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underwriting-guidelines

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									                               TABLE OF CONTENTS

Table of Contents ........................................................................................ 1	
  
Chapter 1	
   General Information ................................................................. 5	
  
      1.1	
   Minimum loan amount .................................................................. 5	
  
Chapter 2	
   General Requirements ............................................................. 6	
  
          2.1	
   Eligible Borrowers ........................................................................ 6	
  
                  2.1.1	
   Borrower .......................................................................... 6	
  
                  2.1.2	
   Co-Borrower .................................................................... 6	
  
                  2.1.3	
   Non-Occupant Co-Borrower ............................................. 6	
  
                  2.1.4	
   Non-Borrower Spouse ...................................................... 6	
  
                  2.1.5	
   Inter Vivos Revocable Trust ............................................. 7	
  
                  2.1.6	
   Non-U.S. Citizen .............................................................. 7	
  
                  2.1.7	
   Non-U.S. Citizen .............................................................. 7	
  
                  2.1.8	
   Permanent Resident Alien (Immigrant) ............................. 7	
  
                  2.1.9	
   Nonpermanent Resident Alien (Non-Immigrant) ............... 7	
  
                  2.1.10	
  Diplomatic Status ............................................................. 8	
  
          2.2	
   Occupancy .................................................................................. 8	
  
                  2.2.1	
   Primary Residence ........................................................... 8	
  
                  2.2.2	
   Second Home .................................................................. 9	
  
                  2.2.3	
   Investment Property ......................................................... 9	
  
          2.3	
   Transaction Types ....................................................................... 9	
  
                  2.3.1	
   Purchase ......................................................................... 9	
  
                  2.3.2	
   Refinance ...................................................................... 10	
  
                  2.3.3	
   Rate And Term Refinance .............................................. 10	
  
              2.3.4	
   Cash Out Refinance ....................................................... 11	
  
      2.4	
   Title Variations .......................................................................... 16	
  
              2.4.1	
   Fee Simple .................................................................... 16	
  
              2.4.2	
   Leasehold Estate ........................................................... 16	
  
Chapter 3	
   Freddie Mac Loans Prospector ............................................. 17	
  
      3.1	
   Conforming Loans ..................................................................... 17	
  
              3.1.1	
   Loans with an "Accept" Risk Class ................................. 17	
  
              3.1.2	
   Norcom will not approve any Loans with a "Caution" Risk
              Class 17	
  
              3.1.3	
   Loan Delivery Requirements .......................................... 18	
  
Chapter 4	
   Conforming Conventional Loans .......................................... 19	
  
4.1	
   General Information ................................................................... 19	
  
4.2	
   Loan To Value Ratios And Occupancy Requirements ................ 19	
  
4.3	
   Age Of Documents .................................................................... 23	
  
4.4	
   Underwriting Documentation ...................................................... 24	
  
        4.4.1	
   Direct Written Verifications ............................................. 24	
  
        4.4.2	
   Additional Documentation .............................................. 24	
  
4.5	
   Alternative Documentation ......................................................... 25	
  
        4.5.1	
   Eligibility Criteria ............................................................ 25	
  
        4.5.2	
   Acceptable Documentation ............................................ 25	
  
        4.5.3	
   Fax Copies .................................................................... 25	
  
        4.5.4	
   Internet Documentation .................................................. 25	
  
        4.5.5	
   Re-verification Authorization .......................................... 26	
  
4.6	
   Credit ........................................................................................ 26	
  
        4.6.1	
   Credit History ................................................................. 26	
  
        4.6.2	
   Credit Score Requirements ............................................ 27	
  
        4.6.3	
   Credit Score Selection ................................................... 27	
  
        4.6.4	
   Adverse Credit ............................................................... 28	
  
        4.6.5	
   Limited Or No Traditional Credit History ......................... 28	
  
        4.6.6	
   Inaccurate Credit History ................................................ 28	
  
        4.6.7	
   Bankruptcy And Short Sale ............................................ 28	
  
        4.6.8	
   Foreclosure .................................................................... 29	
  
4.7	
   Long Term Debt ......................................................................... 29	
  
        4.7.1	
   Pay Down of Debt .......................................................... 29	
  
        4.7.2	
   Revolving Accounts ....................................................... 29	
  
        4.7.3	
   Loans Secured by Retirement Accounts ......................... 29	
  
        4.7.4	
   Open-End Lines of Credit (HELOCS) ............................. 30	
  
        4.7.5	
   Deferred Payment Accounts ........................................... 30	
  
        4.7.6	
   Deferred Student Loans ................................................. 30	
  
        4.7.7	
   Contingent Liabilities ...................................................... 30	
  
4.8	
   Down Payment Guidelines ......................................................... 32	
  
        4.8.1	
   Minimum Down Payment Requirements ......................... 32	
  
        4.8.2	
   Cash Assets for Down Payment and Closing Costs ........ 32	
  
4.9	
   Subordinate Financing ............................................................... 36	
  
4.10	
   Qualifying Ratios ..................................................................... 38	
  
4.11	
   Housing-To-Income Ratio ........................................................ 38	
  
4.12	
   Debt-To-Income Ratio .............................................................. 39	
  
4.13	
   Standard Qualifying Ratios For Conforming Loans ................... 39	
  
4.14	
   Minimum Down Payment Requirements ................................... 40	
  
               Required Reserves .................................................................. 40	
  
          4.15	
  
               Prepaid Costs .......................................................................... 40	
  
          4.16	
  
               Total Contribution Limits .......................................................... 41	
  
          4.17	
  
               Evaluating Income ................................................................... 43	
  
          4.18	
  
              4.18.1	
  Stable Monthly Income ................................................... 43	
  
              4.18.2	
  Income Documentation .................................................. 43	
  
              4.18.3	
  Verification of Employment ............................................ 43	
  
              4.18.4	
  Income Analysis ............................................................. 44	
  
Chapter 5	
   Appraisal Standards .............................................................. 51	
  
              5.1.1	
   Lender Standards .......................................................... 51	
  
              5.1.2	
   Agency Guidelines ......................................................... 51	
  
              5.1.3	
   Property Appraisal Requirements ................................... 52	
  
              5.1.4	
   Appraisal Reporting Forms ............................................. 55	
  
Chapter 6	
   Specific Property Types – Eligible Products ........................ 60	
  
      6.1	
   Properties Subject To Occupancy Restrictions ........................... 60	
  
      6.2	
   Properties Subject To Age Restrictions ...................................... 60	
  
              6.2.1	
   Government Housing Programs ..................................... 60	
  
              6.2.2	
   Age Restrictions - 62 Years of Age or Older ................... 60	
  
              6.2.3	
   Age Restrictions - Any Age Restriction ........................... 60	
  
              6.2.4	
   Required Documents for Age Restricted Properties ........ 61	
  
      6.3	
   Condominium Projects ............................................................... 61	
  
              6.3.1	
   Site Condos ................................................................... 62	
  
              6.3.2	
   General Condo Eligibility Requirements ......................... 62	
  
              6.3.3	
   Ineligible Projects .......................................................... 62	
  
              6.3.4	
   Completion .................................................................... 64	
  
              6.3.5	
   Multiple Ownership ........................................................ 64	
  
              6.3.6	
   Commercial Use ............................................................ 64	
  
              6.3.7	
   Right of First Refusal ..................................................... 64	
  
              6.3.8	
   Adverse Environmental Factors ..................................... 64	
  
              6.3.9	
   Litigation ........................................................................ 65	
  
              6.3.10	
  Delinquent HOA Dues .................................................... 65	
  
              6.3.11	
  Insurance Requirements ................................................ 66	
  
              6.3.12	
  Pooled Insurance ........................................................... 66	
  
      6.4	
   Planned Unit Developments ....................................................... 66	
  
      6.5	
   MANUFACtured HOUSING ........................................................ 67	
  
Chapter 7	
   Government Loans ................................................................ 68	
  
          7.1	
   Eligible Transactions ................................................................. 68	
  
              7.1.1	
   Credit Score Requirements ............................................ 68	
  
              7.1.2	
   VA Products ................................................................... 68	
  
              7.1.3	
   FHA Products ................................................................ 68	
  
              7.1.4	
   USDA Guaranteed Rural Housing .................................. 69	
  
      7.2	
   Ineligible Transactions ............................................................... 70	
  
      7.3	
   Fha Streamline Refinance And Va Irrrl Transactions .................. 71	
  
      7.4	
   Underwriting Documentation ...................................................... 72	
  
      7.5	
   Co-Signers ................................................................................ 72	
  
      7.6	
   Modular Homes ......................................................................... 72	
  
      7.7	
   Freddie Mac Lp Underwritten Fha Loans ................................... 73	
  
      7.8	
   Freddie Mac Lp Underwritten Va Loans ..................................... 73	
  
      7.9	
   USDA RURAL HOUSING GUARANTEED UNDERWRITING
      SYSTEM (GUS) ................................................................................. 73	
  
Chapter 8	
   New Construction .................................................................. 76	
  
          8.1	
   Construction-To-Permanent Treated As A Purchase Transaction
                  76	
  
          8.2	
   Construction-To-Permanent Treated As A Rate-Term Refinance 76	
  
          8.3	
   Construction-To-Permanent Treated As A Cash-Out Refinance . 78	
  
          8.4	
   Acquisition Cost Documentation ................................................ 79	
  
          8.5	
   Borrower Acted As Contractor ................................................... 80	
  
CHAPTER 1       GENERAL INFORMATION


1.1         MINIMUM LOAN AMOUNT

      Norcom’s minimum loan amount is $50,000 for conforming loans.
CHAPTER 2        GENERAL REQUIREMENTS
      Norcom will only lend to individual applicants (borrowers). An applicant
      is defined as one who applies for a loan secured by real property with
      the obligation of repaying the loan in full with interest. To be eligible,
      applicants must conform to certain eligibility requirements.

      Loans with title or interest held in various forms/legal entities such as
      Life Estates, Non-Revocable Trusts, Guardianships, LLC's, Corporations
      or Partnerships are not eligible.


2.1         ELIGIBLE BORROWERS



2.1.1 Borrower
      The borrower is the individual obligated to repay the loan secured by the
      mortgaged premises. The borrower should be of legal age per local/state
      jurisdiction. He/she should be able to enter into a binding contract.


2.1.2 Co-Borrower
      The co-borrower, or joint applicant, is the individual who has applied with
      the borrower for joint credit. The co-borrower may take title to the
      mortgaged premises and will sign the Note and Security Instrument.


2.1.3 Non-Occupant Co-Borrower
      The non-occupant co-borrower applies with the borrower for joint credit
      and will take title to the mortgage premises, but will not occupy the
      property. The non-occupant co-borrower will be required to sign the
      Note and Security Instrument.


2.1.4 Non-Borrower Spouse
      When a married borrower applies in their name alone, the spouse is
      referred to as the non-borrower spouse. A non-borrower spouse may
      have rights as a co-owner of the mortgage premises or due to state
      community property or marital rights.
2.1.5 Inter Vivos Revocable Trust
    Norcom will not accept loans in the name of a trust.


2.1.6 Non-U.S. Citizen
    A borrower, who is lawfully residing in the U.S. as a permanent or a
    nonpermanent resident alien, is eligible for a mortgage on the same
    terms as a U.S. citizen.


2.1.7 Non-U.S. Citizen
    Borrowers must have current acceptable documentation from the Bureau
    of Citizenship and Immigration Services (BCIS) (formerly the Immigration
    and Naturalization Service (INS)) within the Department of Homeland
    Security, evidencing the person's legal residency status in the United
    States.


2.1.8 Permanent Resident Alien (Immigrant)
    Individuals granted the privilege of residing permanently in the U.S. Also
    includes refugees and others seeking political asylum. Documentation is
    commonly referred to as a ‘Green Card'.


2.1.9 Nonpermanent Resident Alien (Non-Immigrant)
    All non-permanent resident aliens must provide evidence of a valid,
    acceptable visa. A copy of the unexpired visa must be included in the
    loan file evidencing one of the following visa classes: [note: all
    standards for determining stable monthly income, adequate credit history
    and sufficient liquid assets must be applied in the same manner to each
    borrower including borrowers who are non-permanent resident aliens.

                                 Table 2 - 1
       SYMBOL                          CLASSIFICATION
    A Series [A-1,      These visas are given to officials of foreign
    A-2, A-3]           governments, immediate family members and
                        support staff. Only those without diplomatic
                        immunity, as verified on the visa, are allowed.
    E-1 treaty trader   This visa is essentially the same as an H-1 or L-
    and E-2 treaty      1; the title refers to the foreign country’s status
      investor           with the United States.
      G series [G-1,     These visas are given to employees of
      G-2, G-3, G-4,     international organizations that are located in
      G-5]               the United States. Some examples include the
                         United Nations, Red Cross, World Bank,
                         UNICEF and the International Monetary Fund.
                         Verification that the applicant does not have
                         diplomatic immunity must be obtained from the
                         applicant’s employer and/or by viewing the
                         applicant’s passport.
      H-1 [includes H-   Temporary worker: this is the most common
      1B and H-1C]       visa given to foreign citizens who are
                         temporarily working in the United States
      L-1, Intra-        An L-1 visa is given to professional employees
      Company            whose company’s main office is in a foreign
      transferee         country.
      TN, NAFTA visa     Used by Canadian citizens for professional or
                         business purposes.
      TC, NAFTA visa     Used by Canadian citizens for professional or
                         business purposes



2.1.10 Diplomatic Status
      Applicants possessing diplomatic status are ineligible.

      All borrowers must have valid and verifiable Social Security Numbers.
      Other forms of taxpayer identification are not allowed.


