price,
                    location or closing date, the appraiser is entitled to one half of the original fee. In
                    such cases, the appraiser must comment on the reason for rejecting each
                    comparable.
                •   If the DE underwriter agrees that the reconsideration is valid, it is sent to the
                    appraiser. The appraiser will process the reconsideration and send the
                    completed appraisal report to the underwriter for review. The underwriter must
                    review the appraisal report and issue the statement of appraised value to the
                    borrower.




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 183 of 230
Broker Seller Guide
Prohibition of Property Flipping


General           Property flipping is a practice whereby a recently acquired property is resold for a
                  considerable profit with an artificially inflated value. In an effort to preclude
                  homebuyers using FHA financing from becoming victims of predatory property
                  flipping activity, HUD has implemented a revised property flipping policy.


Overview of       FHA requires that:
FHA’s Property    • only owners of record may sell properties that will be financed using FHA-
Flipping Policy      insured mortgages,
                  • any re-sale of a property may not occur 90 or fewer days from the last sale to be
                     eligible for FHA financing, and
                  • for re-sales that occur between 91 and 180 days, where the new sales price
                     exceeds the previous sales price by one hundred percent (100%) or more, FHA
                     will require additional documentation validating the property’s value.

                      Note: HUD considers the re-sale date as, the date of execution of a sales
                      contract by a buyer that will result in a mortgage to be insured by FHA.


Sale by the       To be eligible for a mortgage insured by FHA, the property must be purchased from
Owner of          the owner of record and the transaction may not involve any sale or assignment
Record            of the sales contract. This requirement applies to all FHA purchase money
                  mortgages regardless of the time between re-sales.

                  The Lender must obtain documentation verifying that the seller is the owner of
                  record and submit this to HUD as part of the insurance endorsement binder; it is to
                  be placed behind the appraisal on the left side of the case binder. This
                  documentation may include, but is not limited to:
                  • a property sales history report,
                  • a copy of the recorded deed from the seller, or
                  • other documentation such as a copy of a property tax bill, title commitment or
                     binder, demonstrating the seller’s ownership of the property and the date it was
                     acquired.

                                                                               Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 184 of 230
Broker Seller Guide
Prohibition of Property Flipping, Continued

Exceptions to   Exceptions to the 90-Day Restriction
the 90-Day      If the owner of record sells a property within 90 days after the date of acquisition, that
Restriction     property is not eligible security for a mortgage insured by FHA unless the loan file is
                documented that the transaction falls within one of the exceptions to the time
                restrictions on re-sales listed below:
                • Sales by HUD of its own Real Estate Owned (REO) properties.
                • Sales by other United States Government agencies of single family properties
                     pursuant to programs operated by these agencies.
                • Sales of properties by non-profits approved to purchase HUD-owned single-family
                     properties at a discount with resale restrictions.
                • Sales of properties that are acquired by the sellers by inheritance.
                • Sales of properties purchased by employers or relocation agencies in connection
                     with relocations of employees.
                • Sales of properties by state and federally charted financial institutions and
                     Government Sponsored Enterprises.

                    Note: Most state and federally chartered financial institutions are going to be
                    banks, savings and loans, or credit unions.

                •   Sales of foreclosed properties by state licensed mortgage lenders.
                •   Any entity that sells foreclosed properties on behalf of an exempt lender or
                    financial institution.
                •   Sales of properties by local and state government agencies.
                •   Sales of a previously foreclosed or abandoned property acquired, rehabilitated
                    and resold by an entity using funds from and performing under agreements with
                    state and local government agencies under a Neighborhood Stabilization Program
                    (NSP).

                    Notes:
                    • Properties that were HUD REOs and then rehabilitated and resold are not
                       eligible under this exemption.
                    • NSP fund providers must have established a written agreement or similar
                       document authorizing certain entities (for-profit and/or non-profit companies)
                       as a representative purchaser and rehabilitator of foreclosed and abandoned
                       properties.
                    • Documentation proving a seller is exempt from any of the property flipping
                       guidelines is required in the endorsement file prior to approving the loan
                       transaction.

                •   Upon FHA’s announcement of eligibility in a notice, i.e. Mortgagee Letter (ML),
                    sales of properties located in areas designated by the President as federal
                    disaster areas, will be exempt from the restrictions of the property-flipping rule.
                    The notice will specify how long the exception will be in effect and the specific
                    disaster area affected.
                    • The exemption does not provide an exception to additional appraisal
                        requirements when the re-sale price is 100% or more over the price paid by
                        the seller when the property was acquired in the last 180 days.
                    • Re-sales that occur under this exemption within 90 days of last acquisition
                        with a sales price increase of 100% or more require a second appraisal.

                                                                                Continued on next page
Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 185 of 230
Broker Seller Guide
Prohibition of Property Flipping, Continued


Re-sales         Re-sales Occurring Between 91 and 180 Days Following Acquisition
Occurring        • If the re-sale date is between 91 and 180 days following acquisition by the seller,
Between 91 and      the Branch is required to obtain a second appraisal made by another appraiser IF
180 Days            the re-sale price is one hundred percent (100%) or more over the price paid by
Following           the seller when the property was acquired.
Acquisition
                     Example: If a property is re-sold for $80,000 within six (6) months of the seller’s
                     acquisition of that property for $40,000, the Branch must obtain a second
                     independent appraisal supporting the $80,000 sales price.

                 •   The lender may also provide documentation showing the costs and extent of
                     rehabilitation that went into the property resulting in the increased value, but must
                     still obtain the second appraisal.
                 •   The cost of the second appraisal may not be charged to the homebuyer;
                     however may be paid by the seller.
                 •   FHA also reserves the right to revise the re-sale percentage level at which this
                     second appraisal is required, by publishing a notice in the Federal Register.
                 •   Requirements for the appraisals:
                     • A conventional appraisal is not acceptable.
                     • Both appraisals must be FHA appraisals prepared by independent appraisers.
                     • Both appraisers must be on HUD’s roster list of Approved Appraisers and be
                          state certified with an unexpired license.
                     • Repairs on both appraisals must be resolved.
                     • If there is a difference in value of more than five percent (5%) between the
                          two appraisals, the appraisal with the lowest value must be used.
                     • The Conditional Commitment is issued based on the appraisal used by
                          underwriting.
                     • Designate the review appraisal by stamping it “REVIEW APPRAISAL”.
                     • Both appraisals must be entered into the FHA Connection in the fields
                          allocated as “First Appraisal” and “Second Appraisal.” Once the first appraisal
                          information is entered, the field for the second appraisal information will
                          appear.
                     • USPAP requirements must be met on both appraisals. This rule requires
                          appraisers to analyze any prior sales of the subject property and comparables
                          that occurred within specific time periods.

                                                                                 Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 186 of 230
Broker Seller Guide
Prohibition of Property Flipping, Continued

Re-Sales          •   If the re-sale date is more than 90 days after the date of acquisition by the seller
Occurring             but before the end of the twelfth (12th) month following the date of the
Between 91            acquisition, FHA reserves the right to require additional documentation from the
Days and 12           lender to support the re-sale value if the re-sale price is five percent (5.00%) or
Months                greater than the lowest sales price of the property during the preceding twelve
Following             (12) months.
Acquisition       •   At FHA’s discretion, such documentation may include, but is not limited to, an
                      appraisal from another appraiser.

                      Note: Please see the appraisal requirements previously mentioned in this
                      section for guidance.

                  •   FHA will announce its determination to require the additional appraisal and other
                      value documentation, such as an Automated Valuation Method (AVM), through a
                      Federal Register issuance. This requirement may be established either
                      nationwide or on a regional basis, at FHA’s discretion.


New Property      •   The restrictions in the new amendment are not applicable to a builder selling a
Flipping              newly built home or building a home for a homebuyer wishing to use FHA-
Amendment             insured financing.
Inapplicable to
New
Construction


Date of           Date of Property Acquisition Determined by the Appraiser
Property          • The Lender may rely on information provided by the appraiser in compliance with
Acquisition          the updated Standard Rule 1-5 of the Uniform Standards of Professional
Determined by        Appraisal Practice (USPAP). This rule requires appraisers to analyze any prior
the Appraiser        sales of the subject property that occurred within specific time periods, now set
                     for the previous three (3) years for one-to-four family residential properties.
                  • As a result, the information contained on the Uniform Residential Appraisal
                     Report or other applicable appraisal report form describing the Date, Price and
                     Data for Prior Sales is to include all transactions for the subject property within
                     three (3) years of the date of the appraisal and the comparable sales within
                     twelve (12) months of the date of the comparable sale.
                  • Appraisers are responsible for considering and analyzing any prior sales of the
                     property being appraised within three (3) years of the date of the appraisal and
                     the comparables that are utilized within twelve (12) months of the date of the
                     comparable sale.
                  • If the most recent sale of the property occurred at least one year previously, no
                     additional documentation is required.
                  • The Lender remains accountable for verifying that the seller is the owner of
                     record and may rely on information developed by the appraiser for this purpose if
                     provided.
                  • Any conflicts in information must be resolved and the file must be documented
                     accordingly.




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 187 of 230
Broker Seller Guide
Automated Underwriting System (AUS) Issues


FHA TOTAL         •   All loans (with the exception of Streamline Refinance transactions) must be run
Scorecard             through TOTAL Scorecard.
                      • Evidence of the TOTAL Scorecard evaluation MUST be in every loan file.

                      Note: Streamline refinances must not be submitted through TOTAL Scorecard.

                      Exception: If a streamline refinance is inadvertently submitted through TOTAL
                      Scorecard, the loan must be traditionally underwritten, and the DE underwriter
                      remains responsible for insuring all HUD and SunTrust Mortgage Credit
                      streamline refinance guidelines are met (i.e., mortgage payment history,
                      seasoning, etc.). Underwriters must also use their CHUMS ID for page three of
                      the HUD/VA Addendum to Uniform Residential Loan Application (HUD 92900-A),
                      FHA Connection, and the FHA Loan Underwriting and Transmittal Summary
                      (HUD 92900-LT) for streamline refinances.

                  •   The Scorecard eliminates the possibility of different responses for a loan that is
                      run through DU, then subsequently run through LP.
                  •   TOTAL only provides an “Accept” or “Refer” and the reasons for the refer,
                      including which rules were triggered. The AUS vendor provides the feedback
                      messages.

                  Notes:
                  • TOTAL stands for “Technology Open To Approved Lenders.”
                  • Only DE mortgagees with an AUS or Fannie DU or Freddie LP can directly
                     interface with the TOTAL Scorecard.
                  • The FHA Sponsor ID (lenders who do not have a FHA DE Lender approval) and
                     a Lender/Originator ID number must be entered correctly or TOTAL will
                     electronically render an error and the lender will not be able to process the loan.


Data Input        General
Instructions to   • The FHA CASE NUMBER must be a valid FHA Case Number.
Access TOTAL      • If the case number is left blank on the INITIAL submission to TOTAL Scorecard
Scorecard            for a “pre-qualification” loan, then the FHA Case Number MUST BE ENTERED
                     WITH THE FINAL SUBMISSION of data prior to loan closing.
                  • Failure to enter the case number in TOTAL may result in the case binder being
                     returned by FHA with a request for manual underwriting.
                  • Unless the loan is scored at least once with the FHA Case Number, FHA will
                     not recognize the risk assessment provided by TOTAL, nor can the data fields
                     in CHUMS be pre-filled with information necessary for endorsement
                     processing.
                  • When the data fields are not entered into CHUMS, FHA re-scores the
                     mortgage if the new entries indicate degradation in loan quality from those
                     same fields populated into TOTAL. This re-scoring may result in a downgrade
                     of the risk assessment from an approve to a refer and the file will be returned
                     for manual underwriting.

