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VA TRAINING | NOVEMBER 2016

INTRODUCTION TO VA LOANS

Overview – VA Loans VA guaranteed loans are made by private lenders and mortgage companies to eligible veterans for the purchase of a home that must be for their own personal occupancy. To get a loan, the veteran must apply to a lender. If the loan is approved, the VA will guarantee a portion of it to the lender. If the veteran has never used their entitlement before, or previously used it for a home which has been sold and the loan paid in full, then they have their full entitlement available and can apply for maximum VA financing. Based on secondary market requirements, lenders generally limit VA purchase loans to a base loan amount of $417,000 (plus the funding fee), which is equal to the conventional conforming loan limit for 2015. In December 2004, the VA guidelines were modified so the maximum entitlement will index and increase accordingly with conforming loan limits, therefore always equaling 25% of the current conforming limit. Limits above $417,000 are available in certain “high-cost” areas.

Requirements for VA Loan Approval To obtain a VA loan, the law requires that:

• The applicant must be an eligible veteran who has available entitlement. • The veteran must occupy the property as a home (Excluding VA IRRRLs).

2 VA TRAINING | NOVEMBER 2016

VA Lender ID Number

To become an agent of a sponsoring lender (Franklin American Mortgage) you must submit a $100 check

(made payable to Franklin American Mortgage Co.) to Franklin American Mortgage. This fee must be

paid annually to maintain your VA Agent status. You should receive your VA lender ID number in six to

eight weeks. In certain cases, the VA does not provide the VA lender ID number to Franklin American

Mortgage and in those cases it will be the responsibility of the agent (broker) to contact the local VA

office and request the VA Lender ID number.

NOTE: Visit the VA website at http://www.benefits.va.gov/homeloans/lenders.asp to access forms,

lenders handbook (underwriting guidelines), eligibility centers, training information, and more.

BECOMING AN APPROVED VA AGENT


http://www.benefits.va.gov/homeloans/lenders.asp


Eligible Loan Purpose Eligible veterans and service personnel may obtain VA loans from Franklin American Mortgage for the following purposes: • To buy a home up to four family units for one veteran, including townhouses or condominium

units in a VA approved project. • To replace interim new construction financing with permanent financing. • To refinance an existing home loan.

o Cash-Out refinance o Rate/Term refinance o Reduce the interest rate (Interest Rate Reduction Refinance Loan – “IRRRL”)



Advantages of VA Home Loans • 100% financing/no downpayment

o Only if the Veteran has sufficient entitlement/guaranty for the loan. • One ratio calculated – back ratio 41%. • No cash reserves required (except as required by AUS). • The VA funding fee can be financed. • Seller contribution 4% including pre-paids (the 4% cap is only on pre-paids not on closing costs). • No monthly mortgage insurance. • Maximum loan amount equal to the conforming loan limit (higher in certain “high-cost” areas).

Credit Scores • Minimum credit score is 620, regardless of AUS • IRRRL refinance transactions require a minimum 640 credit score. Note: Standard Loan Amounts Only. These scores do not apply to VA Jumbo Transactions


VA FORMS AND DISCLOSURES

VA Mandatory Forms:

Include the following documents when submitting a loan: • VA Purchase and Refi Q.image Submission Form • Nearest Living Relative

Up Front Disclosures: In addition to the required RESPA disclosures, the following additional up front disclosures are required.

Initial 1003 The LO taking the application must sign and date the initial 1003; no other person (including FAMC

employees) can sign on behalf of the LO. The LO must correctly complete their Nationwide Mortgage Licensing System (NMLS) information on

the initial 1003. The borrower(s) must sign and date the initial 1003 before FAMC underwrites the loan.

Final 1003 The LO is not required to sign the final 1003; however, if signed, it must be the same LO that signed

the initial 1003. The borrower(s) must sign and date the final 1003 at loan closing.


VA FORMS AND DISCLOSURES

Initial Addendum, VA 26-1802a/HUD 92900a • The LO must always sign the initial addendum for all loans except IRRRLs. • The VA requires a final and initial addendum for all loans except IRRRLs. For IRRRLs, the VA requires

the Federal Collection Policy to be signed by the borrower(s) along with the final addendum.