2.2         OCCUPANCY



2.2.1 Primary Residence
      A primary residence is where the borrower lives the majority of the year.
      The residence is occupied by the primary wage-earner; it is in a location
      relatively convenient to the principal place of employment; and it is the
      address of record for items such as voter registration, federal income tax
      reporting, licensing and similar functions.
      The borrower must occupy the subject within 60 days of closing. If there
      are multiple borrowers, at least one must occupy and take title to the
      property.


2.2.2 Second Home
      A second home is a 1-unit property, including condominiums, and PUDs,
      that the borrower will occupy for a portion of the year.

      The property generally is located in a vacation or resort area, but not
      always, and must be suitable for year round use. A second home should
      not be in the same local market as the borrower’s primary residence.
      There can be exceptions such as properties that located in a recreational
      area but also part of metropolitan area or properties that are used to
      minimize the commute to work.

      There is no specific mileage requirements regarding the distance
      between a second home and primary residence, but it should make
      sense that the subject is a second home. Additionally, 2-4 unit
      properties are not eligible. The borrower should not collect rental
      income from the property. There should be no other occupants besides
      the borrower(s). The borrower should retain exclusive control over the
      property and not give a management company control.


2.2.3 Investment Property
      An investment property is an income-producing property that the
      borrower does not occupy. The subject can be a 1-4 unit property,
      condominium or PUD.


2.3         TRANSACTION TYPES



2.3.1 Purchase
      A purchase transaction allows the borrower to use the loan proceeds to
      finance the purchase of a property. Alternately, the purchase loan
      proceeds could also payoff the outstanding balance owed on a land
      contract, or convert an interim construction loan into permanent
      financing. The borrower should not receive any cash at settlement. The
      borrower should not be on title to the property prior to the loan closing
2.3.2 Refinance
   Please refer to specific investor requirements or specific sections of this
   guide for any variances to the refinance transaction guidelines reflected
   below:


2.3.2.1 Refinance Transactions With Less Than One Year's Seasoning
             •   The underwriter should analyze transactions involving the
                 payoff of a first lien that has been seasoned for less than
                 one year.

             •   If the first lien being paid off was a purchase transaction,
                 and the original purchase price as stated on the application,
                 is less than the new appraised value the file should contain
                 documentation supporting the increase in value (e.g.
                 appraisal indicates increasing values for the market,
                 appraisal comparable sales support increasing values,
                 documented home improvements, or a copy of the original
                 appraisal showing the original appraised value higher than
                 the original sales price).

             •   If the increase in value is unsupported, the underwriter
                 should use the lower of the original purchase price or the
                 new appraised value to determine LTV/TLTV/CLTV.

             •   If the underwriter has knowledge that the first lien being
                 paid off was a cash-out refinance transaction with an LTV
                 greater than 80%, the new Loan will not be eligible for rate
                 and term refinance parameters.


2.3.3 Rate And Term Refinance
   A rate and term refinance allows the borrower to pay off the existing
   mortgage with the proceeds of a new loan secured by the same property.
   The new loan could lower the interest rate, shorten the term or convert
   from an adjustable rate mortgage to a fixed rate mortgage. A rate and
   term refinance allows for minimal cash back to the borrower.

   The following are generally considered to be a Rate and Term Refinance
   if the transaction meets the following criteria:
            •   To be eligible for a rate and term refinance, the last
                transaction on the property cannot be a cash-out refinance
                within the last six months. (The new mortgage must be
                treated as a cash-out refinance. Disbursement date on
                previous HUD-1 to the new note will be used to calculate
                the six-month period.)

            •   Pay off of the current mortgage to include principal balance
                plus accrued interest, and any required prepayment penalty,
                only. (Other costs such as late fees and past-due amounts
                may not be paid with the new loan proceeds.)

            •   If the first mortgage is a Home Equity Line of Credit, a copy
                of the HUD-1 Settlement Statement from the borrower’s
                purchase of the subject property must be provided to
                evidence that the proceeds were fully disbursed on the date
                of the purchase-money loan and used entirely to acquire the
                subject property.

            •   A copy of the HUD-1 from the borrower’s purchase of the
                subject property must be provided evidencing that any
                subordinate financing was used in its entirety to acquire the
                subject property.

            •   Standard loan fees (e.g., closing costs on the new
                mortgage; prepaids, such as interest, taxes, insurance, etc.;
                and points) may be included in the refinance transaction.

            •   Incidental cash to the borrower is allowed not to exceed the
                lesser of $2000 or 2% of the principal balance of the new
                loan amount.


2.3.4 Cash Out Refinance
   A cash-out refinance transaction allows the borrower to pay off the
   existing mortgage by obtaining new financing secured by the same
   property or allows the property owner obtain a mortgage on a property
   that is currently owned free and clear. The borrower can receive funds at
   closing as long as they do not exceed the program requirements.

   To be eligible for a cash-out refinance the borrower must have owned
   the property for a minimum of six months prior to the application date.
    Cash-out refinance transactions must meet the following requirements:

                •   Any refinance transaction not meeting the requirements for
                    a rate-term refinance is to be considered a cash-out
                    refinance.

                •   Continuity of obligation must be demonstrated.

                •   Properties listed for sale in the six months prior to
                    application date are limited to 70% LTV/TLTV/CLTV.
                    Properties that were listed for sale must be removed from
                    the market prior to application.

                •   To be eligible for a cash-out refinance, the borrower must
                    have owned the property for more than six months, if not
                    the transaction is ineligible. (Disbursement date on the
                    previous HUD-1 to the new note will be used to calculate
                    the in excess of six months' period.)


          PROPERY LISTED FOR SALE

         If the subject property is currently listed for sale or listed for sale by
         present owner within the six months immediately preceding the date
         of the loan application then the loan is ineligible for cash-out
         refinancing.


2.3.5.      Relief Refinance – Open Access

            Key Features:

                •   125% LTV ratio for Fixed Rate Loans / ARM’s may not
                    exceed 105% LTV

                •   125% CLTV / HCLTV

                •   Must be submitted to Loan Prospector

                •   Use of Home Value Explorer (HVE), Freddie Mac’s
                    automated valuation model, to determine property value for
                    certain properties.
      General Eligibility Requirements
      The mortgage being refinanced must:

         •   Be a first-lien, conventional mortgage currently owned or
             securitized by Freddie Mac

         •   Have a Freddie Mac settlement date on or before May 31,
             2009

         •   Be seasoned for at least 3 months

      Borrower Benefit
       The Relief Refinance Mortgage must result in at least one of the
   following:

         •   Reduction in the interest rate of the first lien mortgage

         •   Replacement of an ARM, initial Interest Mortgage (or any
             mortgage with an interest-only period) or a balloon/reset
             mortgage with a fixed-rate, fully amortizing mortgage.

         •   Reduction in the amortization term of the first-lien mortgage.

         •   Reduction in the monthly principal and interest payment of
             the first-lien mortgage.

      Eligible Mortgage Products
Conventional 15, 20, or 30 year fixed rate, fully amortizing mortgages.

Conventional nonconvertible 5/1, 7/1 or 10/1 fully amortizing ARM’s

If the mortgage being refinanced is a fixed rate mortgage, the new Relief
Refinance Mortgage – Open Access may not be an ARM.

      Eligible Property Types
Single Family Primary Residences; 2-4 Unit Primary, and Second
Homes.

Condo and PUDs– Primary Residences

Condo approval is not required.
No Condos Allowed in Florida

      Refinance Proceeds
Relief Refinance Mortgages – the proceeds will pay off the first mortgage
[amount includes the UPB and accrued interest through the payoff date];
pay related closing costs, financing costs, and prepaids/escrows not to
exceed the lesser of 4% of the current UPB of the mortgage being
refinanced or $5,000, with cash back not to exceed $250.

In the event that there are remaining proceeds from the Relief Refinance
Mortgage – Open Access after the proceeds are applied as described
below:

The mortgage amount must be reduced, or the excess amount must be
applied as a principal curtailment to the new refinance mortgage at
closing and must be clearly reflected on the HUD-1 form or other
equivalent closing statement.

The proceeds may not be used to pay off or pay down any junior liens.
Under no circumstances may cash disbursed to the borrower (or any
other payee) exceed the maximum permitted above.

      Mortgage Insurance
For an LTV ratio greater than 80 percent: If the mortgage being
refinanced has mortgage insurance coverage, then the same mortgage
insurance coverage percentage must be maintained for the Relief
Refinance Mortgage – Open Access. Mortgage Insurance must be re-
issued by existing MI Company.

If the mortgage being refinanced does not have mortgage insurance,
then no mortgage insurance coverage is required for the Relief
Refinance Mortgage – Open Access.

      Underwriting Requirements
Relief Refinance Mortgages – Open Access must be submitted to Loan
Prospector.

Loan Prospector findings must be submitted with GFE at submission

Loan Prospector findings with a risk class of Caution or A-Minus are
Ineligible.
      Collateral Assessment
May use HVE or a new appraisal to determine property value. HVE may
be used on single family / Condo / PUD – Owner occupied only.

To use HVE in lieu of obtaining a full appraisal, Loan Prospector must
show the following:

         •   Message Code Y0 must indicate HVE point value estimate
             for the subject property

         •   Message Code Y1 must indicate a HVE forecast standard
             deviation for the subject property of .200 or lower

         •   Message Code Y2 must indicate a High or Medium
             confidence level of the HVE point value estimate of the
             subject property.

If using HVE value in lieu of appraisal the file MUST be re-run thru LP
using HVE value to determine LTV.

Subject Property must be a 1 unit detached or attached dwelling, or a
unit in a condominium project or PUD (No Condominiums in Florida).
May not be a manufactured home, dwelling on a leasehold estate, or a
cooperative unit.

Copy of Assessor/Field Card from municipality will be required on loans
using HVE point value estimate in lieu of appraisal.

      Secondary Financing
Existing junior liens may be refinanced simultaneously with the first
mortgage provided the junior lien is being refinanced for one of the
following purposes:

         •   A reduction in the interest rate of the junior lien. To replace
             an ARM, an interest-only junior lien, or a junior lien with a
             balloon or call option with a fixed-rate, fully amortizing junior
             lien.

         •   A reduction in the amortization term of the junior lien.

         •   A reduction in the monthly payment of the junior lien.
      The unpaid principal balance of the new junior lien cannot be more than
      the unpaid principal balance, at the time of payoff, of the junior lien being
      refinanced. If the junior lien being refinanced is a fixed-rate junior lien,
      the new junior lien cannot be an ARM. An existing junior lien must be
      subordinate to the Relief Refinance Mortgage – Open Access,
      regardless of whether the junior lien is refinanced simultaneously with
      the first-lien mortgage.

      An increase in the current unpaid principal amount of any junior lien is
      permitted for any reason not related to the Relief Refinance Mortgage
      transaction.

      No new secondary financing is permitted.


2.4         TITLE VARIATIONS



2.4.1   Fee Simple
      Fee Simple is the greatest possible interest a person can have in real
      estate. The lender must be recorded as the principal on the mortgagor’s
      estate subject only to liens for taxes and special assessments that are
      not currently due and payable.


2.4.2 Leasehold Estate
      A leasehold arrangement is one in which there is a separate owner of
      the land and the improvements on the land. The landowner grants a
      lease to the owner of the improvement that gives the right to use the
      land in exchange for a rental payment. The ownership interest in the
      improvements with the rights granted in the lease to use the loan is
      called the leasehold interest. The rental payment is called the leasehold
      payment.

      The lease or sublease must be valid, in good standing, and in full force.
      The leasehold must be assignable and/or transferable. All rents must be
      current.

      The lease is commonly for a term of 99 years or more and is usually
      renewable. The remaining term of the lease must extend a minimum of 5
      years beyond the maturity date of the mortgage.
CHAPTER 3       FREDDIE MAC LOANS PROSPECTOR


3.1      CONFORMING LOANS



3.1.1 Loans with an "Accept" Risk Class
            •   The subject loan must pass all eligibility and underwriting
                tests performed by Loan Prospector. Any verification
                message or approval conditions specified on the Loan
                Prospector Feedback Certificate must be satisfactorily
                resolved before delivery to the investor.

            •   Terms and conditions of the closed loan, and underwriting
                information in the loan file must match the data on which
                the Loan Prospector "Accept" risk class is based.