                                                                                Continued on next page



Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 188 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Data Input        Desktop Originator/Desktop Underwriter (DO/DU)
Instructions to   The tables below show the data input instructions to access the FHA TOTAL
Access TOTAL      Scorecard in Desktop Originator/Desktop Underwriter (DO/DU)
Scorecard,
(continued)
                                                       Brokers
                              Calyx Point Users                      DO/DU Direct Users
                  •   Agency Case Number:                    • Agency Case Number:
                      Interfaces/Fannie Mae/Loan APP Pg         Government Screen: identify in
                      1 Screen: identify in the Agency          the Agency Case No. field.
                      Case No. field.                        • FHA Lender ID: Government
                  •   FHA Lender ID: Interfaces/Fannie          Screen: identify in the FHA
                      Mae/Government Screen: identify in        Lender ID field.
                      the FHA Lender ID field.               • FHA Sponsor ID: Government
                  •   FHA Sponsor ID: Interfaces/Fannie         Screen; identify in the FHA
                      Mae/Government Screen: identify in        Sponsor ID field.
                      the FHA Sponsor ID field.
                                                  SunTrust Employees
                              Calyx Point Users                      DO/DU Direct Users
                  •   Agency Case Number:                    • Agency Case Number:
                      Interfaces/Fannie Mae/Loan APP Pg         Government Screen: identify in
                      1 Screen: identify in the Agency          the Agency Case Number field.
                      Case No. field.                        • FHA Lender ID: Government
                  •   FHA Lender ID: Interfaces/Fannie          Screen: identify in the FHA
                      Mae/Government Screen: identify in        Lender ID field.
                      the FHA Lender ID field.

                                                                            Continued on next page




Section 2.90                                                                      October 19, 2012
FHA 203(b) Loan Program                                                           Page 189 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Data Input        Loan Prospector (LP)
Instructions to   The tables below show the data input instructions to access the FHA TOTAL
Access TOTAL      Scorecard in Loan Prospector (LP).
Scorecard,
(continued)

                                                       Brokers
                              Calyx Point Users              LoanProspector.com Direct Users
                  •   Agency          Case      Number:    • Agency Case Number: FHA
                      Interfaces/Freddie Mac/Page 3            Screen: identify in the “FHA Case
                      Screen: identify in the “FHA/VA          Number” field.
                      Case #.” field.                      • FHA Lender ID: User Profile
                  •   FHA Lender ID: Interfaces/Freddie        Screen: identify in the “FHA
                      Mac/Page 3 Screen: identify in the       Lender ID” field. The entry in the
                      “Lender ID” field.                       User Profile Screen will become
                  •   FHA             Sponsor        ID:       the default entry in the “FHA
                      Interfaces/Freddie Mac/Page 3            Lender ID” field on the FHA
                      Screen: identify in the “Sponsor         Screen.
                      ID” field.                           • FHA Sponsor ID: FHA Screen;
                                                               identify in the “FHA Sponsor ID”
                                                               field; or User Profile Screen: Only
                                                               complete the “FHA Sponsor ID”
                                                               field on the User Profile Screen if
                                                               you assign FHA transactions to
                                                               only one (1) lender. It is critical
                                                               that the “FHA Sponsor ID” field be
                                                               completed with the correct lenders’
                                                               ID.
                                                SunTrust Employees
                              Calyx Point Users              LoanProspector.com Direct Users
                  •   Agency Case Number: Interfaces/      • Agency Case Number: FHA
                      Freddie Mac/Page 3 Screen:               Screen: identify in the “FHA Case
                      identify in the “FHA/VA Case #.”         Number” field.
                      field.                               • FHA Lender ID: User Profile
                  •   FHA Lender ID: Interfaces/Freddie        Screen: identify in the “FHA
                      Mac/Page 3 Screen: identify in the       Lender ID” field. The entry in the
                      “Lender ID” field.                       User Profile Screen will become
                                                               the default entry in the “FHA
                                                               Lender ID” field on the FHA
                                                               Screen.

                                                                             Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                            Page 190 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


TOTAL           •   The lender is responsible for the integrity of the data used to obtain the
Scorecard           risk assessment and for resubmitting the loan when material changes are
Resubmission        discovered or otherwise occur during loan processing.
Requirements    •   The lender is required to resubmit the loan through the automated
                    underwriting system for an updated evaluation under any of the conditions
                    listed below.
                    • Borrowers were either added to or deleted from the loan application. Those
                         borrowers shown on the most recent submission to AUS must be the same
                         borrowers who sign the mortgage note/deed of trust.
                    • Borrowers income and/or cash assets/reserves decrease by an amount
                         greater than the allowable tolerances.

                          Note: For HMDA and Regulatory Compliance purposes, the income used in
                          making the underwriting decision must be consistent throughout the file (i.e,
                          AUS findings, FHA Loan Underwriting and Transmittal Summary (HUD-
                          92900-LT) and MLCS must all reflect the same income).

                    •     There were changes to the sales price or terms and conditions of the mortgage.
                    •     Any changes are discovered that would negatively affect the borrower’s
                          ability to repay the mortgage.
                    •     Information about the property valuation changes, (i.e., the appraised value
                          is determined to be less than the sales price.)


TOTAL           •   The tolerance thresholds are provided for those situations where loan application
Scorecard           data differs from what the mortgage lender entered into TOTAL early in the loan
Tolerance           processing phase and then documents later in the processing of the loan.
Levels          •   The table below provides the tolerance levels available when scoring loans
                    through TOTAL Scorecard.

                    If the application variable is       there is no need to resubmit to TOTAL for
                                                               rescoring provided that………
                 Cash Reserves                          the verified amount is different by ten percent
                                                        (10%) or less than that reported by the
                                                        borrowers on the initial application.
                 Income                                 the borrower’s verified income matches
                                                        income used on last TOTAL Scorecard
                                                        submission.
                 Taxes and Insurance                    the escrow amounts verified at or near
                                                        settlement does not result in more than a two
                                                        percent (2%) increase in the payment-to
                                                        income and debt-to-income ratios.

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 191 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


MLCS Loan Setup The following table provides instructions for MLCS Loan Setup and Processing.
and Processing

     Subject              Non-AUS Loans                         Fannie Mae                      Freddie Mac
                                                               DO/DU Loans                       LP Loans
Appraisal Codes     F - Full appraisal               F - Full appraisal                    F - Full appraisal
Casefile ID         Not applicable                   MornetPlus Casefile ID # (see         Key ID #
                                                     first       condition     under       (see top left of LP
                                                     “Observations” section of DU          Feedback Certificate)
                                                     Findings Report)
Equity Line Input   Regardless of whether there      Non-AUS guidelines apply.             Non-AUS guidelines
                    is a balance or not on the                                             apply.
                    HELOC at closing, it is
                    disclosed as secondary
                    financing in MLCS using the
                    total available credit line as
                    the “balance.”
Investor Codes      000 (all FHA loans)              000 (all DO/DU loans)                 000 (all LP loans)
Program Codes       •   F51TA (FHA 5 Yr ARM)         Same as non-AUS codes.                Same as non-AUS
                    •   F71TA (FHA 7 Yr ARM)                                               codes.
                    •   F15FX (10 or 15 Year
                        Fixed)
                    •   F30FX (20 or 30 Year
                        Fixed)
                    •   F30JFX (30 Year Fixed
                        Jumbo)
                    •   F5TAJ (30 Year 5/1
                        Jumbo ARM)
                    •   F7TAJ (30 Year 7/1
                        Jumbo ARM)
                    •   F30SPI (Fixed Rate
                        Seller Paid Interest
                        Payment Reduction)
Reporting Income    •   “Verified” income in         •   “Verified” income in MLCS         Same guidelines as
on MLCS                 MLCS refers to the               refers to the income used to      DO/DU.
                        income used to make              make      the     underwriting
                        the           underwriting       decision on a loan file.
                        decision on a loan file.     •   If         “Approve/Eligible,”
                    •   On a non-AUS loan,               “verified” income is the
                        “verified” income is the         income used to make the
                        income that has actually         DO/DU decision, regardless
                        been verified through            of income documentation
                        tax returns, paystubs,           requirements             and/or
                        written VOE and any              additional income found in
                        other             income         analyzing documentation.
                        documentation provided       •   If “Refer,” “verified” income
                        in the loan file.                is the same as non-AUS
                                                         loans.

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Section 2.90                                                                                   October 19, 2012
FHA 203(b) Loan Program                                                                        Page 192 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


MLCS Loan Setup and Processing, (continued)

    Subject          Non-AUS Loans                  Fannie Mae                      Freddie Mac
                                                   DO/DU Loans                       LP Loans
Reporting        See previous page for    • If, after analyzing income         See previous page for
Income on        information.                 documentation         on     a   information.
MLCS,                                         DO/DU          loan,       the
(continued)                                   borrower has less income
                                              than initially provided, the
                                              loan must be resubmitted
                                              to DO/DU with the lower
                                              income. In some cases,
                                              this could alter the
                                              DO/DU decision (i.e., an
                                              “Approve/ Eligible” may
                                              become                       a
                                              “Refer/Eligible”).        This
                                              lower income figure is the
                                              “verified” income.
                                          • If, after analyzing income
                                              from documentation on a
                                              DO/DU          loan,       the
                                              borrower is found to have
                                              more income than initially
                                              provided, the loan does
                                              not       have      to      be
                                              resubmitted           through
                                              DO/DU and “verified”
                                              income is the income
                                              initially provided.
Vendor Code      Not applicable           D - Desktop Underwriter.             L - Loan Prospector.


                                                                               Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 193 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


AUS             TOTAL Scorecard/AUS Recommendations
Recommendations The following table provides descriptions to TOTAL Scorecard/AUS
and             recommendations.
Resubmissions
                Note: HUD requires only the final AUS findings report in the file, whether the
                recommendation is an “Approve” or a “Refer.”

AUS Recommendation                                             Description
DO/DU “Approve/Eligible”     •   If there is erroneous data in the credit report or contradictory or
                                 derogatory information in the loan file that would justify additional
LP “Accept”                      investigation or provide grounds for a decision different from the
                                 TOTAL Scorecard/AUS recommendation, the underwriter is required
                                 to take appropriate action.
                             •   The loan is eligible for FHA mortgage insurance with reduced
                                 documentation and credit requirements.
                             •   ZFHA should be entered as the CHUMS ID on the FHA Loan
                                 Underwriting and Transmittal Summary (HUD-92900-LT), except
                                 streamline refinances.           Additionally, SunTrust requires the
                                 underwriter/person validating the file to sign the FHA Loan
                                 Underwriting and Transmittal Summary (HUD-92900-LT).
DO/DU “Approve/Ineligible”   •   The lender must determine that the reason for the ineligibility is one
                                 that can be resolved in compliance with FHA Underwriting, and must
                                 document the circumstances in the underwriter’s comments section of
                                 the FHA Loan Underwriting and Transmittal Summary (HUD-92900-
                                 LT). An FHA Direct Endorsement Underwriter signature is not
                                 required on the FHA Loan Underwriting and Transmittal Summary
                                 (HUD-92900-LT), unless the loan is downgraded to Refer in
                                 accordance with FHA Guidelines. ZFHA should be entered as the
                                 CHUMS ID on FHA Loan Underwriting and Transmittal Summary
                                 (HUD-92900-LT) , except streamline refinances.            Additionally,
                                 SunTrust requires the underwriter/ person validating the file to sign
                                 the FHA Loan Underwriting and Transmittal Summary (HUD-92900-
                                 LT).
                             •   If the ineligibility can be “cured” within TOTAL Scorecard/DO/DU, the
                                 loan data must be corrected as appropriate and the loan must be
                                 resubmitted to DO/DU.
                             •   If the ineligibility cannot be overcome (within TOTAL
                                 Scorecard/DO/DU or outside of TOTAL Scorecard/DU), the loan is
                                 not eligible for FHA mortgage insurance.

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 194 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


AUS             TOTAL Scorecard AUS Recommendations, Continued
Recommendations
and
Resubmissions,
(continued)

AUS Recommendation                                                 Description
DO/DU “Refer/Eligible”         •   DU “Refer/Eligible” and LP “Refer” loans are underwritten to non-AUS
                                   underwriting guidelines. Although a DE underwriter must underwrite
LP “Refer”                         the loan, reduced documentation may be used if allowed by the
                                   findings report and the DE underwriter.
DO/DU “Refer/Ineligible”       •   The reason for the ineligibility must be determined.
                               •   If the ineligibility can be “cured,” the loan data must be corrected as
                                   appropriate and the loan must be resubmitted to TOTAL Scorecard /
                                   DO/DU.
                               •   If the ineligibility cannot be overcome, the loan is not eligible for FHA
                                   mortgage insurance.
                               •   If the ineligibility is “cured” outside of TOTAL Scorecard / DO/DU, see
                                   “Refer/Eligible” above.

