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410

VIEWS: 4 PAGES: 6

									SECTION 410
RATE/TERM REFINANCE TRANSACTIONS

Chapter Contents

   A. Rate/Term Refinance Requirements
       •   Definition
       •   Requirements
       •   Property Listed for Sale
       •   First Lien – Home Equity Line Of Credit
       •   First Lien < 1 Year
       •   Buyout Ex-Spouse’s Interest

   B. Payoff of Subordinate Lien Seasoned Less than 1 Year
       •   Subordinate Lien for Home Improvements
       •   Subordinate Lien for Home Purchase
       •   Subordinate Home Equity Line of Credit

   C. Texas Rate/Term Refinance Transactions
       •   Requirements
       •   Subordinate Financing




Wells Fargo Wholesale Lending - Underwriting Guidelines   SECTION 410 - Page 1
March 2002
SECTION 410
RATE/TERM REFINANCE TRANSACTIONS

A. Rate/Term Refinance Requirements

A rate/term refinance is a Loan that replaces existing financing on a property, and the Borrower’s
intent is not to extract equity from the subject property.

Requirements (Not applicable to Owner Occupied Homestead properties in Texas, refer to
Section 410C)
The mortgage amount for a rate/term refinance is limited to the sum of:
• the unpaid principal balance on the existing first mortgage
• odd days interest on the existing mortgage
• closing costs on the new mortgage
• prepaids (interest, taxes, insurance, etc.)
• points
• the amount of any subordinate mortgage liens that are more than one year old and are being
    paid off or paid down
• the cost of documented home improvements, subject to the requirements listed below
• buy-out the equity of an ex-spouse or joint heir
• payoff a leasehold interest on the subject property
• other funds for the Borrower’s use as long as the amount does not exceed:
    • Conforming Loans: the lesser of $2,000.00 or 2% of the principal amount of the new Loan
    • Non-conforming Loans: 1% of the principal amount of the new loan.

Reimbursement For Documented Home Improvements (Not applicable to Owner Occupied
Homestead properties in Texas, refer to Section 410C)
The Borrower may receive cash reimbursement for documented home improvements under
rate/term refinance guidelines when ALL of the following requirements are met:
• Property is a 1 or 2 unit primary residence or 1 unit second home
• LTV/TLTV is the lesser of 90% or maximum LTV/TLTV for the loan amount
• Home improvements were completed in the past 12 months as verified by paid receipts or other
    documentation of the improvements
• Appraiser notes that improvements were made
• Home improvement costs are fully documented with one of the following:
    • executed construction contract
    • lien waivers
    • canceled checks with corresponding paid receipts for valid construction costs
• Valid construction costs include:
    • Materials
    • Architectural fees
    • Supplies
    • Labor
    • Liability insurance on laborers
    • Installations costs (water, sewer, well, etc)
    • Permits
    • Non-recurring costs of obtaining financing include origination fees, discount points, title
         search, recording fees
• Temporary buydowns are not allowed.


Wells Fargo Wholesale Lending - Underwriting Guidelines                      SECTION 410 - Page 2
March 2002
SECTION 410
RATE/TERM REFINANCE TRANSACTIONS

Property Listed For Sale
Wells Fargo will not provide financing on any refinance transaction secured by a property:
• currently listed for sale, or
• listed for sale within the six months prior to the Loan application.

First Lien - Home Equity Line Of Credit
To payoff a home equity line of credit that is in first lien position the equity line must be more than
one year old unless all requirements for Reimbursement for Documented Home Improvements as
outlined above are met.

First Lien < 1 Year
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
comparables indicate 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.

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/term refinance
parameters.

Buy Out Ex-Spouse’s Or Joint Heir's Interest
A refinance to buy out the interest of an ex-spouse or joint heir will be considered a rate/term
refinance if the following conditions are met:
• Property is a 1or 2 unit primary residence or a 1 unit second home
• LTV/TLTV is the lesser of 90% or maximum LTV/TLTV for the loan amount
• the Borrower who will acquire sole ownership of the property receives no cash proceeds from
    the transaction, and
• the terms of the transaction are verified with a copy of the divorce decree or property
    settlement agreement.

Other property rights dissolutions must be treated as cash-out refinance transactions.