            •   All Delegated Loans submitted under this program may be
                subject to 100% validation audit (at a minimum to include
                data integrity) and post-funding audit by Norcom. Any
                inconsistency in the data will require the loan to be re-
                underwritten by Loan Prospector and may result in non-
                fund, suspense, or repurchase notification by the investor.

            •   All Non-Delegated Loans submitted must have a validation
                audit (data integrity) and property/appraisal review by
                Norcom. Any inconsistencies in the data will typically result
                in the loan having to be re-underwritten by Loan Prospector
                and may result in a non-fund, suspense, or repurchase
                notification by Norcom.


3.1.2 Norcom will not approve any Loans with a "Caution" Risk Class
            •   Any loans scoring a “Caution” risk class from Loan
                Prospector are ineligible.

            •   Norcom will not accept any loan scoring a “Caution” risk
                class from LP with the Purchase Eligibility message of “500
                Freddie Mac Eligible. LP A-minus offering”.

            •   Norcom will not accept manually underwritten loans under a
                delegated underwriting authority, including contract
                underwritten loans. Manually underwritten loans are defined
                as loans that receive one of the following responses due to
                insufficient or invalid credit only:

            •   Freddie Mac LP Response:

                   o Invalid - only when significantly inaccurate credit or
                     insufficient/invalid credit.

                   o Ineligible - only when significantly inaccurate credit or
                     insufficient/invalid credit.

                   o Incomplete - only when significantly inaccurate credit
                     or insufficient/invalid credit.

                   o Caution - only when significantly inaccurate credit or
                     insufficient/invalid credit.

                   o Loans receiving any of the above feedback
                     responses from LP must be submitted to the investor
                     for Prior Approval Underwriting according to each
                     investor's specific guidelines to be eligible for
                     purchase.


3.1.3 Loan Delivery Requirements
            •   Loans delivered as a Freddie Mac Loan Prospector
                underwritten loan must include:

                   o Loan Prospector Feedback Certificate

                   o Credit and appraisal documentation as required by
                     LP to include all credit reports and all Credit Scores
                     generated.

                   o The above items should be included in the file.
                     Please include any investor specific loan submission
                     summary form, which should include the LP AUS Key
                     Number.

            •   Follow submission requirements as outlined in Norcom’s
                “Closed Loan Document Checklist”.
CHAPTER 4                    CONFORMING CONVENTIONAL LOANS



4.1               GENERAL INFORMATION

      Conventional conforming loans should be underwritten to the standards
      and guidelines for Freddie Mac unless otherwise indicated.


4.2               LOAN TO VALUE RATIOS AND OCCUPANCY REQUIREMENTS

      Refer to Freddie Mac guidelines for loans with a Loan Prospector®
      certificate for maximum LTV and CLTV. (Please review specific product
      and investor guidelines for any applicable Geographic Restrictions to the
      Loan to Value Ratios and Available Products.)


                                                                Table 4 - 1


                                             PRIMARY RESIDENCE
                                          TERMS OF 30 YEARS OR LESS

            "PURCHASE MONEY" AND “NO CASH-OUT” REFINANCE
                           TRANSACTIONS

                                      Maximum Maximum
                                         LTV       LTV                                                Maximum
                                        w/out      with                                    Maximum
                                                                                                 TABLE 4 - 2TLTV
         Property                     Secondary Secondary                                   CLTV
           Type                       Financing Financing

           1 Unit                            95%                          90%                95%        95%
          Dwelling

          2-4 Unit                           80%                          75%                80%        80%
          Dwelling
       	
  
       *	
  Min	
  FICO	
  620	
  
       *	
  Loan	
  Term	
  =	
  10,	
  15,	
  20,	
  25,	
  30	
  year	
  fixed	
  	
  
                                                                               	
  
       *Loan	
  Term	
  =	
  3/1,	
  5/1,	
  7/1,	
  10/1	
  ARM	
  (NO	
  interest	
  only)	
  
       *	
  Lender	
  Paid	
  MI	
  Available	
  
       *	
  Special	
  Terms	
  for	
  condominium	
  transactions	
  	
  in	
  Florida	
  
                             Table 4 - 3

                     PRIMARY RESIDENCE
                  TERMS OF 30 YEARS OR LESS

          “CASH-OUT” REFINANCE TRANSACTIONS*

  Property       Maximum      Maximum      Maximum   Maximum
    Type            LTV          LTV        CLTV      TLTV
                   w/out         with
                 Secondary    Secondary
                 Financing    Financing

   1 Unit          85%            85%       85%       85%
  Dwelling

  2-4 Unit         75%            70%       75%       75%
  Dwelling

* Min FICO 640




                             Table 4 - 4

                        SECOND HOME
                  TERM OF 30 YEARS OR LESS*

         "PURCHASE MONEY" TRANSACTIONS ONLY

  Property       Maximum   Maximum         Maximum   Maximum
    Type            LTV       LTV           CLTV      TLTV
                   w/out      with
                 Secondary Secondary
                 Financing Financing

   1 Unit           90%           90%       90%        90%
  Dwelling

* Min FICO 620
                            Table 4 - 5

                        SECOND HOME
                  TERMS OF 30 YEARS OR LESS

        "NO CASH-OUT" REFINANCE TRANSACTIONS *

  Property       Maximum   Maximum        Maximum   Maximum
    Type            LTV       LTV          CLTV      TLTV
                   w/out      with
                 Secondary Secondary
                 Financing Financing

    1 Unit          90%           90%       90%       90%
   Dwelling

* Min FICO 620


                            Table 4 - 6

                       SECOND HOME
                  TERMS OF 30 YEARS OR LESS

             "CASH-OUT" REFINANCE TRANSACTIONS *

 Property       Maximum     Maximum       Maximum   Maximum
   Type            LTV         LTV         CLTV      TLTV
                  w/out        with
                Secondary   Secondary
                Financing   Financing

   1 Unit         75%           75%        75%       75%
  Dwelling

* Min FICO 640
                          Table 4 - 7

                  INVESTMENT PROPERTIES
                 TERMS OF 30 YEARS OR LESS

            "PURCHASE MONEY" TRANSACTIONS ONLY

 Property     Maximum     Maximum       Maximum   Maximum
   Type          LTV         LTV         CLTV      TLTV
                w/out        with
              Secondary   Secondary
              Financing   Financing

  1 Unit         80%          80%        85%       85%
 Dwelling

 2-4 Unit        75%          70%        75%       75%
 Dwelling

* Min FICO 620


                          Table 4 - 8

                  INVESTMENT PROPERTIES
                 TERMS OF 30 YEARS OR LESS

        "NO CASH-OUT" REFINANCE TRANSACTIONS

 Property     Maximum     Maximum       Maximum   Maximum
   Type          LTV         LTV         CLTV      TLTV
                w/out        with
              Secondary   Secondary
              Financing   Financing

  1 Unit         75%          75%        75%        75%
 Dwelling

 2-4 Unit        75%          70%        75%        75%
 Dwelling

* Min FICO 620
                                     Table 4 - 9

                            INVESTMENT PROPERTIES
                           TERMS OF 30 YEARS OR LESS

                      CASH-OUT" REFINANCE TRANSACTIONS

          Property     Maximum       Maximum         Maximum        Maximum
            Type          LTV           LTV           CLTV           TLTV
                         w/out          with
                       Secondary     Secondary
                       Financing     Financing

            1 Unit         75%           75%            75%            75%
           Dwelling

           2-4 Unit        70%           65%            70%            70%
           Dwelling

         * Min FICO 640


4.3         AGE OF DOCUMENTS

      Information used to make the credit decision must be current. The
      maximum age of documents at closing is:


                                    Table 4 - 10



             Item                 Existing Property            New Construction


 Credit Documents             90 days old                   90 days old

 Appraisal                    120 days old*                 120 days old*

 *At closing, if the appraisal is older than 120 days but is less than one year old,
 obtain an update from the appraiser indicating that the property value has not
 declined since the original appraisal date. If the effective date of the appraisal
 exceeds one year or the value has declined, a new appraisal will be required.
 For a property located in a Market Classification of 3 or 4 a Collateral
 Consultation Review (CCR) or the FHLMC Form 1032 will be required in addition
 to the appraisal update.
 The required CCR Review must be obtained by the Seller from a source
 acceptable to Norcom.



4.4         UNDERWRITING DOCUMENTATION

      The application package must contain acceptable documentation to
      support the underwriting decision. When standard documentation does
      not provide sufficient information to support the decision, additional
      explanatory statements or documentation must be provided.


4.4.1 Direct Written Verifications
      Written verifications for employment, deposit accounts and/or
      mortgage/rental history (VOE/VOD/VOM) must pass directly between the
      lender and employer, financial institution, mortgagor/landlord, as
      applicable, without being handled by any third party.

      Documentation must not contain any alterations, erasures, and
      correction fluid or correction tape.


4.4.2 Additional Documentation
      Tax returns, if required, must be true copies of filed returns and must be
      signed by all applicants.

      Do not accept copies that are signed by a tax preparer. Tax preparers
      only sign the filed original.

      Do not accept W-2 forms that are marked "Employer Copy". Employers
      do not distribute their copies.

      Do not accept handwritten W-2 forms or paystubs. Tax returns must be
      obtained if computer generated documents are not available.

      Letters of explanation regarding financial circumstances must specifically
      address the financial or credit concern presented and must contain a
      complete explanation in the applicant's own words, and be signed and
      dated by the applicant.
4.5         ALTERNATIVE DOCUMENTATION



4.5.1 Eligibility Criteria
      Alternative documentation is allowed for all FHLMC eligible loans.


4.5.2 Acceptable Documentation
      Alternative documentation provided in lieu of "Verification of
      Employment" and "Verification of Asset" forms must be legible originals
      or certified true and exact copies. The documentation cannot contain any
      alterations, erasures or white-outs.

      The individual certifying the original must include a signature, which
      contains at least his/her first initial and full surname.


4.5.3 Fax Copies
      Fax copies in lieu of original documents or certified copies are
      acceptable subject to the following:

               •   Verification transmitted directly from the loan processor to
                   an employer, depository institution, mortgagee or landlord.
                   The employer, depository institution, mortgagee or landlord
                   must transmit the verification directly back to the loan
                   processor.

               •   Photocopies or faxes received by the loan originator or loan
                   processor directly from the borrower are acceptable.


4.5.4 Internet Documentation
      For conforming conventional loans, Internet documents/downloads of
      credit reports as well as income, employment and asset verification are
      acceptable. This allowance for Internet documents does not change the
      required content or level of documentation needed. The information must
      be easy to read, understandable, and have no evidence of alterations,
      erasures or white-outs, and must make sense based on the borrower
      profile and transaction terms.
      The following source validation criteria apply to all documents obtained
      via the Internet:

               •   Identify the borrower as the employee or owner of the
                   applicable account.

               •   Identify the credit reporting agency, employer, or
                   depository/investment firm's name and source of
                   information.

               •   Headers, footers, and the banner portion of the printout of
                   the downloaded web page(s) must reflect the appropriate
                   firm.

               •   Display the Internet uniform resource locator (URL) address
                   and the date and time printed.

               •   If faxing an Internet download, make sure fax header does
                   not cover URL information.


4.5.5 Re-verification Authorization
      A Borrower's consent must be evidenced by their signature on the
      appropriate form in order to allow subsequent re-verification as required
      by investors.


4.6         CREDIT



4.6.1 Credit History
      An individual’s credit history is considered to be one of the strongest
      indicators of future credit performance. People who have maintained a
      long history of excellent credit can, and do manage personal finances
      properly. Likewise a borrower who has a history of slow payments or
      has defaulted in the repayment of debt generally does not change their
      credit habits.
4.6.2 Credit Score Requirements
    All conventional loans require a credit score to be established for each
    Borrower. The three major Credit Repositories ("Agencies") offer a
    product that scores each consumer's credit history using the Fair Isaac
    model. Trademark names include the Experian "Fair Isaac Credit Score"
    (FICO), Trans Union "Emperica Score" and Equifax "Beacon Score". All
    are acceptable and are referred to as the "Credit Score”.

    The term “Underwriting Score” refers to the overall credit score
    applicable to a specific mortgage loan transaction as determined by
    Freddie Mac's "Indicator Score".


4.6.3 Credit Score Selection
    The following criteria should be used to determine each individual
    borrower's credit score:

             •   If there are three valid credit scores for a borrower, the
                 middle score of the three scores is used.

             •   If there are three valid credit scores for a borrower but two
                 of the scores are the same, the lower of the two scores is
                 used.

             •   If there are two valid scores for a borrower, the lower of the
                 two scores is to be used.

             •   If there is one valid score for a borrower, that score is used.

    After selecting the appropriate credit score for each borrower, the
    Underwriting Score must then be determined:

             •   If there is more than one borrower, the lowest selected
                 credit score among all borrowers is the Underwriting Score.

             •   When there is only one borrower, the selected credit score
                 for that borrower is also the Underwriting Score.