                     •     System overrides are required when a loan application variable is revealed
                           during loan processing. These variables must be reviewed by a DE
                           underwriter and a decision rendered. The variables listed below may trigger a
                           system override (“Refer”).
                           • Front-end ratio is too high
                           • Back-end ratio is too high
                           • Bankruptcy occurred within last two years
                           • Foreclosure occurred within last three years
                           • A total of 90 days late mortgage payments in last year

                     Note: The 90 days late could mean one mortgage payment that was 90 days late,
                     three payments that were each 30 days late, or a payment that was 60 days late
                     and another payment that was 30 days late.

                                                                                   Continued on next page




Section 2.90                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                   Page 195 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


AUS             AUS Resubmissions and Forms in DO/DU
Recommendations The following table provides instruction on AUS resubmissions and forms in
and             DO/DU.
Resubmissions,
(continued)

   Subject                                        Fannie Mae DO/DU Loans
AUS Reports       •     The DO/DU decision is not valid without the DO/DU Findings Report and the
                        DO/DU Underwriting Analysis form.
                  •     The most current DO/DU Findings Report and DO/DU Underwriting Analysis
                        form must be in the lender’s origination binder and must reflect loan terms as
                        approved and closed. This includes loan files where the recommendation was
                        “Approve/Ineligible” or “Refer” and loan files where the loan had to be
                        traditionally underwritten.
                  •     The DO/DU Findings Report and Underwriting Analysis form must also be
                        submitted in the lender’s FHA case binder and should be placed at the top of the
                        right side of the binder.

                      AUS Resubmissions and Forms in LP
                      The following table provides instruction on AUS resubmissions and forms in LP.

     Subject                                       Freddie Mac LP Loans
“Tolerances” –    •     There are no tolerances for information in LP except in the following
No Resubmission         circumstances.
                  •     It is not required to resubmit to LP if an FHA Case Number has been obtained
                        and income increases, assets increase, liabilities decrease, or other credit and
                        application variables improve.
AUS Reports       •     The LP decision is not valid without the LP Feedback Certificate.
                  •     The most current LP Feedback Certificate and Loan Summary Report must be
                        in the lender’s origination binder and must reflect loan terms as approved and
                        closed. This includes loan files where the recommendation was “Refer” and
                        loan files where the loan had to be traditionally underwritten.
                  •     The LP Feedback Certificate and Loan Summary Report must also be submitted
                        in the lender’s FHA case binder and should be placed at the top of the right side
                        of the binder.


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Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 196 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Underwriting      •   Regardless of the risk assessment provided, the lender remains accountable
Issues                for compliance with all FHA guidelines.
                  •   Some examples of lender accountability items provided by FHA are listed
                      below.
                      • If the loan is a buydown, the lender needs to ensure the borrower is
                           qualifying on the note rate.
                      • Taxes are based on improved property on new construction cases.
                      • If the loan is a cash-out refinance, ensure the borrower meets the eligibility
                           conditions.
                      • Data integrity must be verified.
                      • Information in TOTAL must match the information in FHA
                           Connection.

                          Note: HUD will run a comparison. If results are a mismatch, HUD will
                          downgrade the assessment and return the file to the lender.

                      •   Resubmission when borrower’s circumstances change.

                          Reference: See the subtopic “Tolerances – No Resubmission” previously
                          presented in this topic for additional information.

                      •   Ensure FHA Loan Underwriting and Transmittal Summary (HUD-92900-
                          LT) indicates ZFHA as CHUMS ID if the loan was approved through the
                          TOTAL Scorecard, except streamline refinances.
                      •   Sign HUD Form 92900-A page 3 and use ZFHA as CHUMS ID if the loan
                          was approved through the TOTAL Scorecard, except streamline
                          refinances.

                  •   Check for potential manual downgrades.

                      Note: A manual downgrade is similar to a system override in that they both
                      require review and decision by an underwriter; however, the manual
                      downgrade is used when either Federal eligibility issues or credit issues are
                      discovered.

                  •   The following tables provide information on issues requiring manual
                      downgrades.

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Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 197 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Underwriting Issues, (continued)

                                                    Manual Downgrades
                   Issue                     Requirements
                   No Credit Scores          • Borrowers who do not have a credit score are not
                                                 eligible for financing with SunTrust.
                   Federal Eligibility       The individual must be in good standing with any federally
                   includes the following:   related obligation.
                   • Delinquent              • Borrowers who are delinquent on any Federal Debt are
                        Federal Debt             not eligible for an FHA insured mortgage.
                   • CAIVRS                  • If CAIVRS indicates a Federal delinquency, default,
                   • LDP/GSA                     claim payment or lien, the borrower is not eligible for
                                                 additional federally related credit.
                                             • A borrower who is suspended, debarred or otherwise
                                                 excluded from participation in the Department’s
                                                 program is not eligible for a FHA insured mortgage.
                   Bankruptcy                • To be eligible for AUS processing, the Bankruptcy must
                   • Chapter 7, and              have been discharged for a minimum of 2 years.
                   • Chapter 13.             • Bankruptcies that were discharged within two (2) years
                                                 of the loan application must be manually underwritten.
                                             • If a Chapter 7 Bankruptcy is discharged less than one
                                                 (1) year, the borrower is not eligible for FHA.
                   Previous Mortgage         • Borrowers whose previous residence or any real
                   Foreclosure                   property was foreclosed within a 3-year period are not
                                                 eligible for an insured mortgage.

                                             Reference: See “Bankruptcy” subtopic within the topic
                                             “Credit Requirements” for exceptions and additional
                                             underwriting guidelines.

                   Late Mortgage             •   Traditional underwriting is required if the credit report
                   Payments                      used by TOTAL Scorecard did not accurately reflect
                                                 the mortgage payment history.
                   Unrecognizable HUD        •   If HUD in unable to recognize the data, the file will be
                   Case Number                   returned for traditional underwriting.
                                             •   The FHA Case Number must be valid or left blank on
                                                 the initial submission, but must be entered with the final
                                                 submission of data.

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Section 2.90                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                   Page 198 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Underwriting Issues, (continued)

                    Subject           Fannie Mae DO/DU Loans                  Freddie Mac LP Loans
               Appraisal Review     •  All FHA appraisals must be         •    All FHA appraisals must
               and Approval            reviewed and approved by an             be       reviewed       and
                                       approved        FHA        DE           approved          by     an
                                       underwriter, regardless of the          approved        FHA      DE
                                       DO/DU recommendation.                   underwriter, regardless
                                    • AUS specialists and POS                  of           the         LP
                                       loan officers do not have               recommendation.
                                       authority to review and            •    AUS specialists and
                                       approve appraisals on FHA               POS loan officers do not
                                       loans.                                  have authority to review
                                                                               and approve appraisals
                                                                               on FHA loans.
               Approval Authority   •   Generally, FHA loans must         •    All FHA loans must be
                                        be approved by an FHA DE               approved by an FHA DE
                                        underwriter, regardless of the         underwriter, regardless
                                        DO/DU recommendation.                  of           the         LP
                                    •   AUS specialists and POS                recommendation.
                                        loan officers do not have         •    AUS specialists and
                                        authority to approve FHA               POS loan officers do not
                                        loans.                                 have       authority      to
                                                                               approve       FHA     loans
                                                                               submitted through LP.
               CHUMS ID             •   For TOTAL Scorecard, if           •    For TOTAL Scorecard, if
                                        “Approve/Eligible,”      ZFHA          “Accept/Eligible,” ZFHA
                                        should be entered on the FHA           should be entered on the
                                        Loan      Underwriting     and         FHA Loan Underwriting
                                        Transmittal Summary (HUD-              and              Transmittal
                                        92900-LT) as the CHUMS ID,             Summary (HUD-92900-
                                        except when the transaction            LT) as the CHUMS ID.
                                        is a streamline refinance,        •    If “Refer,” the CHUMS ID
                                        second home, or investment             of     the      FHA      DE
                                        property.                              underwriter should be
                                    •   If “Refer,” the CHUMS ID of            entered on the FHA Loan
                                        the FHA DE underwriter                 Underwriting            and
                                        should be entered on the               Transmittal        Summary
                                        FHA Loan Underwriting and              (HUD-92900-LT) as the
                                        Transmittal Summary (HUD-              CHUMS ID.
                                        92900-LT) as the CHUMS ID.        •    If “Accept/Ineligible,” see
                                    •   If “Approve/Ineligible,” see           the                   “AUS
                                        the “AUS Recommendations               Recommendations and
                                        and Resubmissions” subtopic            Resubmissions” subtopic
                                        previously     presented    for        previously presented for
                                        additional information.                additional information.

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Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 199 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued

Underwriting Issues, (continued)

 For Mortgages Receiving an “Approve/Eligible”           For Mortgages Receiving a “Refer/Eligible”
• The DE underwriter is not required to personally       • The DE underwriter is required to
  review the credit and/or qualifying ratios.                underwrite both credit and capacity
• The DE underwriter is not required to certify that         according to standard FHA guidelines.
  the borrower’s credit and capacity meets FHA’s         • Reduced documentation may be used if
  standard requirements.                                     allowed by the findings report and
                                                             approved by the DE Underwriter.
    Note: The DE Underwriter is responsible for          • The DE underwriter is required to certify
    ensuring the integrity and accuracy of the data          that the borrower’s credit and capacity
    used to render a decision.                               meet standard FHA requirements.
                                                         • The DE underwriter must underwrite the
•   The DE underwriter must underwrite the                   appraisal according to standard FHA
    appraisal   according    to   standard    FHA            requirements.
    requirements.                                        • The CHUMS ID number of the DE
•   The TOTAL Mortgage Scorecard CHUMS                       underwriter is to be recorded on forms
    number (ZFHA) is to be recorded on forms HUD-            HUD-92900-A page 3 and the FHA
    92900-A page 3 and the FHA Loan Underwriting             Loan Underwriting and Transmittal
    and Transmittal Summary (HUD-92900-LT).                  Summary (HUD-92900-LT).
    Note: Capacity is the ability to repay the loan at
    the approved ratios.

                                                                              Continued on next page




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                             Page 200 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued

Submission to       The following table provides screen input instructions for the submission to AUS
AUS Through         through Calyx Point.
Calyx Point
                    Reference: See the topic “Ease-In Payment Reduction Feature” for specific
                    instructions to enter a seller-paid interest payment reduction in Calyx Point.

                    Fannie Mae ARM Plan Numbers in Calyx
                    • FHA 1 Year ARM:         251
                    • FHA 5/1 and 7/1 ARMs:   FHAHY

   Screens                    Fannie Mae DO/DU                                Freddie Mac LP
Borrower        •    Identify loan as an FHA loan.              •   Identify loan as an FHA loan.
Information     •    Enter base loan amount (without            •   Enter base loan amount (without
Screen               UFMIP) in Loan Amt field.                      UFMIP) in Loan Amt field.
                •    Click on Mortgage Insurance button         •   Click on Mortgage Insurance button
                     at the bottom and input the UFMIP              at the bottom and input the UFMIP
                     percentage in the MIP, FF field (can           percentage in the MIP, FF field (can
                     either choose from existing drop down          either choose from existing drop down
                     list or manually input), if the UFMIP is       list or manually input), if the UFMIP is
                     financed.      Total loan amount will          financed. Total loan amount will prefill
                     prefill in the Loan Amount with Up-            in the Loan Amount with Up-Front
                     Front MIP/Funding Fee field (which             MIP/Funding Fee field (which is
                     is grayed out).                                grayed out).
                •    Check the box Lock to open up the          •   Check the box Lock to open up the
                     MIP, FF field and Amount Paid in               MIP, FF field and Amount Paid in
                     Cash field, if needed.                         Cash field, if needed.