Refer to Section 450 for additional requirements for property in an estate.




Wells Fargo Wholesale Lending - Underwriting Guidelines                        SECTION 410 - Page 3
March 2002
SECTION 410
RATE/TERM REFINANCE TRANSACTIONS

Payoff Of A Leasehold Interest
The Borrower’s purpose for the rate/term refinance transaction may include the pay-off of the
subject property’s leasehold interest.
• Property is a 1or 2 unit primary residence or a 1 unit second home
• LTV/TLTV is the lesser of 90% or maximum LTV/TLTV for the loan amount
• The HUD-1 must evidence payment in full to the holder of the lease.
• The title must be held in fee simple subsequent to the completion of the transaction.

B. Payoff Of Subordinate Liens Seasoned Less Than 1 Year

Subordinate mortgage liens less than one year old may not be paid off or paid down in a rate/term
refinance, except as noted below:

Subordinate Lien For Home Improvements
A subordinate mortgage lien with less than 12 months seasoning may be paid off or paid down
from the proceeds of a rate/term refinance if all of the following conditions are met:
• Property is a 1 or 2 unit primary residence or 1 unit second home
• LTV/TLTV is the lesser of 90% or maximum LTV/TLTV for the loan amount
• Home improvements were completed in the past 12 months, as verified by paid receipts or
    other documentation of the improvements
• Subordinate Loan is with an institutional lender
• Proceeds of the subordinate financing were used for home improvements
• Appraiser notes that improvements were made
• The cost of the improvements maybe documented with one of the following:
    • executed construction contract
    • lien waivers
    • canceled checks with corresponding paid receipts for valid construction expenses
• Valid construction expenses include:
    • Materials
    • Architectural fees
    • Supplies
    • Labor
    • Liability insurance on laborers
    • Installations costs ( water, sewer, well, etc)
    • Permits
    • Non-recurring costs of obtaining financing including origination fees, discount points, title
        search, recording fees
• Temporary buydowns are not allowed

Not applicable to Owner Occupied Homestead properties in Texas, refer to Section 410C

Subordinate Lien For Home Purchase
The pay off of a subordinate mortgage lien seasoned less than one year may qualify as a rate/term
refinance if the subordinate financing is with an institutional lender and the proceeds can be
documented as used for the purchase of the subject property.




Wells Fargo Wholesale Lending - Underwriting Guidelines                      SECTION 410 - Page 4
March 2002
SECTION 410
RATE/TERM REFINANCE TRANSACTIONS

Subordinate Home Equity Line Of Credit
To pay off a home equity line of credit as a rate/term refinance, the one-year seasoning requirement
is established by the origination date.
To qualify as a rate/term refinance the equity line must be more than one year old.
Please Note: Additional restrictions apply for streamline refinances.

C. Texas Rate/Term Refinance Transactions

In addition to the Rate/Term refinance guidelines in Section 410A, the following guidelines apply
to all Rate/Term refinances secured by Owner Occupied, Homestead properties, in the state of
Texas:
• Total financed closing costs and prepaid* expenses are limited to 10% of the new loan amount.
     10% is deemed reasonable under state law.
• Special title insurance coverage must be obtained when tax and insurance impounds are
     included in the new loan amount. No deviations from the following requirements are
     permitted.
     • Required Schedule B Exceptions language: “Possible defect in lien of the insured
         mortgage because of the Insured’s inclusion of reserves or impounds for taxes and
         insurance in the original principal of the indebtedness secured by the insured mortgage.”
     • P-39 Express Insurance Coverage: “Company insures the Insured against loss, if any,
         sustained by the Insured under the terms of this Policy by reason of a final, non-appealable
         judgment of a court of competent jurisdiction that divests the Insured of its interest as
         Insured because of this right, claim or interest. Company agrees to provide the defense to
         the Insured in accordance with the terms of this Policy if suit is brought against the Insured
         to divest the Insured of its interests as Insured because of this right, claim or interest.”