             •   If the loan was underwritten through Freddie Mac's Loan
                 Prospector, the system generated score must be reflected
                 on the loan submission form (FHLMC 1008). Additionally,
                 the original credit report must be included in the file
                 showing the score.


4.6.4 Adverse Credit
    When significant adverse credit is identified in a borrower's credit
    history, it is underwriter discretion to request documentation evidencing
    whether the derogatory information was due to extenuating
    circumstances or financial mismanagement, and that an acceptable
    credit history has been re-established.

    Refer to FHLMC 37-38 for specific credit underwriting guidelines.


4.6.5 Limited Or No Traditional Credit History
    Loans manually underwritten due to receipt of unacceptable results from
    AUS due to insufficient credit history are not saleable to Norcom.


4.6.6 Inaccurate Credit History
    Loans manually underwritten due to receipt of unacceptable results from
    AUS due to credit disputes and/or inaccurate credit history are not
    acceptable. The borrower will have to correct inaccuracies in their credit
    file and a new corrected report must be obtained. An explanation from
    the borrower along with the original credit report must be provided in the
    loan file. Use of a "Credit Repair" company is not acceptable.


4.6.7 Bankruptcy And Short Sale
    A bankruptcy offers an individual a chance to start fresh by forgiving
    debts that simply can’t be paid while offering creditors a chance to obtain
    some measure of repayment based on what assets are available

    A short sale is the sale of a property for less than the total amount
    necessary to satisfy the mortgage obligation. A short sale occurs when
    the borrower cannot sell the property for the full amount of their
    indebtedness and the lender accepts a payoff of less than the total
    amount owed on the mortgage, if accepting less would reduce the loss
    the lender would have incurred if the property had been foreclosed upon.

    Financial Negligence:
      If the bankruptcy or short sale is due to financial negligence or
      mismanagement, at least four years must have elapsed from the date of
      discharge closing and payoff to the lender on the short sale to the date
      of closing of the new transaction.


4.6.8 Foreclosure
      Foreclosure is a specific legal process in which a lender attempts to
      recover the balance of a loan from a borrower who has stopped making
      payments to the lender by forcing the sale of the asset used as the
      collateral for the loan


4.7         LONG TERM DEBT



4.7.1 Pay Down of Debt
      Installment or mortgage accounts may not be paid down to ten months or
      less to allow the borrower to qualify. This type of debt must be paid in
      full. Payoff of revolving accounts in order to qualify the borrower is
      generally not allowed, depending on the previous use of the revolving
      accounts and average balances. If the borrower can evidence that the
      revolving account or accounts do not typically have high balances and
      are paid in full each month or frequently, then pay off of revolving
      accounts for qualifying may be acceptable to the underwriter.


4.7.2 Revolving Accounts
      The monthly payment on every revolving and open-end account with a
      balance, regardless of the apparent number of payments remaining,
      must be included in the borrower’s long-term debt and ratio calculation. If
      the credit report does not reflect a payment on a currently reporting
      liability, and the actual payment cannot be determined, a minimum
      payment may be calculated using the greater of $10.00 or 3% of the
      outstanding balance.


4.7.3 Loans Secured by Retirement Accounts
      Payments on loans secured by the borrower's 401(k) or SIP (Savings
      Investment Plan) are not included in long term debt because they are
      voluntary payments; however, the underwriter should consider these
    payments in terms of their possible impact on cash flow and debt ratios.
    The borrower should indicate plans for debt repayment if the inclusion of
    a 401(k) or SIP loan payment in the monthly debts would result in a very
    high total debt-to-income ratio or negative cash flow.


4.7.4 Open-End Lines of Credit (HELOCS)
    If not shown on the credit report, payments on a home equity line of
    credit with an outstanding balance may be calculated at 1% of the
    outstanding balance or the current payment reflected on the Borrower’s
    billing statement.


4.7.5 Deferred Payment Accounts
    Some debts may have deferred payments or be in a period of
    forbearance. These debts must be included in the qualifying ratios if
    there are more than 10 months of payments remaining. When payments
    on an installment debt are not given on the credit report or are listed as
    deferred, documentation supporting the required payment must be
    provided.

    Examples of acceptable documentation include but are not limited to:

       •   Direct verification from the creditor.

       •   Copy of the installment loan agreement.


4.7.6 Deferred Student Loans
    For a deferred student loan, if the actual payment cannot be determined,
    a payment should be calculated by using 1.5% of the original student
    loan balance.


4.7.7 Contingent Liabilities
    Contingent liabilities are debts that the borrower is not currently required
    to pay but may be required to pay in the future (e.g. co-signed loans,
    court ordered payments, previous residence sold through assumption of
    mortgage with no release of liability).

    Co-Signed Loans:
The monthly payment on a co-signed loan may be excluded from long
term debt only with evidence of timely payments being made by
someone other than the borrowers. Copies of canceled checks for the
last twelve months are acceptable documentation.

Assumption with No Release of Liability:

The debt on a previous residence may be excluded from long term debt
with evidence that the borrower no longer owns the property. The
following documents are required:

   •   Copy of documents transferring ownership of the property;

   •   The assumption agreement executed by the transferee; and

   •   Evidence that the mortgage is current.

Court Order:

If the obligation to make payments on a debt has been assigned to
another person by court order, such as a divorce decree, the payment
may be excluded from long term debt. The following documents are
required:

   •   Copy of the court order or divorce decree.

For mortgage debt, a copy of the documents transferring ownership of
the property; or

   •   If a transfer of ownership has not taken place, late payments
       associated with the loan repayment of the debt owing on the
       mortgaged property should be taken into account when reviewing
       the borrower’s credit profile.

Lease Payments:

The monthly payment associated with a lease must be included in the
total monthly obligations regardless of the number of payments
remaining until the end of the lease term. If the lease is near the end of
its term the new lease payment should be determined and included in
the total monthly debts.
4.8          DOWN PAYMENT GUIDELINES



4.8.1 Minimum Down Payment Requirements
         •   For a primary residence or second home with an LTV of 80.01% or
             more, gift funds are allowed only after a minimum down payment
             of at least 5% has been made from the borrower's own funds.

         •   Gift funds are not allowed on investment property transactions.


4.8.2 Cash Assets for Down Payment and Closing Costs
      In addition to standard liquid assets, the following are considered to be
      cash assets at 100% of the verified amounts:

             •   A gift or grant from a municipality, nonprofit religious
                 organization, nonprofit community organization, or the
                 borrower's employer.
             •   Saving cash to close.
             •   Proceeds from the sale of the borrower's personal property.
             •   Individual Development Account.
             •   Cash assets requiring liquidation:
                    o Cash value of life insurance.
                    o Publicly traded stocks, bonds, mutual funds, U.S.
                      Government securities:
             •   Retirement Accounts:
             •   IRA, SEP IRA, 401(k), KEOGH, 403(b) and other IRS qualified
                 retirement plans may be verified with a copy of the most recent
                 monthly/quarterly statement evidencing the borrower as the
                 owner and the value of the account.

             •   U.S. Savings Bonds:
                    o A copy of the bond certificate(s) must be provided
                      evidencing the borrower is the owner and the current
                      value of the bonds; or
                    o Include a statement from the seller of the bonds or a
                      financial institution attesting to the fact that they have
                      seen the bonds and include a list of the serial numbers
          of the bonds, dates of maturity, types, amounts, and
          stating that the borrower is the owner; and
       o A copy of the appropriate U.S. Treasury Table
         evidencing the current values of the bonds.
•   Gift from Relatives:
    A gift letter is required listing the donor's name, address (city,
    state and zip), relationship to the borrower, and the dollar
    amount of the gift. The gift letter must be signed by the donor.

       The donor must be:

          o related to; or
          o the fiancé/fiancée; or
          o a domestic partner of the borrower.
    When the gift funds are received prior to the initial verification
    of assets (bank statement balance includes gift funds), the loan
    file must contain the following documentation:
       o Verification of funds in the borrower's account.
       o Verification of the transfer of the gift funds from the
         donor to the borrower.
    When the gift funds are received after the initial verification of
    assets, the loan file must contain the following documentation:
       o Verification of the transfer of the gift funds from the
         donor to the borrower.
       o Transfer of funds can be verified by a copy of the
         donor's withdrawal slip and borrower's deposit slip or by
         a copy of the donor's canceled check and evidence of
         deposit into borrower's account.
    When the gift funds are transferred at closing, the loan file
    must contain the following documentation:
       o Verification of the transfer of the gift funds from the
         donor to the borrower.
       o Transfer of funds can be verified by a copy of the
         donor's check or wire transfer reflecting the donor as the
         remitter and one line of the settlement statement clearly
         indicating the exact amount of the gift funds received
         from the donor.
•   Gift or Grant from a Municipality, Non-Profit Organization or
    Employer:
    A gift or grant from a municipality, non-profit religious
    organization, nonprofit community organization or the
    borrower's employer must be evidenced by a copy of:

          o The award letter sent to the borrower; or
          o The legal agreement that specifies the terms and
            conditions of the gift or grant.
          o If the gift or grant is from the borrower's employer,
            the employer's formal gift program must be verified.
            Examples of acceptable documentation include, but
            are not limited to:
               §   Copy of gift program guidelines from employee
                    handbook.
               §   Letter from employer's human resources
                    department.
•   File must contain evidence of the transfer of the funds.
•   The award letter or the legal agreement must verify all of the
    following:
          o That repayment of the gift or grant is not required;
          o How the funds will be transferred (e.g., to borrower,
            closing agent, Lender, etc.); and
          o The fact that there will be no lien placed against the
            property as a result of the gift or grant.
•   Sale of Personal Property:
    The following documentation is required to evidence the sale of
    personal assets for funds to close:

       o Personal property previously liquidated:
          §   Bill of sale reflecting:
          §   Date of sale;
          §   Description of asset sold;
          §   Sales price;
          §   Signatures of buyer and seller; and
           §   Copy of the check from the purchaser of the asset or
                the borrower's bank statement verifying the deposit of
                proceeds from the sale.
       o   Personal property to be liquidated:
           §   Document the existence and the borrower's
                ownership of the asset (e.g. car title);
           §   Document the value of the asset through a third party
                source (e.g. appraisal or blue book); and
           §   Letter of intent, contract or other evidence that a
                buyer exists at the specified price.
       o   Evidence of the actual sale, sufficient proceeds received
           from the sale, and proof that any outstanding liability
           owed against the asset was paid in full will be required
           at closing.
•   Individual Development Account (IDA):
    An IDA is a savings account designated by the borrower for the
    purpose of purchasing a residence and into which the borrower
    has regularly deposited funds that are matched by funds from a
    municipality, non-profit or religious organization, the borrower's
    employer, or a regional Federal Home Loan Bank.

    Depending on whether the IDA had a provision that requires
    repayment of the matched funds, the requirements of either
    Option A or Option B must be met.

       o Option A (no repayment provision):
           §   Matching funds may be counted as cash for the full or
                partial down payment, closing costs, financing costs
                and prepaid items or escrow deposits;
           §   Document the savings plan and regular payments
                made by the borrower and the matching organization;
           §   Allow for up to a 4-to-1 match by the matching
                organization;
           §   Borrower must comply with any vesting requirements
                of the IDA program.
       o Option B (repayment provision):
           §   All matching funds may be included as a gift or grant
                after the borrower has made the initial down payment
                            from his own funds as required by the specific
                            program;
                       §   Document the savings plan and regular payments
                            made by the borrower and the matching organization;
                       §   Allow for up to a 3 to 1 match;
                       §   Borrower must comply with any vesting requirements
                            of the IDA program.


4.9           SUBORDINATE FINANCING

      Subordinate financing is permitted on most loan programs. The
      repayment terms for most types of subordinate financing must provide
      for regular payments that cover at least the interest due so that negative
      amortization will not occur, and must permit prepayment at any time
      without penalty. The terms of the subordinate financing should require
      interest at a market rate and the repayment terms for subordinate
      financing must provide for a fixed payment amount. There are two types
      of subordinate financing:

         1)   Home Equity Lines of Credit (HELOC) is an open-end credit line
              secured by a 1-4 family dwelling that allows for multiple advances
              according to the provisions of the note and financing agreement,
              and is typically in a subordinate lien position.
         2)   A Closed End mortgage provides for a single advance of funds at
              the time of loan closing and does not allow for future draws.
         •    Terms:
              For transactions that include subordinate financing, the following
              requirements apply for both HELOC and Closed End Loans:

                    o The subordinate financing must be recorded and clearly
                      subordinate to the first mortgage.
                    o The maximum LTV/TLTV/CLTV may not exceed the
                      guideline limits for the product and occupancy type
                      shown in the Loan to Value Ratios and Occupancy
                      Requirements Sections.
                    o If there is or will be an outstanding balance at the time of
                      closing, the monthly payment for the subordinate
                      financing must be included in the calculation of the
                      borrower's debt-to-income ratio(s).
     o If the subordinate financing is from the borrower’s
       employer, it does not have to require regular payments
       of either principal and interest or interest only. Employer
       subordinate financing may be structured in any of the
       following ways:
        §   Fully amortizing level monthly payments’
        §   Deferred payments for some period before changing
             to fully amortizing level payments
        §   Deferred payments over the entire term; or
        §   Forgiveness of the debt over time.
        §   The financing terms may provide for the employer to
             require full repayment of the debt if the borrower’s
             employment is terminated (either voluntarily or
             involuntarily) before the maturity date of the
             subordinate financing.
•    The terms of a HELOC may provide for a balloon or call
     option within the first five years after the Note date of the
     first Mortgage.
•    Acceptable Documentation:
§   The terms of any subordinate financing must be verified.
     The following sources of verification are deemed
     acceptable:
        o Existing Subordinate Financing:
        o A copy of the credit report; or
        o A copy of the loan statement; or
        o A direct verification from the lender; and
        o A copy of the mortgage note and security instrument.
        o New Subordinate Financing:
        o A copy of the mortgage note; or
        o A direct verification from the lender; or
        o A copy of the commitment letter from the lender.
Note: If the alternative documentation does not include
sufficient information to evidence compliance with
requirements listed above, a copy of the subordinate lien's
security instrument should be provided.
4.10          QUALIFYING RATIOS

       Debt ratios are calculations used to determine whether the borrower will
       be able to meet expenses involved in home ownership. There are two
       ratios to assess the borrower’s eligibility – housing-to-income ratio and
       debt-to-income ratio. Both ratios may not always be considered and
       could be determined by AUS requirements.