                                                                                    Continued on next page




Section 2.90                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                   Page 201 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Submission to AUS Through Calyx Point, (continued)

  Screens                   Fannie Mae DO/DU                               Freddie Mac LP
Loan             •   Leave Agency Case Number field           •   Leave Agency Case Number field
Application          blank since FHA case number is not           blank since FHA case number is not
Section I of         obtained at application.                     obtained at application.
1003             •   The Agency Case Number must be           •   Enter Prequal in Agency Case
                     included in the final 1003.                  Number field if prequalification.
                                                              •   Select     Underwriting        in  the
                                                                  Processing Point field.
                                                              •   Complete the applicable selection in
                                                                  the Secondary Finance field.
                                                              •   Select Full Documentation in the
                                                                  Req’d Doc Type field.
Loan             •   If Purpose of Loan is Refinance,         •   Identify “Purpose of Loan” as
Application          identify “Purpose of Refinance as            “Purchase” or “Regular Refinance.”
Section II of        Limited Cash-Out Rate/Term,” “Cash-
1003                 Out/Other,”         “Cash-Out/Debt
Property             Consolidation,” or “Cash-Out/Home
Information          Improvement.”
and Purpose
of Loan
Loan             •   Enter a full 2-year residency history    •   Enter a full 2-year residency history
Application          for each borrower.                           for each borrower.
Section III of   •   If 2 (or more) individuals on loan who
1003                 are not married, enter each one as a
Borrower             “borrower” on a separate loan
Information          application so that individual credit
                     reports may be ordered (even if they
                     are living together and co-mingle
                     accounts).
Loan             •   Enter        current       employment    •   Enter a full 2-year employment history
Application          information.                                 for each borrower.
Section IV of
1003                 Note: A full 2-year employment
Employment           history for each borrower is required
Information          on the 1003 signed by the borrower.
Loan             •   If there is a non-occupant co-           •   If non-occupant co-borrower, the
Application          borrower, the current total housing          current total housing expense of the
Section V of         expense of the non-occupant co-              non-occupant co-borrower must be
1003                 borrower will be included in the total       included as a lump sum with the new
Monthly              monthly debt ratio.                          first mortgage P&I under “Proposed
Income and                                                        Housing Expense.”
Combined
Housing
Expense


                                                                                 Continued on next page


Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 202 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Submission to AUS Through Calyx Point, (continued)

   Screens                   Fannie Mae DO/DU                                      Freddie Mac LP
Loan            •   Identify a gift as “Gift Not Deposited”        •   Identify a gift in the Gift fund for
Application         in asset section, whether or not the               down pmt field, whether or not the
Section VI of       gift has been received and deposited               gift has been received and deposited
1003                by the borrower.                                   by the borrower.
Assets and      •   If the gift has been deposited into the        •   If the gift has been deposited into the
Liabilities         borrower’s account, subtract the                   borrower’s account, subtract the
                    amount of the gift from the asset                  amount of the gift from the asset
                    balance prior to entering the asset                balance prior to entering the asset
                    balance.                                           balance.
                •   Enter the following in Institution             •   Create an asset (enter $0.00 as cash
                    Name field when a gift is involved:                value) and enter the following in
                    • donor’s name, address, phone                     Institution Name when a gift is
                         number and relationship to                    involved:
                         borrower.                                     • donor’s name, address, phone
                •   Enter funds from “Other Liquid                           number and relationship to
                    Assets” and “Secured Borrowed                            borrower, and
                    Funds” in asset section as checking                • dollar amount of gift.
                    account with the funds description in          •   Identify any liquid asset (other than
                    Institution Name field (must meet                  gifts or net proceeds from a sale of a
                    standard FHA documentation).                       home) as “Other.”
                •   If the borrower will receive net equity        •   Identify any net proceeds from a sale
                    from a property he/she is selling,                 of a home as “Net Proceeds from
                    DO/DU will use the calculation from                Sale.”
                    the REO section.        If this must be        •   If a liability is to be paid at closing, it is
                    overridden, “Net Equity Sale of Real               not included in the liability section but
                    Estate” must be selected, the net                  is reflected in the “Details of
                    equity manually calculated and the                 Transaction” on line d).
                    final figure entered as an asset (this         •   If an Installment liability has less than
                    will override the REO calculation).                10 remaining payments, and the
                •   If an Installment liability has less               payment is less than $100, the debt
                    than 10 remaining payments and the                 must be deleted in order to not count
                    payment is less than $100, DO/DU                   in the borrower’s ratios.
                    will not count it in the borrower’s            •   If community property state and there
                    ratios.                                            is a non-purchasing spouse, individual
                •   All Revolving liabilities will count in            credit reports must be ordered (order
                    the borrower’s ratios, regardless of               non-purchasing spouse’s outside of
                    how many months are left.                          LP). If monthly debts must be added
                •   If there is a contingent liability that will       to the 1003, enter as a single lump
                    not be counted (must provide proper                sum and identify as debts of non-
                    documentation         meeting         FHA          purchasing spouse in Creditor
                    guidelines – no specific DO/DU                     Information field.
                    messages), it must be omitted.

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Section 2.90                                                                                     October 19, 2012
FHA 203(b) Loan Program                                                                          Page 203 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Submission to AUS Through Calyx Point, (continued)

   Screens                     Fannie Mae DO/DU                              Freddie Mac LP
Loan             •   If a liability is to be paid at closing, it   •   See previous page for information.
Application          must be marked “to be paid at closing.”
Section VI of        The “Details of Transaction” must reflect
1003                 the following information for the
Assets and           applicable transaction;
Liabilities,         • if a purchase, nothing should be on
(continued)               line d); or
                     • if a refinance, the amount to be paid
                          at closing should be on line d).
                 •   If community property state and there is
                     a non-purchasing spouse, individual
                     credit reports must be ordered (order
                     non-purchasing spouse’s outside of
                     DO/DU). If monthly debts must be
                     added to the 1003, enter as a single
                     lump sum and identify as debts of non-
                     purchasing       spouse     in    Creditor
                     Information field.
Loan             •   If rate/term refinance, enter total unpaid    •   If rate/term refinance, enter total
Application          principal balances of all mortgages and           unpaid principal balances of all
Section VII of       debts included in refinance on line D             mortgages included in refinance on
1003                 (not including late fees, interest on the         line D (not including late fees,
Details of           loans, etc.).                                     interest on the loans, etc.).
Transaction      •   If purchase with debts to be paid at          •   If purchase with debts to be paid at
                     closing, do not enter any of the debt             closing, enter total balance of all
                     totals on line D.                                 debts to be paid off on line D.
                 •   If purchase, enter total prepaids to be       •   If purchase, enter total prepaids on
                     paid by the borrower on line E. Do not            line E, regardless of who pays.
                     enter the amount of prepaids to be paid       •   If rate/term refinance, enter total
                     by the seller.                                    prepaids, interest on existing
                 •   If rate/term refinance, enter total               mortgages, accrued late charges,
                     prepaids, interest on existing mortgages,         escrow shortages, etc., on line E
                     accrued late charges, escrow shortages,           (do NOT add delinquent interest.)
                     etc., on line E (do NOT add delinquent        •   Enter the total amount of the
                     interest.)                                        UFMIP on line G from the Borrower
                 •   Enter the total amount of the UFMIP on            Information Screen.
                     line G from the Borrower Information          •   UFMIP prefills on line G from the
                     Screen.                                           Borrower Information Screen.
                 •   UFMIP prefills on line G from the             •   Enter the amount of discount points
                     Borrower Information Screen.                      on line H, regardless of who pays.


                                                                                   Continued on next page




Section 2.90                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                   Page 204 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued

Submission to AUS Through Calyx Point, (continued)

   Screens                       Fannie Mae DO/DU                                 Freddie Mac LP
Loan              •   Enter the amount of discount points to be        •   Enter seller-paid closing costs
Application           paid by the borrower on line H.                      and prepaids on line K (these
Section VII of    •   Enter seller-paid closing costs on line K            fees should not appear in the
1003                  (these fees should not appear in the “Other          “Other Credit” section on line L).
Details of            Credit” section on line L). Do NOT enter the         Do NOT enter the amount of
Transaction,          amount of prepaids to be paid by the seller.         prepaids to be paid by the
(continued)           If the seller is paying prepaids, subtract the       seller. If the seller is paying
                      amount paid by seller from line E.                   prepaids, subtract the amount
                  •   UFMIP prefills on line N from the Borrower           paid by seller from line E.
                      Information Screen.                              •   UFMIP prefills on line N from
                  •   If a commitment fee is charged, enter                the     Borrower       Information
                      amount as a negative figure in “Other                Screen.
                      Credits.”
Loan              •   If “yes” to bankruptcy and/or foreclosure        •   If “yes” to bankruptcy and/or
Application           questions, DO/DU Findings Report will                foreclosure questions, standard
Section VIII of       issue specific messages referencing                  FHA guidelines apply.
1003                  standard FHA guidelines.
Declarations      •   If “yes” to borrowed down payment
                      question, DO/DU Findings Report will issue
                      a message referencing standard VA
                      guidelines.
Loan              •   Complete          government       monitoring    •   Complete            government
Application           information.                                         monitoring information.
Section X of
1003
Government
Monitoring
Addendum          •   If condo, DO/DU Findings Report will issue       •   N/A for LP.
Screen                a specific condo message (standard FHA
                      guidelines apply).
                  •   Complete Interviewer Signature Date field.
                  •   If the loan is a 5/1 or 7/1 ARM, enter ARM
                      Plan FHAHY in the applicable field.
FHA/VA            •   N/A for DO/DU.                                   •   Leave Agency Case Number
Information                                                                field blank since FHA case
(Page 3)                                                                   number is not obtained at
                                                                           application.
                                                                       •   The Agency Case Number must
                                                                           be included in the final 1003.
                                                                       •   The FHA Lender ID must be
                                                                           completed for the FHA TOTAL
                                                                           Scorecard.
                                                                       •   The FHA Sponsor ID must be
                                                                           completed for the FHA TOTAL
                                                                           Scorecard.

                                                                                    Continued on next page

Section 2.90                                                                               October 19, 2012
FHA 203(b) Loan Program                                                                    Page 205 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Submission to AUS Through Calyx Point, (continued)

  Screens                  Fannie Mae DO/DU                               Freddie Mac LP
FHA            •   N/A for DU.                               •   Complete 5a and 5b in order for LP
Worksheet                                                        to read the Closing Costs paid by
                                                                 borrower in Total CC field (excluding
                                                                 discount     points)     for    correct
                                                                 calculation of Statutory Investment.
Government     •   Click on the Government button at the     •   N/A for LP.
Screen             top.
               •   Identify county where property is
                   located.
               •   If      refinance,      select     Full
                   Documentation from drop box in
                   Refinance Type field.
               •   Identify the “Section of Act” from the
                   drop down list.
               •   Enter MIP refund amount, if applicable.
               •   The FHA Lender ID must be
                   completed for the FHA TOTAL Score
                   Card.
               •   The FHA Sponsor ID must be
                   completed for the FHA TOTAL
                   Scorecard.
               •   Enter amount of Seller Concessions
                   (seller contributions that exceed the
                   allowable 6%).

                                                                                Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 206 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Submission to          The following table provides screen input instruction for the submission to LP on the
LP on the              Internet (direct).
Internet (Direct)

     Screens                                                 Data Entry
Loan Term and            •   Enter FHA in the Loan Type field.
Type Screen              •   Enter the total loan amount (with funding fee) in the Amount field.
Property                 •   If property is a Condo or PUD, LP will not issue any specific messages.
Information                  Standard FHA guidelines apply.
                         •   Enter the Estimated Value of Property, which is the borrower’s stated value
                             of the property.
Purpose of Loan          •   Enter Purpose of Loan as either “Purchase” or “Refinance”.

Borrower                 •   Enter a full 2-year residency history for each borrower for submission to LP.
Information              •   If there is a non-occupant co-borrower, the non-occupant’s monthly housing
                             debt will be included in the total monthly debt ratio.
                         •   Marital Status must be completed.
Employment               •   A full 2-year employment history for each borrower is required on the 1003
Information                  signed by the borrower (click on button “Add Borrower Employment Details”).
Assets and               •   Enter a gift in the field “Total Gift Fund” in the asset section, whether the gift
Reserves                     has been received and deposited by the borrower.
                         •   Reserves must be manually calculated and enter in the field “Reserves”.
Liabilities and Real     •   Total monthly debt must be manually calculated and enter in field “Total
Estate Owned                 Monthly Debt”.
                         •   If there is a non-occupant co-borrower, enter the non-occupant’s NON-
                             HOUSING debt in the field “Non-occupant Borrower Non-housing Debt”.
                         •   Click on button “Liability and REO Breakdown” to enter individual debts. Debts
                             to be excluded should be marked “Y” to Excluded?
                         •   Debts marked to be paid WILL NOT reflect in the LP Feedback, but will be
                             excluded from the total monthly debt ratio.
                         •   If an Installment liability has less than 10 remaining payments, LP will not
                             count it in the borrower’s total monthly debt ratio.
                         •   All Revolving liabilities will count in the borrower’s ratios, regardless of how
                             many months are left.
                         •   If a community property state and there is a non-purchasing spouse, individual
                             credit reports must be ordered (order non-purchasing spouse’s OUTSIDE of
                             LP). If monthly debts must be added to the 1003, manually add as a lump sum
                             to the field Total Monthly Debt.