Final Addendum VA 26-1802a/HUD 92900a • As a reminder, FAMC generates the final addendum, which will be provided to the closing agent along

with the final 1003 at the time that the closing package is prepared by FAMC. • Brokers are not required to sign the final 26-1802a as these forms will be handled by FAMC.

VA Interest Rate and Discount Disclosure Veteran and spouse (if applicable) sign and date and include in loan submission package.

VA Form 26-0592 (6/95) – Counseling Checklist for Military Homebuyers ACTIVE DUTY MILITARY ONLY: veteran and broker must sign and include in loan submission package.

Franklin American Mortgage VA Benefit Questionnaire (Form 1) and Statement of Active Duty Status 1/19/05 (Form 2) Veteran and spouse (if applicable) complete and sign Form 1. All applicants with qualifying income need to complete and sign Form 2 and the broker will sign and include in loan submission package.


EXAMPLES OF FORMS AND DISCLOSURES

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Broker/EMB VA Purchase and Full Credit Qualifying Refinance Submission Form



9

• Must be the Relative’s physical address.

• P.O. Box is not acceptable.



10

Page 1: VA-26-1802a Addendum for Brokered Loans



11

Page 2: VA-26-1802a Addendum for Brokered Loans



12

Page 1: VA-26-1802a Addendum for EMB Loans



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Page 2: VA-26-1802a Addendum for EMB Loans



14

VA 26-0592 Counseling Checklist for Military Homebuyers



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VA Benefit Questionnaire and Statement of Active Duty Status


WHO IS ELIGIBLE?

NOTE: This chart is only a general guide as to who may be eligible to receive a VA-guaranteed loan. Eligibility and available entitlement must always be determined and reported by the VA on Form 26-8320 “Certificate of Eligibility for Loan Guaranty Benefits”, or Form 26-8320a “Certificate of Eligibility for Loan Guaranty Benefits (Reserves/National Guard).” A veteran who has served less than the minimum required period of service, or was discharged because of a service-connected disability may be eligible for home loan benefits. (Reference: Chapter 2, Exhibit 2-A, VA Lender’s Handbook at http://www.benefits.va.gov/WARMS/Site_Map.asp)


http://www.benefits.va.gov/WARMS/Site_Map.asp

http://www.benefits.va.gov/WARMS/Site_Map.asp

CERTIFICATE OF ELIGIBILITY (COE)

Establishing the veteran’s eligibility is the first and most important step in processing a VA loan. If the veteran does not have an original COE at the time of loan application, the broker must immediately take steps to obtain the VA’s determination of the veteran’s eligibility. 1. Requesting an Automated Certificate of Eligibility (ACE) Using the VA’s WebLGY System

• Log on to the VA Information Portal at https://vip.vba.va.gov/portal/userprofiling/login.jsp Select “User Registration” if your company does not already have a user ID and password.

• After signing on, select the “WebLGY” link under “Applications.” • Under “Eligibility,” select “Automated Certificate of Eligibility.” • Complete the required information and submit.

If eligibility is approved: • Select “View Certificate of Eligibility.” Print a paper copy and include it in the loan submission package.

If the WebLGY system is NOT able to determine the veteran’s eligibility: • Apply online by selecting “Electronic Application.” In many cases you will be able to upload the required proof of service to

expedite receipt of an electronic COE.

If unable to complete the Electronic Application: • Follow instructions below to request a Certificate of Eligibility (COE) by mail.

Examples when COE’s might not be eligible for processing using the WebLGY system (must request the COE by mail): • Veterans whose service was/is in the Reserves/National Guard. • Veterans who may have had prior VA loan(s) that went to foreclosure. • Veterans who did not serve the minimum required length of service and were not discharged for an authorized exception. • Veterans who were discharged under conditions other than honorable. • Veterans for which the VA has insufficient data to make the determination. • Veterans seeking restoration of previously used entitlement.

Note: There are instances when the above examples can be processed through WebLGY. If that option is not available, then the COE request must be mailed.


https://vip.vba.va.gov/portal/userprofiling/login.jsp


Certificate of Eligibility (COE), continued 2. Requesting a Certificate of Eligibility by Mail

• Have the veteran complete, sign, and date the VA Form 26-1880 “Request for a Certificate of Eligibility.” • Have the veteran provide the appropriate proof of service (i.e., DD-214). • Mail documents to the VA eligibility center (address on next page). • Incomplete submissions will result in processing delays.