4.11          HOUSING-TO-INCOME RATIO
       The monthly housing expense includes the following:

          •   Principal and interest for the mortgage that is secured by the
              borrower’s principal residence

          •   Monthly amounts for:

                 o Subordinate financing on the subject

                 o Hazard insurance

                 o Real estate taxes

                 o Mortgage insurance premiums

                 o When applicable:

                       §   Homeowners association dues

                       §   Optional credit insurance

                       §   Monthly cooperative fees

                       §   Leasehold payments

                       §   Special assessments

                       §   Flood insurance fees

                       §   Tax abatements
4.12          DEBT-TO-INCOME RATIO

       Monthly debt-to-income ratio is the sum of the monthly housing-to-
       income ratio plus the following:

          •   Payments on revolving debt

          •   Installment debt with more than 10 months remaining

          •   Monthly PITIA for any additional properties owned by the borrower
              including second homes and investment properties that are non-
              income producing

          •   If rental income is not used to qualify the subject investment
              property, PITIA plus operating expenses

          •   Current real estate and taxes on properties owned free and clear

          •   Child support, alimony and separate maintenances with more than
              10 months remaining


4.13          STANDARD QUALIFYING RATIOS FOR CONFORMING LOANS
       Typically applies to all Conforming Loans.

       Refer to product/program specific guidelines for complete parameters.


                                       Table 4 - 11

                                                        Occupant Borrower’s
           Underwriting      Total Debt to Income
                                                        Ratio w/ Non-occupant
             Method                  Ratio
                                                             Co-borrower

                 LP
              Accept/DU               45%                          45%
               Approve




                                       Table 4 - 12
                          ADJUSTABLE RATE MORTGAGES*

                   Product            Qualifying Rate for Calculating Ratios

              Conforming – 3/1         LP users follow Freddie Mac published
                   ARMs                              guidelines

          Conforming - 5/1, 7/1 &
                                                      Note rate
               10/1 ARMs
       *ARM products with Interest-Only features must be qualified at the fully
       indexed rate as well as the fully amortizing payment.


4.14          MINIMUM DOWN PAYMENT REQUIREMENTS

       For a primary residence or second home with an LTV in excess of 80%,
       gift funds are allowed only after a minimum down payment of at least 5%
       has been made from the borrower's own funds.

       Gift funds are not allowed on investment property transactions.


4.15          REQUIRED RESERVES

       For 2-4 unit primary home transactions, cash reserves equal to six
       months PITI for the subject property are required when rental income
       from the units is used for qualifying.

       For all 1-4 unit investment property transactions, cash reserves equal to
       six months PITI for the subject property are required, and cash reserves
       equal to two monthly payments of PITI for each other financed second
       home or investment property in which the borrower has an ownership
       interest or on which the borrower is obligated. The reserve requirement
       may not be waived.


4.16          PREPAID COSTS

          •   Prepaid settlement costs that are normally paid by the borrower,
              are classified as:

                 o Per diem interest charges from the date of disbursement
                   through the end of the month.
                 o Real estate taxes covering any period after the date of
                   settlement.

                 o Hazard insurance premiums and reserves toward future
                   premiums.

                 o Escrow accruals required for the renewal of the MI premium

          •   The amount the property seller may pay toward prepaid items
              must be included in total contribution limits.

          •   The amount that the borrower's employer pays towards the
              prepaids is not included in total contribution limitations.

          •   The property seller (or the borrower's employer) may pay the
              following prepaids:

                 o Interest charges from date of disbursement through the end
                   of the month.

                 o Real estate taxes covering any period after the date of
                   settlement.

                 o Hazard insurance premiums and reserves toward future
                   premiums.

                 o The escrow accruals required for the renewal of the MI
                   premiums.

          •   The amount the lender or seller may pay toward prepaid items
              must be included in the total contribution limits.


4.17          TOTAL CONTRIBUTION LIMITS

       The maximum allowable contributions from interested parties based on
       the lesser of the purchase price or appraised value are:
                                 Table 4 - 13

                                                       Maximum
        Property Type            LTV/ CLTV
                                                      Contribution

                                   > 90%                   3%
          Primary
                                 > 75 ≤ 90%                6%
         Residence
                                   ≤ 75%                   9%

                                   > 90%                   3%
        Second Home              > 75 ≤ 90%                6%
                                   ≤ 75%                   9%

         Investment               All
                                                           2%
          Property          LTV/TLTV/CLTVs

       Note: Seller contributions for HOA dues must be paid directly to
                                the Association


HUD-1 review:
  •   To ensure that all fees, disbursements and charges reflected on
      the settlement statement were fully disclosed in the purchase
      agreement and available to the appraiser for consideration in
      determination of the property’s market value, review of both the
      borrower’s and seller’s side of the HUD-1 is required.

  •   Disbursements on the seller side of the HUD-1 to the borrower or
      an entity controlled by the borrower, or to a company owned by
      the seller, require additional consideration.

  •   Real estate commissions must include all commissions on page
      two of the HUD-1 (700 series section), as well as any non-lien
      related disbursements such as:

         o Marketing expenses;

         o Administration fees;

         o Finder’s fees;

         o Referral fees;

         o Consulting fees; or
                 o Assignment of sale fees.

          •   Any combination of the above disbursements exceeding 8% of the
              sales price must be treated as a sales concession and deducted
              dollar-for-dollar from the sales price for purposes of calculating the
              LTV/TLTV/CLTV.


4.18          EVALUATING INCOME



4.18.1 Stable Monthly Income
       Establishing stable monthly income is based on the type of income
       received, the length of time received and whether or not the income is
       likely to continue. In addition, for salaried applicants, considerations in
       determining stable income are length of time employed in current
       position and length of time employed in a current profession.


4.18.2 Income Documentation
       Depending on the type of employment, various documentation
       requirements may be applied based on full documentation or alternative
       documentation methods, and considerations as to whether the borrower
       is salaried, commissioned or self-employed, etc.

       Refer to FHLMC Ch. 37.13 for establishing stable income and required
       documentation.


4.18.3 Verification of Employment
       Employment and income for a salaried employee may be verified by
       obtaining all of the following documentation in lieu of a "Verification of
       Employment" (VOE):

          •   Pay stubs covering a 30-day period.

          •   The borrower's W-2 forms for the past two years.

          •   The W-2 forms must be complete and legible.
4.18.4 Income Analysis
    Conventional Loans should be underwritten to the underwriting
    guidelines published by Freddie Mac unless indicated otherwise in this
    section.

       •   Verbal Verification of Employment:

              o A verbal verification of employment is required for all
                borrowers, within 10 days prior to closing. This policy
                applies to all income types with the exception of passive
                income.

       •   Employment by Relatives or Transaction Participants:

              o If the borrower is employed by a relative, a closely held
                family business, the property seller, real estate agent, or
                any party to the real estate transaction, the following
                documentation must be obtained:

                    §   Borrower's signed and completed personal federal
                         income tax returns for the most recent one-year
                         period, and

                    §   Verification of Employment form (VOE) or

                    §   Pay stub(s) with W-2 form(s).

       •   Current income reported on the VOE or pay stub may be used if it
           is consistent with W-2 earnings reported on the tax returns. If the
           tax returns do not include W-2 earnings or income is substantially
           lower than the current VOE or pay stub, further investigation is
           needed to determine whether income is stable.

       •   Child Support, Alimony or Maintenance Income:

              o In order to be used as income, child support, alimony or
                maintenance payments must reasonably be expected to
                continue for at least a three year period. The following
                documentation is required:

                    §   Copy of the final divorce decree, legal separation
                         agreement or court order; and
             §   Copies of court records, bank statements or canceled
                  checks evidencing a minimum of six months receipt
                  of payments.

•   Foreign Income:

       o Foreign Income is acceptable only if income can be verified
         on U.S. personal tax returns for the last two years.

       o Foreign income should be paid in U.S. currency; however,
         income paid in foreign currency may be considered on a
         case-by-case basis if it's converted into U.S. currency.

•   Notes Receivable, Installment Sales and Land Contracts:

       o Secured:

             §   Evidence of receipt for the last 12 months of income
                  from notes receivable or installment sales or land
                  contracts is required in addition to a copy of the note
                  verifying payment amount and remaining term of at
                  least three years.

       o Unsecured:

             §   Evidence of receipt for the last 12 months of income
                  from unsecured notes receivable is required in
                  addition to a copy of the note verifying payment
                  amount and remaining term of at least three years.

•   Sale or Conversion of Primary Residence:

       o If the Borrower's current Primary Residence is pending sale
         and the sale will not close before the Mortgage Note Date,
         or for Construction Conversion and Renovation Mortgages,
         the Effective Date of Permanent Financing, the following
         requirements must be met:

       o The amount of both the housing payment on the residence
         that is pending sale and the amount of the payments on the
         subject Mortgage must be included in the monthly debt
         payment-to-income ratio in accordance with the
         requirements in Section 37.16, and
          o The Borrower must have reserves equal to six monthly
            payments of principal, interest, taxes and insurance (PITI)
            for the new Primary Residence and six monthly payments of
            PITI for the current Primary Residence pending sale. The
            required reserves can be reduced to two monthly payments
            of PITI for the new Primary Residence and two monthly
            payments of PITI for the property pending sale if the
            following requirements are met:

                §   The Seller documents the value of the property
                     pending sale by obtaining a new appraisal with at
                     least an exterior-only inspection that meets Freddie
                     Mac requirements and is dated no more than 60 days
                     prior to the Note Date, or for Construction Conversion
                     and Renovation Mortgages, the Effective Date of
                     Permanent Financing, and

                §   The loan-to-value (LTV)/total LTV (TLTV)/Home
                     Equity Line of Credit (HTLTV) ratio for the property
                     pending sale is less than or equal to 70%.

The Seller does not need to include the amount of the payment on the
property pending sale in the monthly debt payment-to-income ratio when
the Mortgage file contains all of the following documentation:

   •   The Borrower's executed non-contingent sales contract for the
       previous residence, and

   •   A lender's commitment to the buyer of the previous residence (if
       the executed sales contract includes a financing contingency), and

   •   Evidence the Borrower has reserves equal to six months PITI for
       both mortgages or two months PITI for both mortgages if the
       LTV/TLTV/HTLTV ratio for the current Primary Residence is less
       than or equal to 70% as evidenced by at least an exterior-only
       inspection that meets Freddie Mac requirements, dated no more
       than 60 days prior to the Note Date, or for Construction
       Conversion and Renovation Mortgages, the Effective Date of
       Permanent Financing.

The Seller does not need to include the amount of the payment on the
property pending sale in the monthly debt payment-to-income ratio or
meet the reserve requirement when the Mortgage file contains the
following documentation:

   •   An executed buyout agreement that is part of an employer
       relocation plan where the employer/relocation company takes
       responsibility for the outstanding Mortgage(s).

          o If the current primary residence is pending sale but will not
            be closed prior to the closing date of the new residence or
            will convert to a Second Home and at least 30 percent
            equity in the current primary residence cannot be
            documented:

If the Borrower is converting a Primary Residence to a second home,
and purchasing a new Primary Residence, the following requirements
must be met:

   •   The amounts of both the housing payment of the residence being
       converted to a second home and the subject Mortgage must be
       included the monthly debt payment-to-income ratio in accordance
       with the requirements in Section 37.16, and

   •   The Borrower must have reserves equal to six monthly payments
       of PITI for the new Primary Residence and six monthly payments
       of PITI for the property being converted. The required reserves
       can be reduced to two monthly payments of PITI for the new
       Primary Residence and two monthly payments of PITI for the
       property being converted if the following requirements are met:

   •   The Seller documents the value of the property being converted
       by obtaining a new appraisal with at least an exterior-only
       inspection that meets Freddie Mac requirements and is dated no
       more than 60 days prior to the Note Date, or for Construction
       Conversion and Renovation Mortgages, the Effective Date of
       Permanent Financing, and

   •   The LTV/TLTV/HTLTV ratio for the property being converted is
       less than or equal to 70%.