                                                                                       Continued on next page




Section 2.90                                                                                 October 19, 2012
FHA 203(b) Loan Program                                                                      Page 207 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Submission to LP on the Internet (Direct), (continued)

     Screens                                               Data Entry
Details of          •   If a refinance and a liability is to be paid at closing, the amount to be paid at
Transaction             closing should be added to Refinance line (line D).
                    •   If a purchase and a liability is to be paid at closing, do not enter the amount to
                        paid in the Refinance line (line D).
                    •   Identify any seller/builder contributions in the Sales Concessions field,
                        including:
                        • buyer’s FHA UFMIP,
                        • prepaid taxes and insurance,
                        • extra discount points to provide permanent interest rate buydowns,
                        • payoff of credit balances on behalf of the buyer, and
                        • any concession or combination of seller concessions that exceed six
                             percent of the established reasonable value of the property.
Declarations        •   If “yes” to bankruptcy and/or foreclosure questions, LP will not issue any
                        specific messages and standard FHA guidelines will apply.
FHA                 •   Enter the dollar amount of the UFMIP that is financed as part of the loan
                        amount in the Financed MIP field. Enter $0.00 if the FHA UFMIP is not
                        financed.
                    •   Enter the closing costs paid by Borrower (which will appear on the LP
                        Feedback as the FHA Minimum Down Payment).
                    •   If there is alimony obligation, enter the applicable dollar amount, if applicable.
                    •   Leave Agency Case Number field blank since FHA case number is not
                        obtained at application.
                    •   The Agency Case Number must be included in the final 1003.
                    •   Complete entry in the FHA Sponsor ID field; or User Profile Screen: Only
                        complete the “FHA Sponsor ID” field on the User Profile Screen IF you assign
                        FHA transactions to only one (1) lender. It is critical that the “FHA Sponsor ID”
                        field be completed with the correct lenders’ ID.
User Profile        •   Complete entry in the FHA Lender ID field. This entry will become the default
                        entry in the “FHA Lender ID” field on the FHA Screen.
                    •   Only complete the “FHA Sponsor ID” field on the User Profile Screen IF you
                        assign FHA transactions to only one (1) lender. It is critical that the “FHA
                        Sponsor ID” field be completed with the correct lenders’ ID.

                                                                                  Continued on next page




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 208 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Submission to       The following table shows the submission to DU Direct.
DU Direct
                    Reference: See the topic “Ease-In Payment Reduction Feature” for specific
                    instructions to enter a seller-paid interest payment reduction in DU Direct.

                    DU ARM Plan Numbers
                    • FHA 1 Year ARM:        251-FHA ARM: 1 YR TREASURY 1&5 Caps
                    • FHA 3/1, 5/1, and 7/1 ARMs: FHA HYBRID ARM

     Screens                            Fannie Mae’s Desktop Underwriter Data Entry
Type of Mortgage     •   Lender Loan Number is a required field.
and Terms of Loan    •   Enter the base loan amount (without UFMIP) in Loan Amt field.
Borrower             •   Enter a full 2-year residency history for each borrower (must be entered in the
Information              full 1003)
Current              •   Enter a full 2-year employment history for each borrower (must be entered in
Employment               the full 1003)
Monthly Income       •   If there is a non-occupant co-borrower, the current total housing expense of the
and Combined             non-occupant co-borrower will be included in the total monthly debt ratio.
Housing Expense
Assets               •   Identify a gift as “Gift” in asset section, whether or not the gift has been
                         received and deposited by the borrower.
                     •   If the gift has been deposited into the borrower’s account, subtract the amount
                         of the gift from the asset balance prior to entering the asset balance.
                     •   Enter the following in Institution field (full 1003) when a gift is involved:
                         donor’s name, address, phone number and relationship to borrower.
                     •   If the borrower will receive net equity from a property he/she is selling, DU will
                         use the calculation from the REO section. If this must be overridden, “Net
                         Equity” must be selected, the net equity manually calculated and the final
                         figure entered as an asset (this will override the REO calculation).
Liabilities          •   If an Installment has less than 10 remaining payments and the payment is
                         less than $100, DO/DU will not count it in the borrower’s ratios.
                     •   All Revolving liabilities will count in the borrower’s ratios, regardless of how
                         many months are left.
                     •   If there is a contingent liability that will not be counted (must provide proper
                         documentation meeting FHA guidelines), it should be marked “Omit.”
                     •   If a liability is to be paid at closing, it must be marked “to be paid at closing.”
                         The Details of Transaction must reflect the following information for the
                         applicable transaction:
                         • if the loan is a purchase, nothing should be on line D), or
                         • if the loan is a refinance, the amount to be paid at closing should be on line
                              D).
                     •   If community property state and there is a non-purchasing spouse, individual
                         credit reports must be ordered (order non-purchasing spouse’s OUTSIDE of
                         DO/DU). If monthly debts must be added to the 1003, enter as a single lump
                         sum and identify as “debts of non-purchasing spouse” in Creditor Information
                         field.

                                                                                   Continued on next page


Section 2.90                                                                              October 19, 2012
FHA 203(b) Loan Program                                                                   Page 209 of 230
Broker Seller Guide
Automated Underwriting Systems (AUS) Issues, Continued


Submission to DU Direct, (continued)

     Screens                          Fannie Mae’s Desktop Underwriter Data Entry
Details of         •   If rate/term refinance, enter total unpaid principal balances of all mortgages
Transaction            included in refinance on line D (NOT including late fees, interest on the loans,
                       etc.).
                   •   If purchase with debts to be paid at closing, do not enter any of the debt totals
                       on line D.
                   •   If purchase, enter total prepaids to be paid by the borrower on line E. Do NOT
                       enter the amount to be paid by the seller.
                   •   If rate/term refinance, enter the total prepaids, interest on existing mortgages,
                       accrued late fees, escrow shortages, etc., on line E (may not include
                       delinquent interest).
                   •   Enter total UFMIP on line G.
                   •   Enter the amount of discount points to be paid by the borrower on line H.
                   •   Enter seller-paid closing costs on line K - (these fees should NOT appear in the
                       “Other Credits” section on line L). Do NOT enter the amount of prepaids to be
                       paid by the seller. If the seller is paying prepaids, subtract the amount paid by
                       seller from line E.
                   •   If a commitment fee is charged, enter amount as a negative figure in “Other
                       Credits” on line L.
Declarations       •   If “yes” to bankruptcy and/or foreclosure questions, DO/DU Findings Report will
                       issue specific messages referencing standard FHA guidelines.
                   •   If “yes” to borrowed down payment question, DO/DU Findings Report will issue
                       a message referencing standard FHA guidelines.
Additional Data    •   Subject Property Type is a required field.
                   •   If the loan is an ARM, select FHA HYBRID for the 5/1 or 7/1 ARM.
Government         •   The FHA Lender ID must be completed for the FHA TOTAL Score Card.
Information        •   The FHA Sponsor ID must be completed for the FHA TOTAL Score Card.
                   •   Complete “Section of Act” and “County”. If county/city of subject property is not
                       listed, select a county nearest the property with the same loan limits (DO/DU
                       WILL NOT recognize county when selecting “ALL OTHERS”).
                   •   Borrower-paid and seller-paid closing costs do not need to be completed.
                   •   Complete Seller Concessions for any seller contributions over the allowable
                       6%




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 210 of 230
Broker Seller Guide
Rate, Points & Lock-Ins


Information       The initial interest rate and discount points are established by SunTrust. Refer to
                  SunTrust’s Rate Sheet.

                  Note: It is important that the loan type be communicated when the loan is registered
                  and/or locked-in.




Application, Disclosures and Consumer Compliance


General           All consumer disclosures or notices required by all federal, state and local laws and
                  regulations must be complied with. This includes, but is not limited to, the Real
                  Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Flood
                  Disaster Protection Act, the Truth-in-Lending Act, the Fair Credit Reporting Act, all as
                  amended, and all applicable usury limitations. Further, all consumer disclosures
                  relating to the mortgage loan must have been properly given on a timely basis in
                  compliance with applicable laws, rules and regulations.


Face-to-Face      •   A face-to-face interview is not required for FHA transactions.
Interview         •   HUD requires the lender to ask the borrower if he/she wants a face-to-face
                      interview. If the borrower does not desire such a meeting, it must be so noted in
                      the loan file.


Sales Contracts   •   The sales contracts, any amendments or other agreements and certifications are
                      to be included in the case binder file.
                  •   Sales contracts do not need to refer to FHA financing in order to be considered
                      valid by HUD. However, the contract must provide the HUD real estate
                      certification and the amendatory clause. These may be included in the language
                      of the sales contract or as a separate addendum(s) and must be signed and
                      dated by the borrower, seller, selling real estate agent or broker.
                  •   SunTrust requires the FHA Amendatory Clause and the FHA Real Estate
                      Certification forms to be signed and dated by the borrower, if not a part of the
                      purchase agreement (sales contract), on or before the date of the purchase
                      agreement) and must be present in the loan file at time of underwriting, or the
                      loan will be pended.


                                                                                  Continued on next page




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 211 of 230
Broker Seller Guide
Application, Disclosures and Consumer Compliance, Continued


Sales           •   The criteria of the amendatory clause are as follows:
Contracts,          • the sales price as stated in the contract is inserted in the amendatory clause,
(continued)         • a new amendatory clause is not required if the sales price is adjusted based
                         on a value that is less than the sales price, providing the original sales
                         contract with a price matching the amendatory clause and the revised or
                         amended contract are included in the case binder, and
                    • the amendatory clause is not required on HUD REO sales, or if Fannie Mae,
                         Freddie Mac, Department. of Veterans Affairs, Rural Housing Services, or
                         other Federal, State and local government agencies, mortgagees disposing
                         of REO assets, or sellers at foreclosure sales and those sales where the
                         borrower will not be an owner-occupant (i.e., a non-profit agency).
                •   If there are any seller concessions, these must be stated in the contract (either
                    as a percentage or a dollar amount). Failure to perform a condition of the
                    contract will not be grounds for denying loan endorsement provided the loan
                    closes in compliance with all regulations and policies.
                •   The FHA For Your Protection: Get a Home Inspection (HUD 92564-CN) form
                    must be given to prospective homebuyers at first contact. HUD has eliminated
                    the requirements that the form must be signed by purchasers and included in the
                    case binder.
                •   This inspection disclosure is required on purchase transactions of existing
                    properties (new construction and refinances are exempt).

                    Reference: See Section 1.03c: Reviewing Sales Contracts, of the Broker Seller
                    Guide, for additional information.



Disclosures     In addition to the standard origination/processing/closing disclosures required (i.e.,
(Origination/   1003, TIL, GFE, etc.), HUD-specific disclosures are required during the loan
Processing/     application process.
Closing)


ARM Program         ARM Product          Truth-in-Lending Program Disclosure
Disclosure          5 Year ARM           FHA Five Year ARM: 30 Year Loan Term (BRO 0404)
                    7 Year ARM           FHA Seven Year ARM: 30 Year Loan Term (BRO 0405)

                Note: All FHA ARMs are non-convertible.


                                                                              Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 212 of 230
Broker Seller Guide
Application, Disclosures and Consumer Compliance, Continued


Origination      • FHA For Your Protection: Get a Home Inspection (HUD-92564-CN),
Disclosures      • FHA Amendatory Clause (BRO 0393) - if not included in sales contract,
                 • FHA Real Estate Certification (BRO 0394) - if not part of the sales contract,

                     Reference: See the “Sales Contracts” subtopic previously presented in this
                     topic for additional information.