NOTE: It may take eight to 10 business days from the VA’s receipt of Form 26-1880 and supporting documents to receive a hard-copy COE. Franklin American Mortgage requires the original COE prior to Documents so please be sure to allow adequate processing time. The current lead time for hard-copy COEs is usually posted on the VA Information Portal at: https://vip.vba.va.gov/portal/VBAH/Home

3. Requesting Restoration (Updated Certificate of Eligibility) • Have the veteran fully complete, sign, and date the VA Form 26-1880 “Request for a Certificate of Eligibility.” • Include evidence of payment in full of any prior loans (HUD-1 settlement statement or CD). • Include any previous COEs. • Mail documents to the VA eligibility center (address below).

4. Concurrent Restoration and Guaranty (“Back-to-Back” Closings) When a veteran is selling their current home and purchasing a new home within a short period of time (10 business days)*, the following information may be submitted in lieu of mailing a request for restoration to the VA eligibility center:

• Evidence of the presently-used entitlement, showing VA loan number of the property being sold (original paper COE, or automated COE from the WebLGY system).

• VA Form 26-1880, “Request for a Certificate of Eligibility,” fully completed and containing veteran’s original signature. • Copy of CD on sale of existing property.

• Must close on new home within 10 business days of sale of existing home.


https://vip.vba.va.gov/portal/VBAH/Home


Certificate of Eligibility (COE), continued 5. Requesting a Certificate of Eligibility for an IRRRL using VA’s WebLGY System

• Login to the VA Information Portal at https://vip.vba.va.gov/portal/userprofiling/login.jsp. • Select “User Registration” if your company does not already have a User ID and password. • After signing on, select the “WebLGY” link under “Applications.” • Under “Eligibility” select “Prior Loan Validation.” • Complete the required information and submit. • If the Prior Loan Validation Search returns information showing the active loan to be refinanced, print the output and use it in

lieu of a COE.

VA Eligibility Center As of Oct. 1, 2011, the Atlanta Regional Loan Center became the sole center for processing hard-copy COE requests. Brokers should obtain the COE by utilizing the VA’s WebLGY system’s Automated Certificate of Eligibility (ACE) (as detailed on the previous page) whenever possible. If unable to obtain the COE via ACE, please mail VA Form 26-1880 with the supporting documents to the following address: Atlanta Regional Loan Center Attn: COE (262) Eligibility Center P.O. Box 100034 Decatur, GA 30031 Telephone: 1-888-244-6711

NOTE: veterans can also apply for a COE online at https://www.ebenefits.va.gov/ebenefits-portal/ebenefits.portal REMEMBER: When the COE is ordered, make sure Veteran’s legal first/last name as well as the correct transaction type are indicated on the VA 26-1880. (Example: If a COE is ordered for a Cash-Out Transaction of the Veteran’s current home, this would not be an acceptable COE for the purchase of a new home.)


https://www.ebenefits.va.gov/ebenefits-portal/ebenefits.portal




Request for COE – VA Form 26-1880



A = Entitlement Code (refer to chart) B = Funding Fee Waiver – You will see either exempt or non exempt (refer to chart) to determine funding fee amount. C = This will show if the vet has any remaining entitlement left – even if it shows 0, there still may have bonus entitlement left to use on another home. D = Total amount of entitlement charged on previous use – this will determine how much partial entitlement you have left if VA benefits have been previously used. E = As referenced in A, Code 11 stands for Reserve/National Guard – This is subject to a higher funding fee than active duty benefits (refer to chart). On subsequent use, the reserve and active duty zero down VA funding fee rates are the same. F = Subsequent Use Funding Fee Notice – Putting a 5% or more downpayment will greatly reduce the subsequent use VA funding fee. G = Funding Fee Exemption – this will also show how much the vet is receiving in VA disability benefits per month.