Borrower converting 1-unit Primary Residence to an Investment
Property
•   If the Borrower is converting their 1-unit Primary Residence to an
    Investment Property and purchasing a new Primary Residence,
    the following requirements must be met:

•   The Borrower must have reserves equal to six monthly payments
    of PITI for the new Primary Residence and six monthly payments
    of PITI for the property being converted. The required reserves
    can be reduced to two monthly payments of PITI for the new
    Primary Residence and two monthly payments of PITI for the
    property being converted if the following requirements are met:

•   The Seller documents the value of the property being converted
    by obtaining a new appraisal with at least an exterior-only
    inspection that meets Freddie Mac requirements and is dated no
    more than 60 days prior to the Note Date, or for Construction
    Conversion and Renovation Mortgages, the Effective Date of
    Permanent Financing, and

•   The LTV/TLTV/HTLTV ratio for the property being converted is
    less than or equal to 70%.

•   If the LTV/TLTV/HTLTV ratio of the property being converted is
    less than or equal to 70% as evidenced by an appraisal with at
    least an exterior-only inspection that meets Freddie Mac
    requirements as described above, the Seller can use rental
    income to qualify the Borrower provided that the requirements of
    Section 37.14(d) are met, including the requirement that the
    Borrower's federal income tax returns must reflect a two-year
    history of managing investment properties when a signed lease is
    used to determine the net rental income. The rental income must
    be documented with a copy of the fully executed lease and, in
    addition, the receipt of a security deposit from the tenant with
    evidence of the deposit into the Borrower's designated account.

•   If the LTV/TLTV/HTLTV ratio is greater than 70% for the Primary
    Residence being converted to an Investment Property, the Seller
    cannot use rental income to qualify the Borrower. The Borrower's
    previous housing payment and the payments on the subject
    Mortgage must both be included the monthly debt payment-to-
    income ratio in accordance with the requirements in Section
    37.16.
Borrower converting 2- to 4-unit Primary Residence to an
Investment Property

If the Borrower is converting their 2- to 4-unit Primary Residence to an
Investment Property and purchasing a new Primary Residence, the
following requirements must be met:

   •   The Borrower must have reserves equal to six monthly payments
       of PITI for the new Primary Residence and six monthly payments
       of PITI for the property being converted. The required reserves
       can be reduced to two monthly payments of PITI for the new
       Primary Residence and two monthly payments of PITI for the
       property being converted if the following requirements are met:

   •   The Borrower documents the value of the property being
       converted by obtaining a new appraisal with at least an exterior-
       only inspection that meets Freddie Mac requirements and is dated
       no more than 60 days prior to the Note Date, or for Construction
       Conversion and Renovation Mortgages, the Effective Date of
       Permanent Financing, and

   •   The LTV/TLTV/HTLTV ratio for the property being converted is
       less than or equal to 70%.

   •   Rental income from the unit previously occupied by the Borrower
       may be used to qualify the Borrower, provided that the
       LTV/TLTV/HTLTV ratio of the 2- to 4-unit property being converted
       is less than or equal to 70% as evidenced by an appraisal with at
       least an exterior-only inspection that meets Freddie Mac
       requirements as described above. In such event, the Seller may
       use up to 75% of the gross rental income from a fully executed
       lease on the unit previously occupied by the Borrower, as long as
       the Seller obtains proof of receipt of a security deposit from the
       tenant and maintains evidence of the deposit into the Borrower's
       designated account in the Mortgage file. If the LTV/TLTV/HTLTV
       ratio is greater than 70% for the Primary Residence being
       converted to an Investment Property, the Seller cannot use rental
       income for the unit previously occupied by the Borrower to qualify.

   •   Rental income for the units not previously occupied by the
       Borrower may be used to qualify the Borrower, provided that the
       rental income requirements for a 2- to 4-unit Investment Property
in Section 37.14(d) are met and the Borrower has reserves equal
to six months PITI for both Mortgages.
CHAPTER 5      APPRAISAL STANDARDS



5.1.1 Lender Standards
   All appraisals must comply with the Office of the Comptroller of the
   Currency (OCC) Interagency Statement on Independent Appraisal and
   Evaluation Functions (OCC AL 2003-9). Additional commentary
   concerning this Statement can be found in the “Frequently Asked
   Questions” Bulletin (OCC Bulletin 2005-6).

   The appraiser must not have a direct or indirect interest, financial or
   otherwise, in the property or in the transaction. Selection criteria should
   ensure that the appraiser is independent of the transaction and is
   capable of rendering an unbiased opinion.

   An appraisal prepared by an individual who was selected or engaged by
   a borrower, property seller, real estate agent or other interested party is
   not acceptable. "Re-addressed appraisals" or appraisal reports that are
   altered by the appraiser to replace any references to the original client
   with the lender's name are not acceptable. Additionally, the borrower,
   property seller, real estate agent or other interested party is not allowed
   to select an appraiser from an approved appraiser list.

   Effective internal controls should require that only qualified and
   adequately trained underwriters, who are not involved in the loan
   production process, review appraisals. To maintain independence, the
   underwriter should not directly report to someone involved in loan
   production. Norcom expects the underwriting review to include
   confirming the independence of the appraiser in addition to a
   comprehensive technical review of the appraiser's analysis prior to
   making a final credit decision. Any exceptions or red flags should be
   escalated accordingly.


5.1.2 Agency Guidelines
   Freddie Mac Loan Prospector (LP) may allow an alternative to a full
   URAR appraisal using either a Minimum Assessment Feedback (Form
   2070) or a PIA (Property Inspection Alternative). These options are
   acceptable provided a copy of the final LP Feedback Certificate allowing
   a Minimum Assessment Feedback (Form 2070) or PIA is included with
   the loan file and provided the applicable product guideline is not more
    restrictive. Refer to Freddie Mac Single Family Seller Guide Chapter 44
    for additional information on using a Minimum Assessment Feedback or
    Property Inspection Alternative. Loans with a PIA will be subject to an
    additional delivery fee as stated on the LP Feedback.

    Norcom, including its authorized Third Party Originators, represents and
    warrants the following when using any alternative to a full URAR
    appraisal as described above:

       •   The Mortgage is an LP Accept mortgage meeting the requirements
           of applicable sections of the Freddie Mac or Fannie Mae Selling
           Guide, and

       •   All data entered into LP on which the final LP Feedback Certificate
           was based were true and accurate and remained unchanged as of
           the closing date of the Mortgage, and

       •   The property address on the final LP Feedback Certificate is the
           correct address for the Mortgaged Premises, and

       •   The subject property has been occupied as a residence, is an
           existing building, and is not undergoing renovation.

    That each appraisal or appraisal alternative submitted to Norcom in
    connection with a Mortgage Loan was reviewed under Norcom’s
    established review procedures and was found to be acceptable in
    accordance with the standards set forth in within this guide and any
    other related standards published by Norcom.


5.1.3 Property Appraisal Requirements


5.1.3.1 Conventional Purchase Transactions
                 •   The property Seller must have taken title to the subject
                     property more than 90 days prior to the contract date on
                     the sale of the property to the applicant.

                 •   Evidence of required seasoning must be submitted in the
                     underwriting file. Underwriters must verify that the
                     property seller on the purchase contract is the owner of
                     record.
               •   Appropriate documentation must be submitted and
                   cleared prior to closing. Documentation may include, but
                   is not limited to, a property sales history report, a copy of
                   the deed of conveyance, a copy of a property tax bill, a
                   computer generated print-out from the assessor's
                   website or the title commitment or binder indicating the
                   legal ownership of the property.

               •   Appraisals must indicate required sales history
                   information as required by regulation.

               •   Property Sales involving any of the following entities as
                   property seller are exempt from these seasoning
                   requirements:

                      o Norcom

                      o HUD

                      o VA

                      o USDA

                      o Fannie Mae

                      o Freddie Mac

                      o Approved Correspondent Lender

                      o Property acquired through inheritance or divorce


5.1.3.2 Conventional Refinance Transactions
               •   The applicant must have taken title to the subject
                   property more than 180 days prior to the loan application
                   date for any cash-out refinance transactions.

               •   A rate-term refinance transaction on loans where the
                   borrower has taken title to the subject property at least
                   30 days prior to the loan application date is typically
                   acceptable if there is a reasonable relationship between
                   the acquisition cost and the current appraised value.
•   Increased values as a result of improvements to the
    subject property by the current owner may be acceptable
    with adequate documentation regarding the
    improvements.

•   If the property has been acquired within 120 days of the
    application date, consider the lower of the documented
    acquisition cost or the new appraised value for
    determining LTV/TLTV/CTLTV.

•   A new appraisal will be required for all transactions
    regardless of the date of the original appraisal.

•   The prior purchase transaction must be documented with
    one or more of the following:

       o HUD-1 Settlement Statement

       o Conveyance Deed (with Sales Price Information)

       o Proof of Paid Real Estate Transfer Taxes (with
         Sales Price Information)

       o Chain of Title (with Transfer Dates and Sales
         Price Information)

•   Inherited properties are exempt from these
    requirements.

•   Evidence of required seasoning must be submitted in the
    underwriting file. Underwriters must verify borrower is
    the owner of record.

•   Appraisals must indicate required sales history
    information as required by regulation.
5.1.4 Appraisal Reporting Forms


5.1.4.1 Freddie Mac Form 70: Uniform Residential Appraisal Report
            Used for 1-unit properties, units in planned unit developments
            and condominium projects that consist solely of detached
            dwellings (site condominium).

            The appraiser must, at a minimum:

               •   Perform a visual inspection of the interior and exterior
                   areas of the subject property

               •   Inspect the neighborhood

               •   Inspect each of the comparable sales from at least the
                   street

               •   Research, verify and analyze data from reliable public
                   and/or private sources

               •   Report their analysis, opinions and conclusions


5.1.4.2 Freddie Mac Form 2055: Exterior-Only Inspection Report
            Used to appraise 1-unit properties including a unit in a planned
            unit dwelling for Agency loans.

            The appraiser must, at a minimum:

               •   Perform a visual inspection of the exterior areas of the
                   subject property from at least the street

               •   Inspect the neighborhood

               •   Inspect each of the comparable sales from at least the
                   street

               •   Research, verify and analyze data from reliable public
                   and/or private sources

               •   Report their analysis, opinions and conclusions
5.1.4.3 Freddie Mac Form 465: Individual Condominium Report
             Used to appraise a unit in a condominium project or a
             condominium unit in a PUD based on an interior and exterior of
             the subject property.

             The appraiser must, at a minimum:

                •   Perform a visual inspection of the interior and exterior
                    areas of the subject property from the street

                •   Inspect and analyze the condominium project

                •   Inspect the neighborhood

                •   Inspect each of the comparable sales from at least the
                    street

                •   Research, verify and analyze data from reliable public
                    and/or private sources

                •   Report their analysis, opinions and conclusions


5.1.4.4 Freddie Mac Form 466: Exterior-Only Inspection, Individual
        Condominium Unit
             Used to appraise a unit in a condominium project or a
             condominium unit in a PUD based on an exterior-only of the
             subject property.

             The appraiser must, at a minimum:

                •   Perform a visual inspection of the exterior areas of the
                    subject property from at least the street

                •   Inspect and analyze the condominium project

                •   Inspect the neighborhood

                •   Inspect each of the comparable sales from at least the
                    street
               •   Research, verify and analyze data from reliable public
                   and/or private sources

               •   Report their analysis, opinions and conclusions


5.1.4.5 Freddie Mac Form 72: Small Residential Income Property
        Appraisal Report
            Used for all two-to-four unit properties, including two-to-four
            unit properties in a planned unit development.

            The appraiser must, at a minimum:

               •   Perform a visual inspection of the interior and exterior
                   areas of the subject property

               •   Inspect the neighborhood

               •   Inspect each of the comparable sales from at least the
                   street

               •   Research, verify and analyze data from reliable public
                   and/or private sources

               •   Report their analysis, opinions and conclusions


5.1.4.6 Freddie Mac Form 1000: Single Family Comparable Rent
        Schedule
            A Single Family Comparable Rent Schedule is required with
            one-unit investment properties. The form, which is prepared by
            the appraiser, is designed to present the information needed to
            determine the market rent for a single-unit investment property.


5.1.4.7 Freddie Mac Form 998: Operating Income Statement
            This form is used to determine the amount of operating income
            that can be used in evaluating the borrower’s credit. The
            underwriter will use the second page of the form to calculate
            monthly operating income and net cash flow for the property,
            and to explain any adjustments made to the applicant’s figures.
5.1.4.8 Freddie Mac Form 72: Market Conditions Addendum to the
        Appraisal Report
            Form is intended to provide the lender with a clear and
            accurate understanding of the market trends and conditions
            prevalent in the subject neighborhood. The form provides the
            appraiser with a structured format to report the data and to
            more easily identify current market trends and conditions. The
            appraiser’s conclusions are to be reported in the
            “Neighborhood” section of the appraisal report.