                 • HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A),
                   pages 1 and 2,

                    Note: Page two (2) of the loan application addendum must be signed by the
                    borrower and in the file prior to submission to underwriting.

                 • FHA Important Notice to Homebuyers (HUD-92900-B),
                 • FHA Informed Consumer Choice Disclosure Notice (BRO 0399),
                 • FHA Notice to Homeowner - Assumption of HUD/FHA Insured Mortgages
                    Release of Personal Liability,
                 • FHA Energy Efficient Mortgage Program,
                 • FHA Financial Privacy Act Notice,
                 • FHA ARM Disclosure (if applicable),
                 • FHA Pamphlet “Protecting Your Family from Lead in Your Home,” and
                 • State-specific disclosures (if applicable).


Closing         •   FHA/VA New Construction Certification (BRO 0326)
Documents       •   FHA/VA Lead Standard Certification for Water Systems (BRO 0325)
                •   FHA Stacking Order - Non-Escrow States (BRO 0327),
                •   FHA Stacking Order - Escrow States (BRO 0327a),
                •   FHA Settlement Package Stacking Order - Non-Escrow States (BRO 0328)
                •   IRS Form 4506-T.

                Reference: See the “IRS 4506-T” subtopic in Section 1.05: Closing Information of
                the Broker Seller Guide for additional information regarding IRS Form 4506-T
                requirements at application and at closing.

                Note: The SunTrust Wholesale Branch Office is no longer required to arrange
                documents in an FHA Case Binder File (or in Case Binder order). The FHA Stacking
                Order forms listed above are to be used when shipping the file to the Production Ops
                Department.

                                                                               Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 213 of 230
Broker Seller Guide
Application, Disclosures and Consumer Compliance, Continued


Processing        •   FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT),
Documents         •   HUD/VA Addendum to Uniform Residential Loan Application (HUD-92900-A),
                  •   FHA Appraised Value Adjustment Disclosure (prints off of MLCS with HUD/VA
                      Addendum to Uniform Residential Loan Application),
                  •   HUD Review - Processor Checklist,
                  •   IRS Form 4506-T,
                  •   FHA Refinance Maximum Total Loan Amount Worksheet (BRO 0397a),
                  •   Miscellaneous processing certifications to use, if applicable:
                      • Bridal Registry Account Certification (BRO 0276),
                      • FHA New Construction Early Start Letter (BRO 0036),
                      • FHA Electrical Certification,
                      • FHA Heating Certification,
                      • FHA Plumbing Certification, and
                      • Borrower’s Contract with Respect to Hotel and Transient Use of the Property
                         (HUD 92561).

                  References:
                  • See the topic “Applications, Disclosures, and Consumer Compliance”
                     subsequently presented in this product description for additional information.
                  • See the “IRS 4506-T” subtopic in Section 1.05: Closing Information of the
                     Broker Seller Guide for additional information regarding IRS Form 4506-T
                     requirements at application and at closing.



Social Security   •   Each borrower must provide the lender with evidence of his/her social security
Numbers               number. While the actual social security card is not required, the social security
                      number can be obtained from pay stubs, the driver’s license, etc. Tax returns
                      alone without a W-2 are not sufficient evidence of social security numbers.
                  •   Social Security numbers must be consistent throughout the file on all
                      documentation. Any discrepancies must be addressed, even if it is an obvious
                      transposition of numbers. Tax ID numbers issued by the Social Security Office
                      are unacceptable.
                  •   All individuals eligible for legal employment in the US must have a social security
                      number. Tax ID numbers issued by the Social Security Office are unacceptable.
                      This applies to purchase transactions and all refinances, including streamline
                      refinances.
                  •   SunTrust requires that all credit reports indicate that the borrower’s Social
                      Security Number has been validated by a Social Security validation vendor. This
                      also applies to streamline refinances.

                      Reference: See the topic “FHA Social Security Number Validation” previously
                      presented in this product description for additional information.




Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 214 of 230
Broker Seller Guide
MLCS Loan Setup and Processing


Program and       The following table shows program and investor codes.
Investor Codes

                                 Product                          MLCS              Target
                                                              Program Code      Investor Code
                  FHA 5 – Year ARM                               F51TA               000
                  FHA 7 – Year ARM                               F71TA               000
                  FHA Jumbo 5 – Year ARM                         F5TAJ               000
                  FHA Jumbo 7 – Year ARM                         F7TAJ               000
                  FHA 10 or 15 Year Fixed Rate                   F15FX               000
                  FHA 20, 25 or 30 Year Fixed Rate               F30FX               000
                  FHA Jumbo 30 Year Fixed                        F30JFX              000
                  FHA Fixed Rate Seller Paid Interest            F30SPI              000
                  Payment Reduction Feature


New                • Show the COMPLETION status of the property as “Proposed,” as this will
Construction or       allow the applicable documents to print with the closing package through
Existing Less         Digital Docs. (Showing the status as “Existing” will cause these documents
Than One (1)          not to print with the closing package and slow down the insuring of the
Year Old              loan.)
                   • In the M0B screen, show the “P” under “Completion.”


Seller-Paid       Reference:     See the “Ease-In Payment Reduction Feature” topic previously
Interest          presented in this product description for additional information.
Payment
Reduction




Section 2.90                                                                    October 19, 2012
FHA 203(b) Loan Program                                                         Page 215 of 230
Broker Seller Guide
Workflow

General         •   If a loan is submitted through TOTAL Scorecard, the case binder file must
Guidelines          include the complete AUS findings report.
                •   All loans with the exception of second home, investment property, or streamline
                    refinance transactions must be submitted through TOTAL Scorecard if any
                    borrower on the loan has a credit score.

                    Exception: If a streamline refinance is inadvertently submitted through TOTAL
                    Scorecard, the loan must be traditionally underwritten, and the DE underwriter
                    remains responsible for insuring all HUD and SunTrust Mortgage Credit
                    guidelines are met (i.e., mortgage payment history, seasoning, etc.).
                    Underwriters must also use their CHUMS ID for page three of the HUD/VA
                    Addendum to Uniform Residential Loan Application (HUD 92900-A), FHA
                    Connection, and the FHA Loan Underwriting and Transmittal Summary (HUD
                    92900-LT) for streamline refinances.

                •   SunTrust has delegated underwriting privileges for all loans. Therefore, all loans
                    are underwritten in-house. Only underwriters with a DE Certification are qualified
                    to underwrite FHA loans.
                •   The underwriter/person validating both the AUS findings and the information on
                    the FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT) must
                    sign Page 3 of the URLA Addendum (HUD form 92900-A) and complete any
                    applicable condition items.
                    • SunTrust requires the underwriter/person validating the file to sign the FHA
                        Loan Underwriting and Transmittal Summary (HUD-92900-LT), regardless of
                        AUS approval (ZFHA may still be entered as the CHUMS ID for AUS
                        approved transactions).
                •   An abbreviated version of the loan application is not acceptable; a full loan
                    application with all sections completed is required.
                    • The loan application and loan application addendums must always be
                        signed and dated by the borrower(s) and interviewer before the loan is
                        submitted to SunTrust for underwriting, or the underwriter will pend the loan
                        for the missing executed documents.
                        • The borrower is still required to sign the initial loan application and the
                             loan application addendum when the loan application is taken via the
                             telephone or internet.
                    • The interviewer must always sign the loan application and loan application
                        addendum.

                          Note: A signed faxed copy of the initial loan application and addendum may
                          be used to submit the file to underwriting; however, the original signed
                          initial loan application and addendum must be obtained prior to closing
                          for the insuring loan file.

                •   All information on the FHA Loan Underwriting and Transmittal Summary (HUD-
                    92900-LT) must be completed. This includes the compensating factors when
                    applicable, CAIVRS, LDP, GSA information, and the CHUMS code for the AUS
                    system, if applicable (TOTAL Scorecard is ZFHA).




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 216 of 230
Broker Seller Guide
Workflow, Continued

Underwriting    •   The Broker makes one (1) copy of each item in the submission package to be
Submission          maintained in the Broker’s loan file. Original credit documents are provided to the
                    SunTrust Underwriter.
                •   The originals are to be placed in a file and submitted to the Underwriter in the
                    following order as provided on the SunTrust Loan Submission Form (BRO 0002).
                    This list will also provide the necessary credit documents that should be in each
                    FHA loan file.


Workflow for    A complete listing of FHA mortgage limits for all areas is available through the HUD
Determining     website on the FHA Mortgage Limits web page.
SunTrust FHA
County Loan     Notes:
Limits          • The FHA Mortgage Limits web page may be used to determine the maximum
                   loan amount allowed for the location of a specific property. It can also be used
                   to look up FHA mortgage limits for your area or several areas, and then list them
                   by state, county, or Metropolitan Statistical Area.
                • Use the chart below to determine what to choose from the dropdown box labeled
                   “Limit Year” on HUD’s website. The results of your search will determine the
                   available maximum county loan limits.

                          If the loan was      ...and the Case Number was    ...then choose the below
                              locked...                 assigned...            “Limit Year” on HUD’s
                                                                                      Website.
                      Before Jan. 19,       Anytime                         Oct. 1, 2011 –
                      2012                                                  Nov. 17, 2011
                      On or After           Nov. 18, 2011 – Dec. 31, 2011   Nov. 18, 2011 –
                      Jan. 19, 2012                                         Dec. 31, 2011
                      On or After           On or After Jan. 1, 2012 –      CY2012
                      Jan. 19, 2012         Dec. 31, 2012

                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 217 of 230
Broker Seller Guide
Workflow, Continued

Case Number     Requesting Case Numbers
Assignment      FHA Connection requires lenders to:
and             • Certify, via a checkbox question, that they have an active loan application for the
Cancellation       subject property.
                • Provide the borrower’s name and social security number for all new construction
                   (i.e., under construction and existing construction less than one year old).

                Automatic Case Number Cancellation
                FHA Connection automatically cancels any uninsured case number where there has
                been no activity for six months since the last action except for:
                • Loans where an appraisal update has been entered, and/or
                • Loans that have received the UFMIP.

                Last action includes;
                • Case number assigned,
                • Appraisal information entered,
                • Firm commitment issued by FHA,
                • Insurance application received and subsequent updates, and
                • Notice of Return and resubmissions.

                Last action does not include updates to borrower names and/or property addresses.

                Avoid FHA from automatically cancelling case numbers after six months of inactivity
                by following the guidelines below:
                • When the original appraisal expires (after 120 days), order a new appraisal only
                    after the existing case number is cancelled (either by SunTrust Mortgage or
                    HUD) and a new case number has been requested. A new appraisal cannot be
                    logged under an existing case number.
                • When a 1004D appraisal update/recertification is ordered, it must have an
                    effective date prior to the original appraisal expiration date and be logged in FHA
                    Connection on the main appraisal logging page. Logging the update in FHA
                    Connection will extend the case number and prevent HUD from automatically
                    cancelling the case number due to inactivity.


                                                                               Continued on next page




Section 2.90                                                                          October 19, 2012
FHA 203(b) Loan Program                                                               Page 218 of 230
Broker Seller Guide
Workflow, Continued

Case Number     Bulk Case Number Cancellation
Assignment      In order to take advantage of the lower MIP structure for streamline refinance
and             transactions with case numbers assigned on or after June 11, 2012 with current
Cancellation,   loans endorsed on or before May 31, 2009, FHA allows bulk cancellation of case
(continued)     numbers.

                The Area Operations Managers will email bulk cancellation requests to the
                appropriate FHA Homeownership Center’s (HOC) email box, listed below.
                • Atlanta: ATLInsurance&Underwriting@hud.gov
                • Denver: denhocinsure@hud.gov
                • Philadelphia: PHOCInsure@hud.gov
                • Santa Ana: snahocinsure@hud.gov

                In the subject line of the bulk cancellation request email, include the case number
                and type of request (BULK Case Number Cancellation Request – Reduce MIP per
                ML 2012-04).

                In the text of the email, include the lender’s name (SunTrust Mortgage, Inc.), phone
                number, email, and contact person.