*Prepaids are defined as funds collected for the payment of:
• real estate taxes (includes non-delinquent taxes which are due and payable, as well as reserves)
• hazard insurance premiums
• monthly MI premiums covering any period after the settlement date

Options When POCs are Credited to Closing Costs
• The amount of paid outside closing (POC) costs up to $1,000 may be applied as a principal
   reduction at closing. However, the principal and interest payment on the loan may not be
   adjusted and the loan may not be reamortized. If the amount to be credited exceeds $1,000 the
   loan amount must be reduced and the closing documents redrawn.
• The amount of the POC may be applied as a credit towards closing costs reducing the amount
   of cash needed to close.
• The POC may be applied as a credit to closing costs resulting in reimbursement to the borrower
   of not more than the amount paid prior to closing. Please note this is the only circumstance
   when the HUD-1 may reflect any cash back to the borrower on rate/term refinance transactions
   of Homestead property in Texas.

As an at closing condition, Wells Fargo Wholesale Lending will require a certification be obtained
from the borrower acknowledging that any refund received at settlement is reimbursement of funds
paid prior to closing and does not constitute proceeds from the new Loan (sample Borrower
Acknowledgment may be found with the Enhanced Broker Forms preparing their own closing
packages).


Wells Fargo Wholesale Lending - Underwriting Guidelines                        SECTION 410 - Page 5
March 2002
SECTION 410
RATE/TERM REFINANCE TRANSACTIONS

Home equity/cash out refinance transaction under Section 50(a)(6) are not eligible for
purchase by Wells Fargo.
Once the Borrower has executed a home equity/cash-out refinance on an owner-occupied,
homestead property under Section 50(a)(6), Article XVI of the Texas Constitution, all subsequent
transactions are considered home equity/cash-out refinances until title is transferred. In other
words, once a cash-out,always a cash-out. Therefore, a rate/term refinance originated to payoff an
existing home equity/cash-out Mortgage is ineligible for purchase by Wells Fargo.

Wells Fargo will require the Broker to provide documentation (title insurance binder,
Mortgage/deed of trust and/or HUD-1) in each Loan package to verify that a home equity/cash-out
Loan under Section 50(a)(6) has not previously been originated against the subject property. If the
purpose of the Loan is not clearly identified on the title binder it will be necessary to provide the
previous Mortgage/deed of trust or HUD-1 for each transaction originated on or after 1/1/98 to
verify the purpose of the existing Loan.

Subordinate Financing
If any subordinate financing exists, the purpose of this loan must be verified. Review of the title
binder and/or Deed of Trust and/or previous HUD-1 will be required at the time of loan decision to
verify the purpose of the loan. If the title binder does not clearly state the purpose of the existing
loan, the Deed of Trust and/or HUD-1 will be required to identify the purpose. If the title binder
clearly identifies the purpose, the other documents will not be required. Depending on the purpose
of the loan, the following options are available:

If the subordinate financing was used for Home Improvements (No seasoning requirement):
• If the subordinate financing was used for home improvements (it must have been originally
     closed with the purpose to use the entire loan amount for home improvements, as evidenced by
     a mechanic’s or materialmen’s lien on the title binder), the financing may be paid off, paid
     down, or re-subordinated as a rate/term refinance; AND
• Review of the title binder and/or Deed of Trust and/or previous HUD-1 is required to insure
     that the loan was closed as a home improvement loan and not as a home equity/cash out (a)(6);
     AND
• If the loan was closed as a home equity/cash out (a)(6) or if the borrower received any cash
     back, the lien is subject to Texas Equity provisions and cannot be paid off or paid down as a
     rate/term refinance.
Note: Documenting the home improvement loan by obtaining canceled checks, invoices, receipts,
etc. is not acceptable.

If the subordinate financing was not used for Home Improvements:
• Seasoned < 12 months
     • The subordinate financing must be re-subordinated (may not be paid off or paid down), and
         the first mortgage can be treated as a rate/term refinance, provided the first was not
         originated as a cash-out/home equity transaction.
• Seasoned > 12 months
     • The only option for the subordinate financing is to resubordinate. The first mortgage can be
         treated as a rate/term refinance, provided that the first was not originated as a cash-
         out/home equity transaction;
     • The subordinate financing may not be paid off since the entire transaction must be treated
         as a cash-out refinance, the transaction is not eligible for financing.


Wells Fargo Wholesale Lending - Underwriting Guidelines                        SECTION 410 - Page 6
March 2002

								
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