5.1.4.9 Freddie Mac Form 2070
            This form is not an appraisal report.

            Freddie Mac Form 2070 – Loan Prospector Condition and
            Marketability Report

            When Loan Prospector recommends Form 2070, they have
            determined the reasonableness of the sales price or estimated
            value submitted to the AUS as adequate collateral for the
            mortgage loan. A property appraisal is not required for these
            transactions.

            The following are required with all appraisals (except for Forms
            2075/2070):

               •   A street map that shows the location of the subject
                   property and all comparable sales the appraiser used

               •   A sketch of the building improvements or
                   condominium/cooperative unit with dimensions and
                   calculations used to estimate for gross building area.

               •   Clear, descriptive photos that show the front and rear of
                   the subject, and a street scene.

               •   Clear, descriptive photos that show the front of each
                   comparable sale.

               •   Photos should include any improvements, amenities,
                   conditions and external influences that materially impact
                   market value or marketability.
•   Any other data necessary to provide an adequately
    supported opinion of market value.

•   Interior appraisals should also include clear, descriptive
    photos that show:

•   The kitchen, all bathrooms, and the main living area

•   Examples of physical deterioration, if present

•   Examples of recent updates such as restoration,
    remodeling and renovation, if present.
CHAPTER 6        SPECIFIC PROPERTY TYPES – ELIGIBLE PRODUCTS

            The following are general acceptable guidelines; however, please
            refer to specific investor requirements to determine eligibility of
            specific property types.


6.1         PROPERTIES SUBJECT TO OCCUPANCY RESTRICTIONS

      Reasonable local, state or federal restrictions on the maximum number
      of occupants permitted to occupy a dwelling unit are acceptable as long
      as such limitations are applied to all occupants and do not operate to
      discriminate on the basis of race, color, religion, sex, national origin,
      handicap or familial status. If any restriction is noted in the purchase
      contract, appraisal, title commitment, or in the project
      covenants/restrictions, legal counsel should be consulted to determine
      the risk and your ability to make the loan.


6.2         PROPERTIES SUBJECT TO AGE RESTRICTIONS

      If a housing development has an age restriction, it must comply with one
      of the following Fair Housing Act exemptions:


6.2.1 Government Housing Programs
      The prohibitions against discrimination on the basis of age or familial
      status do not apply with respect to dwellings provided under any STATE
      OR FEDERAL PROGRAM specifically designed and operated to assist
      the elderly or to house elderly persons. The Secretary of HUD must
      determine that the development meets this exemption.


6.2.2 Age Restrictions - 62 Years of Age or Older
      The prohibitions against discrimination on the basis of age or familial
      status do not apply with respect to dwellings intended for, and solely
      occupied, by persons 62 years of age or older.


6.2.3 Age Restrictions - Any Age Restriction
      The prohibitions against discrimination on the basis of age or familial
      status do not apply with respect to dwellings intended and operated for
      occupancy by persons 55 years of age or older provided that all of the
      following apply:

         •   At least 80% of the occupied units are occupied by persons 55
             years of age or older; and

         •   The housing facility or community publishes and adheres to
             policies and procedures that demonstrate the intent to provide
             housing to persons 55 years of age or older; and

         •   The housing facility or community can provide documentation for
             verification of occupancy, by means of:

                o Reliable surveys and affidavits;

                o Examples of published written policies and procedures for
                  determination of compliance with the Fair Housing Act.


6.2.4 Required Documents for Age Restricted Properties
      When it is determined that a housing development is subject to age
      restrictions, the Homeowners Association must complete and sign the
      form Housing Developments Subject to Age Restrictions (see [Form 38]).
      By signing this form the association certifies that the housing
      development is in compliance with the Fair Housing Act.

      The fully executed form must be included in the underwriting package.


6.3          CONDOMINIUM PROJECTS

      In addition to the condo review options reflected in this section, Freddie
      Mac published project guidelines are acceptable. Freddie Mac’s project
      acceptance processes are permitted per the terms of Freddie Mac’s
      Seller/Servicer Guide [Chapter 42.11] for Conforming LP Loans. These
      guidelines must not be applied to Non-Conforming Loans (refer to
      Freddie Mac Loan Prospector for exceptions available under AU Options
      for Non-Conforming loans). FHA-approved projects are also acceptable
      for conventional loans per the terms of Freddie Mac published
      parameters.
    This section provides guidelines for evaluating new and existing
    condominium projects. The intent of the project review is to assess the
    marketability and long-term stability of the project. Current market
    conditions and comparable sales on the appraisal provide information on
    the subject property's marketability.

    The following condominium project guidelines and documentation
    requirements are applied in addition to the standard property appraisal
    review guidelines.


6.3.1 Site Condos
    Site condo projects, i.e., those that consist of single family detached
    dwellings follow standard property guidelines for single family
    residences. No project analysis is required.


6.3.2 General Condo Eligibility Requirements
    The following guidelines apply to all condominium projects. Project
    information may be reported by the appraiser, disclosed by the
    homeowner's association or developer, shown on the purchase contract,
    or obtained through review of the Homeowners Association Certificate as
    well as from other types of condominium documents. Above 90% ltv will
    require a full project review.


6.3.3 Ineligible Projects
    Ineligible projects are as defined by Freddie Mac and reference to that
    Agency’s published guidelines should be made for specific details.

    The following are characteristics within resort destination areas that
    should be utilized to identify projects that are ineligible:

                    §   Voluntary or mandatory revenue sharing agreements.

                    §   Mandatory rental pool agreements.

                    §   Occupancy restrictions mandated by the zoning.

                    §   Timeshare, live/work or segmented ownership
                         projects.
§   Transactions under which the borrower will own more
     than one unit in the project.

§   Multiple units within the project are less than 600 sq.
     ft.

§   The project name includes “hotel”, “motel”, “inn”,
     “resort” or “lodge”.

§   The project shares facilities with a hotel or motel.

§   The project is in an area zoned primarily for transient
     accommodations.

§   The unit is in a building that functions like a
     traditional condominium, yet the project contains
     additional resort type amenities or other buildings
     with resort type amenities.

§   The unit is fully furnished.

§   The unit does not have a full kitchen.

§   The project provides any of the following services:

        o Management Desk

        o Bellman

        o Daily Maid Service

        o Food Service

        o Telephone Service

        o Centralized Utilities (e.g., central telephone or
          cable)

        o Centralized Key System not in Negotiated
          Terms
6.3.4 Completion
    All common areas and amenities within the project (or subject phase)
    must be complete.

    All condominium projects having incomplete items are not eligible for the
    HOA Certification.


6.3.5 Multiple Ownership
    A maximum of 10% of the units may be sold to or owned by one party.


6.3.6 Commercial Use
    Commercial use within the project may not exceed 20% of the total
    square footage for the project and should be compatible with residential
    use.


6.3.7 Right of First Refusal
    Any right of first refusal in the project’s constituent documents will not
    impair the rights of a first mortgagee to:

       •   Foreclose or take title to a condominium unit pursuant to the
           remedies contained within the security instrument.

       •   Accept a deed in lieu of foreclosure in the event of default by a
           mortgagor.

       •   Sell or lease a unit acquired by the mortgagee.


6.3.8 Adverse Environmental Factors
    Any adverse environmental factors affecting the condominium project
    must be addressed by the appraiser.

    Any factors affecting safety, habitability or marketability of the unit or
    project will render the project ineligible.
6.3.9 Litigation
    If the HOA is involved in any litigation, arbitration, mediation or other
    dispute resolution process, obtain the details from the HOA. This
    information should be verified with an attorney’s letter, insurance
    information, structural report, and/or other documentation.

    The following types of litigation generally pose little or no risk to the
    project and are generally acceptable:

       •   HOA is suing individual owners for unpaid dues.

       •   HOA is being sued for a “slip and fall” liability issue and project
           has adequate liability insurance to cover the damages being
           sought by the plaintiff.

       •   Other suits filed by the HOA that do not impact the value or
           livability of the project.

    The following types of litigation may impact the project's marketability
    and are generally not acceptable:

       •   HOA suing the developer for structural defects or other property
           deficiencies that impact health and safety. The project may be
           acceptable if the defects have been corrected and the project is
           financially sound and marketable.

       •   Suits filed against the HOA in which the damages exceed or are
           not covered by the HOA's insurance.

    Projects involved in pending litigation (lawsuit has not yet been filed)
    may be approved when the risk to the project is assessed and it is
    determined that:

       •   HOA insurance will cover potential damages; or

       •   HOA is in a position to benefit from the lawsuit.


6.3.10 Delinquent HOA Dues
    If more than 15% of the units are delinquent on their HOA dues, the
    project is ineligible for financing.
      In the event the mortgagee acquires a unit through foreclosure or deed-
      in-lieu, the mortgagee may not be responsible for more than 6 months of
      delinquent HOA dues.


6.3.11 Insurance Requirements
      The lender must review the entire condo project insurance policy to
      ensure coverage requirements are met. The master or blanket policy
      must cover all of the general and limited common elements that are
      normally included in coverage, including fixtures, building service
      equipment and common personal property and supplies belonging to the
      homeowners’ association. The policy also must cover fixture, equipment
      and replacement of improvements and include betterment coverage to
      cover any improvements that the borrower may have made.

      If the master or blanket insurance policy does not provide coverage of
      the interior improvements of the unit, the borrower will be required to
      obtain a “walls in” coverage policy, also known as HO-6 policy. If
      required, the HO-6 insurance policy must provide coverage in an amount
      as determined by the insurer that is sufficient to repair the condo unit to
      its condition prior to a loss claim.


6.3.12 Pooled Insurance
      Any project identified with a pooled insurance policy is ineligible.


6.4         PLANNED UNIT DEVELOPMENTS

      A Planned Unit Development (PUD) is a parcel of land that contains
      common elements and improvements that are owned and maintained by
      a homeowner's association, corporation or trust. The common elements
      are for the benefit and use of the individual homeowners within the PUD.
      The housing units may be attached or detached.

      The pre-sale and owner occupancy requirements that apply to
      condominium projects do not apply to PUDs provided the appraiser does
      not indicate marketability problems.

      If the appraiser indicates marketability problems, a review of the project
      should be performed to determine whether there may be an adverse
      impact on the value or marketability of the subject unit.
      Multi-dwelling unit PUD projects that permit an owner to hold title to
      more than one dwelling unit, with ownership of all his or her units
      evidenced by a single deed and mortgage are ineligible.


6.5         MANUFACTURED HOUSING

      Norcom accepts manufactured housing pursuant to Freddie guidelines
      [sections 706.01 and 706.02] for Purchase and rate term refinance
      ONLY, no investment properties.

      Norcom’s maximum financing for all loan types for manufactured housing
      is 75 ltv.
CHAPTER 7         GOVERNMENT LOANS


7.1         ELIGIBLE TRANSACTIONS

      All FHA, VA and USDA loans must conform to applicable agency one-to-
      four family housing requirements. All Loans must be insurable by FHA or
      eligible for guaranty by VA or USDA, as applicable.


7.1.1 Credit Score Requirements
      Regardless of AUS decision minimum Underwriting Score requirements
      for all FHA and VA loans is 620.

      For FHA and VA loans with FICO scores of 620 – 639, maximum
      allowable ratios are 33/43, with no credit late payments in the last 12
      months. For FHA and VA loans with FICO scores of 640 and above,
      max allowable DTI is 50.


7.1.2 VA Products
      Loans guaranteed by VA under Sections [3710] and [3720] of title 38,
      U.S. Code and the VA Loan Guaranty Standards.

            •   Fixed Rate Loans
            •   3/1 and 5/1 ARMs with 1/1/5 Caps


7.1.3 FHA Products
      Loans insured by the FHA under any combination of the following:


                                     Table 7 - 1

           Section of the
                                             Brief Description
                Act

                203(b)                       Fixed Rate Loan

                203(b)                             ARM Loan

                203(b)           Temporary Buy Down - Fixed Rate Loan
             203(b)              $50,000 Loan and Under (3% Down)

             234(c)                   Fixed Rate Condominium

             234(c)                        ARM Condominium

             234(c)         Condo — $50,000 loan and under (3% down)

             234(c)                Condo — Temporary Buy Down



   Comprehensive information related to FHA Single Family may be found
   at:

      •   Mortgage Credit Analysis for Mortgage Insurance

      •   Lender's Guide to Single Family Mortgage Insurance Processing

      •   Mortgagee Letters - 2012


7.1.4 USDA Guaranteed Rural Housing

          USDA Rural Housing guarantees purchase or rate-and-term
          refinance transactions with terms of 30 year fixed, fully amortized
          only. USDA RH loans may be used in conjunction with other
          financing programs including other locally sponsored “silent
          second” programs.