                Additionally, include in the email a Microsoft Excel file listing the case numbers to be
                cancelled, in the following format:

                  Case           Credit-          Appraisal       Projected       Appraisal Expiration
                  Number to      Qualifying       (Yes/No)        Closing Date    Date (N/A if no
                  Cancel         (Yes/No)                                         appraisal)

                Case Number Reinstatement
                FHA will not reinstate any automatically cancelled case numbers, including case
                numbers for condominium units, unless:
                • The mortgagee provides verification that not reinstating the case number causes
                   an undue hardship to the borrower that is not related to recent updates to
                   premiums and underwriting requirements, or
                • The mortgagee provides verification that the subject loan closed prior to
                   cancellation of the case numbers, such as a HUD-1 Settlement Statement.

                                                                                 Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 219 of 230
Broker Seller Guide
Workflow, Continued


Revised          General Guidelines
Workflow         • In support of our ongoing commitment to Fannie Mae’s Loan Quality Initiative
Procedures for      (LQI), SunTrust will continue to require a final AUS submission prior to closing to
Changes in          ensure data integrity at loan delivery.
PITIA            • SunTrust’s workflow procedures will eliminate multiple resubmissions to
                    underwriting caused by PITIA (Principal, Interest, Taxes, Insurance and other
                    Assessments, including association dues) changes.
                 • These enhanced procedures, for new and existing traditionally underwritten and
                    AUS FHA loan transactions, will significantly reduce the number of loan files that
                    will have to be resubmitted to underwriting for re-approval prior to closing.

                 Revised Workflow Procedures
                 • If the PITIA payment amount increases by $25.00 or less OR if the PITIA
                    payment amount decreases, the loan does not have to be resubmitted to
                    underwriting for re-approval provided ALL of the following requirements are met:
                    • The final DTI, based on the revised PITIA, does not exceed product
                        guidelines, AND
                    • The cash requirements (i.e., funds required to close and/or reserves) do not
                        increase, AND
                    • For loans approved through AUS, there is no change to the final AUS
                        recommendation and/or final AUS findings (i.e. verification and approval
                        conditions per DU or LP).

                 AUS Resubmission Requirements Prior to Closing
                 In order to ensure data integrity between the automated underwriting system (i.e.,
                 DU or LP) and the loan file delivered to the investor, all loans must continue to be
                 resubmitted to AUS prior to closing.


Second Level     •   If a SunTrust DE underwriter denies a loan, a second level underwriting review is
Underwriting         required.
Review           •   The second underwriting review would occur when the loan file is fully processed
                     and is underwritten and denied at the first level.
                 •   If the loan is still denied after the second level underwriting, an adverse action
                     must be provided to the borrower with all the necessary information, including the
                     reason(s) for denial, and the underwriter must complete the “Mortgage Credit
                     Reject” screens in FHA Connection.
                 •   Reasons for denial must be those reasons that can be specifically backed up by
                     information on the loan application and other documents that were used in the
                     credit evaluation process.
                 •   If the loan is assigned to another lender, the “Mortgage Credit Reject” screens in
                     FHA Connection must be completed first. If the receiving mortgagee approves the
                     application, then the case binder must contain explanatory comments from the
                     approving mortgagee underwriter when submitted to HUD.

                                                                                 Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 220 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation


General         The following closing guidelines are specific to the end investor. Unless specified
                below, all closing forms and documentation should follow standard SunTrust
                guidelines.

                Reference: See Section 1.05: Closing Information in the Broker Seller Guide for
                SunTrust-specific requirements.


Closing Legal   The following table shows the required legal documents.
Documents

                       Legal Documents                             Investor Form
                Note                           The most recent version of the FHA Note for a fixed
                                               rate loan or the most recent version of the FHA
                                               ARM loan
                Deed of Trust                  The most recent FHA Security Instrument as
                                               applicable to state requirements should be used and
                                               the last page of the instrument should indicate that
                                               appropriate riders are attached.
                Adjustable Rate Rider          The FHA ARM Rider is used when the borrower has
                                               applied and been approved for an FHA ARM loan.
                Condominium Rider              The FHA Condominium Rider must be used when
                                               the subject property is a condominium unit. There
                                               are no exceptions.
                PUD Rider                      The FHA PUD Rider must be used when the subject
                                               property is located in a PUD. There are no
                                               exceptions
                Non-Owner Occupancy            The FHA Non-Owner Occupancy Rider must be
                Rider                          used when the subject property is an investment or
                                               second home property. There are no exceptions.

                                               Note: FHA loans are not eligible on investment or
                                               second home properties; however there may be
                                               exceptions if the loan is a PD (property disposition)
                                               loan or has received special consideration due to
                                               the borrower’s circumstances (applicable to a home
                                               that is categorized as a second home).


                                                                            Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                            Page 221 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued


Escrow Waivers   Wavier of tax and/or insurance escrow is not allowed.



Document         Lenders must use the mortgage documents for FHA mortgage loans that are correct
Warranties       for the jurisdiction, the mortgage type, the lien type and the property type. The
                 lender must use the most current version and appropriate forms. In some cases, the
                 mortgage forms may have to be adapted to meet the lender’s jurisdictional
                 requirements. Any change made to multi-state documents must comply with all
                 applicable laws.

                 SunTrust relies upon your representations and warranties that the loans are
                 enforceable in accordance with the terms of the Broker/Lender Agreement and
                 comply with all applicable laws. Accordingly, it is advisable that forms and
                 documents be reviewed by the lender’s legal counsel for compliance with the laws of
                 the state in which each loan is made.


Definition of    • Allowable closing costs are defined as those costs that are:
Allowable           • reasonable and customary in the area,
Costs               • may be charged to the borrower, and
                    • included in the acquisition cost.
                 • If the HOC publishes a maximum dollar limit on each closing cost item, any cost
                    that exceeds the maximum limit must be paid out of pocket by the borrower.
                 • HUD’s definition of closing costs DOES NOT include discount points.
                 • Lock-in fees may be paid by the borrower, but cannot be financed in the loan
                    amount. If a lock-in fee is collected, the Lock-in Confirmation (MLCS SLIC,
                    LOCK-IN CONFIRMATION CFM) must be executed at least 15 days prior to the
                    date of the Note, otherwise a lock-in fee cannot be collected.

                 Reference: See the topic “HUD Allowable Closing Costs” in this product description
                 for a details on allowable closing costs not included in acquisition, including those
                 that cannot be charged to the borrower.


Usage of         Purchase Transactions
Allowable        Borrower-paid closing costs are added to the sales price to determine the total
Costs            acquisition cost.

                 Refinance Transactions
                 Borrower-paid allowable closing costs may not be added to the appraised value to
                 determine the total acquisition cost for refinance transactions.

                                                                               Continued on next page




Section 2.90                                                                         October 19, 2012
FHA 203(b) Loan Program                                                              Page 222 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued


Review of Final   •   All loans must close at the interest rate, term, loan amount that was approved by
Loan Approval         TOTAL Scorecard/AUS and the Underwriter. There is no AUS or FHA tolerance.

                      Reference: See the table under the heading “AUS Resubmissions and Forms”
                      in the topic “AUS Issues” within the subtopic “AUS Recommendations and
                      Resubmissions” for additional information.

                  •   If the loan received by the closer does not match the underwriting approval on
                      the FHA Loan Underwriting and Transmittal Summary (HUD-92900-LT) and the
                      TOTAL Scorecard/DU or LP findings, the loan is not to close until the following
                      actions have been completed:
                       • re-submission of the loan to TOTAL Scorecard/DU or LP with the
                            appropriate revisions,
                       • re-submission of the new AUS report and findings, revised application
                            (1003), URLA Addendum (HUD 92900A – page 3) and the FHA Loan
                            Underwriting and Transmittal Summary (HUD-92900-LT), and
                       • re-approval of the revised loan terms by the SunTrust Underwriter.
                  •   Compliance Inspection Reports must be signed by the underwriter on Block 4.

                      Reference: See “FHA TOTAL Scorecard” in the topic “AUS Issues” for additional
                      information regarding allowable tolerances.


Review of Final   •   Without exception, the final HUD-1 must be reviewed by the lender prior to
HUD-1                 closing.
                  •   If the transaction is a purchase, the allowable closing costs to both the borrower
                      and the seller must be verified (any “unallowable” costs must be taken off the
                      HUD-1 Settlement Statement.)
                  •   All closing costs, including those items paid outside of closing (POC), lender
                      credit, and seller contributions, must be itemized on the HUD-1 for RESPA and
                      HUD compliance.
                  •   If the transaction is a refinance, both of the following steps are required:
                      • the allowable costs must be verified (any “unallowable” costs must be taken
                           off the HUD-1), AND
                      • the mortgage amount must be recalculated if the estimated closing costs
                           used to calculate the mortgage result in an amount exceeding $500 based
                           on actual charges as reflected on the final HUD-1 for rate/term and
                           streamline refinance transaction.

                  Reference: See the “HUD-1 Settlement Statement” topic in Section 1.05: Closing
                  Information in the Broker Seller Guide for additional information.

                                                                                Continued on next page




Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 223 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued


Repairs         General Information
                Repairs and other conditions of the appraisal are to be indicated on the URAR and
                the Conditional Commitment Direct Endorsement Statement of Appraised Value
                (form HUD-92800.5B).

                Required Repairs
                General Information
                • Required repairs are limited to those repairs necessary to preserve the physical
                   security of the property and to protect the health and safety of the occupants.
                   The three (3) S’s:
                   • Soundness -correct physical deficiencies or conditions affecting structural
                       integrity.
                   • Safety -protect the health and safety of the occupants.
                   • Security -protect the security of the property (security for the FHA insured
                       mortgage.)
                • Avoid unnecessary requirements because they increase housing costs without
                   adding any basic amenities to the property.
                • While appraisers are not to add repairs beyond FHA’s guidelines, the
                   Underwriter (Mortgagee) may add requirements as a condition of making the
                   loan. Individual mortgagees have the right to make additional requirements they
                   feel necessary to protect the security or soundness of the property and the
                   health and safety of the occupants. The applicant has the option of selecting
                   another lender if they feel these requirements/conditions are excessive.

                     Note: For Broker originations through SunTrust Mortgage, Inc., borrower-
                     paid repairs MAY NOT be financed into the loan amount.

                Repair Escrows
                Escrows for incomplete items should only occur in limited situations. HUD
                Handbook 4145.1 page 5-1 provides additional guidance. The only acceptable
                escrow would be due to extenuating circumstance beyond the contractor or seller’s
                control. This would only be weather-related: i.e., inability to lay sod due to cold
                weather, inability to install a roof due to continued snow, etc.

                Note: Escrow of repairs on existing properties to facilitate a “quick” closing is
                unacceptable.

                                                                            Continued on next page




Section 2.90                                                                       October 19, 2012
FHA 203(b) Loan Program                                                            Page 224 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued


Power of         May be used for CLOSING DOCUMENTS (including page 4 of the Addendum to the
Attorney         URLA and the final URLA if it is signed at closing). Any power of attorney, whether
                 specific or general, must comply with state laws and allow for the mortgage note to
                 be legally enforced in that jurisdiction. It is the lender’s responsibility to assure that
                 clear title can be conveyed in the event of foreclosure.

                 •   Except for the conditions described below, the INITIAL loan application MAY
                     NOT be executed by using a power of attorney, i.e., it must be signed by ALL
                     borrowers. Either the initial loan application or the final, if one is used, MUST
                     contain the signatures of ALL borrowers.
                 •   MILITARY       PERSONNEL         ON     OVERSEAS        DUTY       OR    ON    AN
                     UNACCOMPANIED TOUR: The lender should obtain the serviceperson’s
                     signature of the application by mail or fax machine.
                 •   INCAPACITATED BORROWERS UNABLE TO SIGN THE MORTGAGE
                     APPLICATION: The lender must provide evidence the signer has authority to
                     purchase the property and obligate the borrower. This would include a durable
                     power of attorney specifically designed to survive incapacity and avoid the need
                     for court proceedings. The incapacitated individual must occupy the property to
                     be insured (except of eligible investment property)

                 Reference: See Section 1.05: Closing Information in the Broker Seller Guide for
                 SunTrust-specific requirements concerning use of a power of attorney.


Poor Condition   If the subject property is in such poor condition that it may be cost prohibitive or
Properties       impractical or bring it up to FHA’s minimum property requirements, the appraiser
                 should recommend “Rejecting” the property and,
                 • complete the appraisal on an “AS IS” basis, clearly marking the reports as
                      rejected and provide reasons for the rejection,
                 • provide a list of all major deficiencies and state that the list should not be
                      considered all inclusive, and
                 • provide photographs, if possible.