          2/1 buy down borrowers qualify at note rate and ratios do not
          exceed 29/41%.

          The following minimum credit score requirements apply regardless
          of AUS decision:

             •   620-639 (all borrowers)

                    o Minimum 2 scores required

                    o Maximum Ratios 29/41%.

             •   640 or greater (all borrowers)

                    o Minimum 2 scores required
                      o Maximum Ratios 39/47%

      Comprehensive information related to USDA Guaranteed Rural Housing
      may be found at:

        •   Administrative Notices

        •   Part 1980, subpart D


7.2         INELIGIBLE TRANSACTIONS

        The following transactions are ineligible for most investor purchases:

            •   FHA and VA loans with any Section 50(a)(6) financing.

            •   VA Indian leasehold properties.

            •   FHA streamline 203k.

            •   FHA Section 8 loans.

            •   FHA Military Impact Area Loans.

            •   FHA loans to non-profit organization borrowers.

            •   HOPE for Homeowner’s Program.

            •   HUD 184 Program - Indian Reservations.

            •   FHA and VA loans on manufactured homes.

            •   FHA cash out loans with CLTV >85%.

            •   VA Rate-Term and Cash out refinances with LTVs or CLTVs
                greater than 90%.
7.3      FHA STREAMLINE REFINANCE AND VA IRRRL
          TRANSACTIONS

         FHA Streamline Refinances and VA Interest Rate Reduction
         Refinance Loan (IRRRL) loans must be current and have no 30-
         day or greater mortgage late payments in the most recent 12-
         month period. The following documentation is required to be in the
         loan file:

         •   All loan submissions require a 3 bureau merged credit report
             reflecting credit scores.

         •   Evidence the existing loan is current.

         •   All loan submissions require a 3 bureau merged credit report.

         •   If a current mortgage payment history is not reported, a
             separate mortgage payment history for the most recent 12
             months must be provided.

         •   If the loan is seasoned 12 months or more, evidence that the
             existing loan has not had any 30-day or greater mortgage late
             payments in the past 12 months.

         •   If the loan is seasoned less than 12 months, provide
             documentation evidencing that:

                 o The existing loan has no 30-day or greater mortgage late
                   payments since the inception of the loan; and

                 o No 30-day or greater mortgage late payments for any
                   other first mortgage loans associated with the property
                   and borrower(s) in the most recent 12 months.

      VA IRRL:

      Norcom requires an appraisal on VA Interest Rate Reduction
      Refinance Loans.

      Max 100% financing on VA Interest Rate Reduction Refinance Loans.

      For FHA Streamlines:
            •   Minimum FICO of 660

            •   AVM with 80% confidence score required

            •   125 max LTV / CLTV based on AVM value


7.4         UNDERWRITING DOCUMENTATION

            •   The application package must contain acceptable
                documentation to support the underwriting decision.

            •   When standard documentation does not provide sufficient
                information to support the decision, additional explanatory
                statements must be provided.

            •   Verification forms must pass directly between lender and
                creditor without being handled by any third party.

            •   Documentation must not contain any alterations, erasures, and
                correction fluid or correction tape. Copies must be stamped,
                "Certified, True and Exact Copies of the Original."

            •   Certificates of Eligibility for VA loans must be updated when
                issued more than 12 months prior to the date of application.
                However, it is the underwriter's discretion to require a more
                recent update if there is information in the file that could lead
                them to believe there is another outstanding VA loan.


7.5         CO-SIGNERS

      Individuals applying for a loan that will not take title are considered
      guarantors or co-signers and are ineligible. All borrowers must be in title.


7.6         MODULAR HOMES

      FHA and VA loans financing modular homes are eligible for purchase by
      most investors. As with all loans, the modular home must be of
      investment quality and meet the appropriate Agency guidelines.
7.7      FREDDIE MAC LP UNDERWRITTEN FHA LOANS

         •   FHA loans may be underwritten through Freddie Mac's Loan
             Prospector.

         •   LP files must include:

                o Loan Prospector Feedback Certificate

                o All documents as indicated by the Loan Prospector
                  Feedback Certificate, including all conditions

                o Indication of 'Freddie Mac LP' on the completed the loan
                  submission summary report.


7.8      FREDDIE MAC LP UNDERWRITTEN VA LOANS

         •   VA loans may be underwritten through Freddie Mac's Loan
             Prospector.

         •   LP files must include:

                o Loan Prospector Feedback Certificate

                o All documents as indicated by the Loan Prospector
                  Feedback Certificate, including all conditions

                o Indication of 'Freddie Mac LP' on the completed loan
                  submission summary report.


7.9      USDA RURAL HOUSING GUARANTEED UNDERWRITING
          SYSTEM (GUS)

      The purpose of GUS, like all automated underwriting systems, is to
      provide consistent and efficient loan file reviews and underwriting
      recommendations.

      GUS will consider waivers of the basic standards, based on the
      applicant's strengths, and provide approvals for applications that
      require certain waivers.
The GUS underwriting recommendations allow the loan officer and
the underwriter to quickly review and verify loan data to arrive at
responsible lending decisions.

Underwriting Recommendations

The underwriter findings report details all underwriting and eligibility
findings for the lender through an analysis of risk and Guaranteed
Loan Program regulations. GUS also provides the required lender
and agency conditions and documentation requirements for final
submission, conditional commitment, closing and loan guarantee.

Documentation through GUS

Review the GUS Findings Report and Underwriting Analysis for
feedback messages regarding the results of the GUS underwriting
recommendation and the credit report(s).

Permanent Case File Documentation Requirements

In keeping with the standards of the mortgage loan industry, the
Norcom Mortgage permanent case files will include documents to
verify:

   •   Credit history

   •   Annual Income – determined for program eligibility

   •   Stable and Dependable Income – determined for repayment
       and qualifying purposes.

          o GUS does not determine stable and dependable income.

          o It remains the responsibility of the approved lender to
            determine stable and dependable income outside of the
            GUS evaluation.

   •   Assets – for income calculation and compensating factor
       analysis

   •   Collateral requirements

   •   Any other documentation supporting the mortgage loan request
Stable and dependable income will be documented in accordance
with Section 1980.345(c), of RD Instruction 1980-D. Assets are not
required for the SFHGLP. However, the presence of assets and cash
reserves after closing can influence the outcome of the GUS
underwriting recommendation. If assets are considered in a GUS
transaction, the Norcom Mortgage permanent case file must
document the borrower’s assets.

Net family assets as defined in section 1980.302(a) that total $5,000
or greater much be considered in the annual income calculation per
section 1980.347(d)(3)(iii).
CHAPTER 8     NEW CONSTRUCTION

         The following construction-to-permanent financing guidelines
         apply to most investor quality loans. Consult specific investor
         guidelines for individual requirements or variances to the
         guidelines listed below. Conforming loans should follow standard
         Freddie Mac requirements.


8.1      CONSTRUCTION-TO-PERMANENT TREATED AS A
          PURCHASE TRANSACTION

      The origination of long-term financing in order to make a single
      disbursement to a builder/contractor or other party for the purchase of
      a completed property is considered to be a purchase-money
      transaction and is subject to guidelines for purchase transactions in
      addition to the following:

         •   Acquisition cost must be documented.

         •   The maximum LTV/TLTV/CLTV is subject to purchase
             transaction LTV/TLTV/CLTV limits.

         •   The LTV/TLTV/CLTV is based on the lesser of:

                o The current appraised value of the lot plus documented
                  construction costs; or

                o The purchase price of the lot plus documented costs of
                  construction; or

                o The appraised value of the property at the time the
                  permanent mortgage is made.


8.2      CONSTRUCTION-TO-PERMANENT TREATED AS A RATE-
          TERM REFINANCE

                                     Table 8 - 1
                                     Lot owned ≥12 months
Lot owned < 12 months prior
                                    prior to the closing of the
to the closing of the interim
                                              interim
  construction financing:
                                     construction financing:

    •   LTV/TLTV/CLTV must be        •   LTV/TLTV/CLTV must be
        within the rate-term             within the rate/term
        guidelines for the               guidelines for the
        product.LTV/TLTV/CLTV            product.
        is determined by dividing
                                     •   LTV/TLTV/CLTV is
        the unpaid principal
                                         determined by dividing
        balance of the
                                         the unpaid principal
        construction-to-
                                         balance of the
        permanent mortgage by
                                         construction-to-
        the lesser of:
                                         permanent mortgage by
           o The current                 the lesser of:
             appraised value for
                                         o The current
             the property (both
                                           appraised value for
             the lot and the
                                           the property (both the
             improvements) or
                                           lot and the
           o The total                     improvements) or
             acquisition costs
                                         o The sum of the
             (which are the sum
                                           documented costs of
             of the documented
                                           the construction
             costs of the
                                           (acquisition cost) and
             construction and
                                           the current appraised
             the sales price of
                                           value of the lot.
             the lot).
                                     •   Closing costs and
•   The acquisition cost must be
                                         prepaids may be
    documented.
                                         included in the loan
    o Closing costs and                  amount (subject to
      prepaids may be included           LTV/TLTV/CLTV
      in the loan amount                 limitations and state law
      (subject to                        limitations).
      LTV/TLTV/CLTV
                                     •   The borrower may be
      limitations and state law
                                         reimbursed for actual
      limitations).
                                         cash investment into the
    o The borrower may be                property.
      reimbursed for actual
      cash investment into the
                                 Table 8 - 1

                                             Lot owned ≥12 months
       Lot owned < 12 months prior
                                            prior to the closing of the
       to the closing of the interim
                                                      interim
         construction financing:
                                             construction financing:

             property.



8.3   CONSTRUCTION-TO-PERMANENT TREATED AS A CASH-OUT
       REFINANCE

                                 Table 8 - 2

                                           Lot Owned ≥ than 12 months
                                            Prior to the Closing of the
       Lot Owned < 12 Months Prior
                                               Interim Financing or
       to the Closing of the Interim
                                            Acquired by Inheritance or
         Construction Financing:
                                            Gift (regardless of date of
                                                    acquisition):

         •   The borrower’s intent is to       •   The borrower’s intent is
             extract land equity from              to extract land equity
             the subject property.                 from the subject
                                                   property.
         •   The borrower may also
             receive cash back for his         •   The borrower may also
             actual cash investment                receive cash back for his
             into the property.                    actual cash investment
                                                   into the property.
         •   The LTV/TLTV/CLTV is
             within the cash-out               •   The LTV/TLTV/CLTV is
             guidelines for the product.           within the cash-out
                                                   guidelines for the
         •   The LTV/TLTV/CLTV is
                                                   product.
             determined by dividing
             the unpaid principal              •   The LTV/TLTV/CLTV is
             balance of the                        determined by dividing
             construction-to-                      the unpaid principal
             permanent mortgage by                 balance of the
             the lesser of:                        construction-to-
             o The current appraised               permanent mortgage by
               value for the property              the lesser of:
                                        Table 8 - 2

                                                Lot Owned ≥ than 12 months
                                                 Prior to the Closing of the
             Lot Owned < 12 Months Prior
                                                    Interim Financing or
             to the Closing of the Interim
                                                 Acquired by Inheritance or
               Construction Financing:
                                                 Gift (regardless of date of
                                                         acquisition):

                      (both the lot and the           o The current appraised
                      improvements); or                 value for the property
                   o The total acquisition              (both the lot and the
                     costs (which are the               improvements); or
                     sum of the                       o The sum of the
                     documented costs of                documented costs of
                     the construction and               the construction
                     the sales price of the             (acquisition cost) and
                     lot).                              the current appraised
                                                        value of the lot.
               •   Acquisition cost must be
                   documented.




8.4      ACQUISITION COST DOCUMENTATION

      To document acquisition cost, the borrower must provide a purchase
      contract or construction statement (cost breakdown), signed by the
      borrower and the builder.

      If the lot is acquired separately, the borrower must also provide a
      copy of the recorded deed with the date of filing (if applicable) and
      one of the following:

         •    A copy of the lot purchase agreement or contract for deed; or

         •    An owner's title policy; or

         •    A HUD-1 settlement statement.
      The underwriter should investigate any large differences between the
      current appraised value and the original purchase price of a lot that
      was acquired within the previous 12 months.


8.5      BORROWER ACTED AS CONTRACTOR

      If the borrower is acting as his/her own general contractor or sub-
      contractor and his/her primary occupation is in the construction
      industry, the following must be met:

      Acquisition Cost Documentation:

         •   Acquisition cost must be fully documented, regardless of
             LTV/TLTV/CLTV.

         •   To document acquisition cost, the borrower must provide
             copies of receipts, bills, lien waivers, lot purchase agreement,
             etc., in addition to an itemized cost breakdown.

         •   The LTV/TLTV/CLTV will be based on the lesser of the
             documented acquisition cost or appraised value.

         •   The subject property must be an owner occupied primary
             residence.

         •   The borrower cannot receive cash back at closing that is not a
             direct verifiable reimbursement of expenses.

								
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