Properties in    •   Loans secured by properties in declared disaster areas designated by Federal or
Declared             State authorities as a result of hurricanes, tropical storms, etc., must contain a
Disaster Areas       recertification of property condition by the original appraiser or a re-inspection by
                     a certified third party service that no damages were sustained to the property.

                      Reference: See “Properties in Declared Disaster Areas” under the topic
                      “Appraisal Requirements” for complete details and specific appraisal
                      requirements.

                 •   Prior to closing, the manager of the applicable SunTrust Wholesale Branch Office
                     and the borrower(s) must sign a Borrower Property Condition Certificate (BRO
                     0006). Loans will NOT be funded without the fully executed Borrower
                     Property Condition Certificate (BRO 0006).

                                                                                  Continued on next page


Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 225 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued


Properties      Reference: See Section 1.07: Property Insurance of the Broker Seller Guide for
Located in a    additional information regarding properties located in a Special Flood Hazard Area
Special Flood   (SFHA).
Hazard Area
(SFHA)


Private Roads   SunTrust requires the following documentation:
                • a permanent recorded easement (non-exclusive, non-revocable, without
                   trespass from the property to a public street/road), and
                • an acceptable maintenance agreement on the property or that the road is owned
                   and maintained by a homeowner or homeowners.


Runway Clear    Existing properties located in an airport runway clear zone require a letter of
Zones           acknowledgement from the borrower.

                Note: New construction properties located in a runway clear zone are not eligible for
                FHA financing.


Sewage          Community Sewer Systems
Systems         HUD no longer maintains a list of approved systems. The appraiser must note on
                the URAR the name of the community system(s). The branch is responsible to
                ensure the community system(s) are licensed and adequate to service the property.

                Individual Sewage Systems
                • For properties that cannot connect to a public system and are served by an
                    individual sewage system that is acceptable to the local health authority, the
                    system is then acceptable to HUD/FHA.
                • Certifications are only required if evidence of system failure, if mandated by state
                    or local jurisdiction, if customary to the area, or at lender’s discretion. The
                    appraiser must note any readily observable deficiencies. In those instances, the
                    appraiser is to condition for a certification by the local health authority, a licensed
                    sanitarian or an individual determined to be qualified by the DE underwriter.

                Connection to a Public Sewer System
                The appraiser is required to report on the availability of connection to public and/or
                community sewer system. The lender is responsible for the determination of the
                feasibility for requiring connection. Generally, connection must be made to a public
                sewer system or a community sewer system if connection costs to the public or
                community system are reasonable (3% or less of the estimated value of the property.)
                If connection costs exceed 3%, the existing on-site systems will be acceptable provided
                they are functioning properly and meet the requirements of the local health department.
                If connection is required, the loan must be sent back to underwriting for re-evaluation.

                                                                                  Continued on next page




Section 2.90                                                                             October 19, 2012
FHA 203(b) Loan Program                                                                  Page 226 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued

Water Systems   Individual Water Systems
                Individual water supply systems (wells) may be acceptable when connection to a
                public or community water system is not available and there is assurance of a
                continuing adequate supply of potable water for domestic needs. The water well
                must also meet the requirements of the local health authority with jurisdiction.

                Water Quality
                • Individual water wells are owned and maintained by the homeowner, and are
                    subject to compliance with all requirements of the local or State Health Authority
                    having jurisdiction. The appraiser is to note any readily observable deficiencies and
                    report on the availability of connection to public and/or community water systems.
                •   A test or inspection is required under the following circumstances:
                    • if mandated by state or local jurisdiction,
                    • if there is knowledge that the well water may be contaminated,
                    • when the water supply relies upon a water purification system due to
                        presence of contaminants, or
                    • when there is evidence of the situations listed below:
                        • corrosion of pipes (plumbing),
                        • areas of intensive agriculture within ¼ mile,
                        • coal mining or gas drilling operations within ¼ mile,
                        • dump, junkyard, landfill, factory, gas station, or dry cleaning operation
                            within ¼ mile, or
                        • unusually objectionable taste, smell, or appearance of well water.

                Well Location
                • Individual water supply systems (wells) should be checked to establish the
                   distance from the septic systems.
                • The appraiser is to note in the appraisal if the distances appear to be met plus
                   note any adverse site conditions that might warrant further inspections or due
                   diligence. The lender must make a decision as to whether a qualified third party
                   should map out these distances.
                • The lender may want to have these distances marked on a survey in cases
                   where the lot is particularly small, depending on the location of the well.
                • The minimum acceptable distances between wells and the sources of pollution
                   located on either the same or the adjoining lot are shown in the table below.

                 Source of Pollution        Minimum            Source of         Minimum Horizontal
                                           Horizontal          Pollution           Distance (Feet)
                                         Distance (Feet)
                Property Line                 10 feet        Other Sewer                50 feet
                                                                 Lines
                Septic Tank                   50 feet         Chemically                25 feet
                                                             Poisoned Soil
                Absorption Field,            100 feet          Dry Well                 50 feet
                Seepage Pit,
                Absorption Bed
                Sewer Lines with             10 feet             Other         Recommendations or
                Permanent -tight                                               requirements of the local
                joints                                                         health authority

                                                                                  Continued on next page

Section 2.90                                                                           October 19, 2012
FHA 203(b) Loan Program                                                                Page 227 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued


Water Systems,   Well Location, Continued
(continued)      • Individual water systems/wells should be located ON the subject property site. If
                    not, they must be on an adjacent property, and evidence of water rights and
                    recorded maintenance agreement must be provided for acceptance of the well
                    as the primary source of water for an FHA insured property.
                 • Cisterns-HUD indicates that properties served by cisterns are not acceptable for
                    mortgage insurance. However, the HOCs have the authority to consider waivers
                    in areas where cisterns are typical.
                 • New wells must be drilled, no less than 20 feet deep, and cased. Casing should
                    be steel or other casing material that is durable, leak-proof, and acceptable to
                    (either) the local health authority and (or) the trade or profession licensed to drill
                    and repair wells in the local jurisdiction.
                 • Individual Residential Water Purification Equipment-if a property is otherwise
                    eligible for insurance but does not have access to a continuing supply of safe
                    and potable water without the use of a water purification system, the
                    requirements in HUD Mortgagee Letters 92-18 and 95-34 must be satisfied.

                 Shared Wells
                 Shared wells may serve existing properties which cannot feasibly be connected to an
                 acceptable public or community water supply system. A shared well shall have a
                 valve on each dwelling service line as it leaves the well. A shared well shall service
                 no more than four living units or properties. A shared well must have a shared well
                 agreement and shall be binding upon signatory parties and their successors in title.
                 More information on this agreement can be referenced in HUD Handbook 4150.1
                 Rev-1, Section 12-16.

                 Connection to a Public Water System
                 • The appraiser is required to report on the availability of connection to public
                    and/or community water system. The lender is responsible for the determination
                    of the feasibility for requiring connection.
                 • Generally, connection must be made to a public water system or a community
                    water system if connection costs to the public or community system are
                    reasonable (3% or less of the estimated value of the property.)
                 • A written estimate for the cost of connection must be obtained before the
                    underwriter may waive this condition. If connection costs exceed 3%, the
                    existing on-site systems will be acceptable provided they are functioning properly
                    and meet the requirements of the local health department. If no connection is
                    required, the loan must be sent back to underwriting for re-evaluation.

                 Community Water Systems
                 • HUD no longer maintains a list of approved community water systems. This type
                    of water system is a central system owned, operated, and maintained by a
                    private corporation or a non-profit property owners association.
                 • If on community water, the appraiser must note on the URAR the name of the
                    water company. The lender is responsible to ensure the community system(s)
                    are licensed and adequate to service the property.

                                                                                  Continued on next page



Section 2.90                                                                            October 19, 2012
FHA 203(b) Loan Program                                                                 Page 228 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued


Well Waivers –   FHA allows for a lesser distance from the well to the soil poisoned area (25 feet to 15
Existing         feet) and drainfield (100 feet to 50 feet) if there is an impervious strata of clay,
Construction     hardpan, or rock.

                 The DE underwriter may accept these lesser distances with the proper supporting
                 documentation such as evidence that the ground surface is effectively separated by
                 an impervious strata, a professional drawing, and a “clear” water test. These items
                 must be placed in the FHA case binder. In this instance a Waiver is not required.

                 The following exhibits are acceptable:
                 • A well driller’s log evidencing that the ground surface is effectively separated by
                    an impervious strata, or. a subsurface evaluation letter from either the local
                    Water Management District or Heath Department or from a qualified well installer
                    provided they clearly show data which would have been revealed by the well
                    drillers log.
                 • The professional drawing must indicate the distance from the subject well to the
                    septic tank, lot-line, drainfield and chemically poisoned soil on the subject site as
                    well as all adjacent adjoining and contiguous sites. If there are no improvements
                    on the neighboring lots, the notation of “vacant” on the drawing is adequate.
                 • The water must be tested to insure the maximum allowable contamination levels
                    for lead, nitrates, nitrites, total nitrate/nitrite, and fecal and total coliform are not
                    exceeded regardless of local stipulations unless they are more stringent. Also
                    adhere to conditions mandated by state and local governments as they pertain to
                    additional impurities.

                 Wells/Septics With Lesser Distances:
                 The FHA Regional Homeownership Centers will accept waiver requests for review,
                 on a case-by case basis, in which the distance from the well is less than 15 feet, the
                 septic tank is less than 50 feet, the septic drainfield is less than 50 feet and, the lot
                 line is less than 10 feet if these distances are acceptable to the local governing
                 entity.

                 The items listed below are required to submit a waiver request to FHA.
                 • DE Underwriter’s determination that there is adequate justification to request a
                    waiver. The underwriter must submit a written request (no faxes) indicating what
                    is to be waived along with legible copies of the exhibits
                 • Appraisal (minus the certification pages) showing the availability and feasibility of
                    connecting to public water and/or sewer.
                 • Evidence indicating the depth of the extensive, continuous impervious strata.
                    (Not required for well to lot line waiver unless the distance from the well to any
                    potential source of pollution is less than the prescribed minimum distances as
                    shown in the chart.)
                 • Professional drawing with all notations as shown above.
                 • Clear water test as shown above.

                                                                                    Continued on next page




Section 2.90                                                                               October 19, 2012
FHA 203(b) Loan Program                                                                    Page 229 of 230
Broker Seller Guide
Closing and Loan Settlement Documentation, Continued


Well Waivers –   •   Evidence from the State that lab is approved to test for required parameters.
Existing         •   Evidence from the Health Department of acceptance of the well in relation to the
Construction,        soil-poisoned area, septic tank and drainfield.
(continued)      •   Termite report (well to soil poisoned area)
                 •   A letter from the utility company acknowledging the well will not hinder their
                     normal operations, if the well is located in a utility easement.

                 Note: Copies of the HOC approval and supporting data must be in the case binder
                 prior to submission for endorsement.


Well Waivers –   Distances from the well to potential sources of pollution for new construction
New              properties may not be less than those prescribed in the table. Consequently, the
Construction     HOC will not accept any request for a waiver. (This includes properties that are
                 existing but less than one-year old.)

                 Lesser distances for the soil poisoned area (25 feet to 15 feet) and drainfield (100
                 feet to 50 feet) if there is impervious strata of clay, hardpan or rock. The DE
                 Underwriter may accept these lesser distances with the proper supporting
                 documentation without a request for a HUD waiver.

                 Copies of the following exhibits must be placed in the case binder prior to
                 submission for endorsement.
                 • Evidence indicating the depth of the extensive, continuous impervious strata.
                    (See acceptable documentation previously shown.)
                 • Professional drawing with all notations as shown above.
                 • Clear water test as shown above.
                 • Evidence from the State that lab is approved to test for required parameters.
                 • Evidence from the Health Department of acceptance of the well in relation to the
                    soil-poisoned area, septic tank and drainfield.
                 • A letter from the utility company acknowledging the well will not hinder their
                    normal operations, if the well is located in a utility easement.




Section 2.90                                                                        October 19, 2012
FHA 203(b) Loan Program                                                             Page 230 of 230
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