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How to read a COE


VA ENTITLEMENT CODES


VA FUNDING FEE

Funding Fee Tables The VA Funding Fee is a one-time, up-front charge applied as a percentage to the “Base Loan Amount.” The Funding Fee may be financed on top of the base loan amount. The final loan amount may exceed $417,000 by the amount of the financed Funding Fee. The fee is remitted by the lender to the VA after loan closing. The fee is fully earned by the VA upon loan closing and is not available as a prorated refund to the veteran, even if the veteran refinances to another VA loan at a later date.


VA FUNDING FEE EXEMPTION

In certain cases, a veteran may be exempt from the funding fee. Immediately upon receipt of a loan application, the VA requires the broker to ask these four specific questions of the veteran or surviving spouse applicant:

• Are you currently receiving VA disability benefits? • Have you (or your deceased veteran spouse) ever received VA disability benefits? • Have you (or your deceased veteran spouse) ever been rated as disabled or incompetent by the VA, regardless of whether or not benefits

were ever received? • Are you the surviving spouse of a veteran who died on active duty or as a result of a service-connected disability?

If the answer to any of the questions is yes, the VA Requires VA Form 26-8937 “Verification of VA Benefits” to be completed and the VA will determine if the veteran is exempt. If the VA determines the veteran is exempt, the funding fee is not charged. This form must be included in the underwriting package any time the funding fee is not charged. However, if the COE already indicates the Veteran is exempt, the 26-1880 will not be required. This form is only needed if the COE does not reflect the funding fee exemption. If the answer to all four questions is no, the funding fee IS charged, the VA-completed form 26-8937 is not required, and evidence that all required questions were answered as no may be included in the underwriting package in lieu of Form 26-8937. As a convenience to our wholesale brokers, Franklin American Mortgage provides a dual form, the “VA Benefit Questionnaire and Statement of Active Duty Status” that can be completed at application to cover these four required questions along with the VA-required “Statement of Active Duty Status.” Every veteran, including active duty, must answer Part 1 of the dual form (or equivalent), and every applicant whose income is used to qualify (including non-military applicants) must answer Part 2 of the dual form (or equivalent). Refer to the VA Handbook Chapter 4, Section 6.a. at http://www.benefits.va.gov/warms/pam26_7.asp. NOTE: The 26-8937 form should be submitted to the VA Regional Loan Center with jurisdiction over the property's state. There are 11 RLCs that cover the entire the US, listed with the states they cover at: http://www.benefits.va.gov/homeloans/contact_rlc_info.asp. This list is reproduced on pages 60-62 of this handbook for your convenience.


http://www.benefits.va.gov/warms/pam26_7.asp

http://www.benefits.va.gov/homeloans/contact_rlc_info.asp

VA FUNDING FEE EXEMPTION

VA Form 26-8937 Verification of Benefits


ENTITLEMENT, GUARANTY, AND

MAXIMUM LOAN AMOUNTS

The VA does not establish maximum loan amounts. However, the secondary market requires VA loans (other than IRRRLs) to have a 25% guaranty, which can be met with a combination of VA entitlement, plus the veteran’s downpayment and/ or equity in the property. The maximum amount of the VA guaranteed loan that can be made to a veteran and sold in the secondary market is, therefore, determined by the type of loan, the amount of the funding fee, the value of the property, the veteran’s downpayment and/ or equity in the property, and the veteran’s available entitlement.

For 2016, the maximum loan that can be made to a veteran with full entitlement is $417,000, plus any financed funding fee may be added to the maximum base loan amount. Higher loan limits are available in certain counties known as “high-cost” areas. See http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp

The Two Types of Entitlement – Basic and Bonus Eligible veterans have two types of entitlement, basic and bonus: Basic entitlement is $36,000. This is the maximum that can be shown on the COE unless changed by federal legislation. Bonus entitlement is never shown on the COE and varies year-to-year based on the conforming limit. For 2015-2016, bonus entitlement is $68,250.

• Bonus entitlement may only be used on purchase and refinance loan amounts (excluding IRRRLs) that exceed $144,000. • See the VA Lenders Handbook, Chapter 6, sections 3 and 5 for loan definitions. See http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp for guaranty and county loan limit calculation examples.

Some of these examples are included on the next page. 26 VA TRAINING | NOVEMBER 2016

http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp




Guaranty and Loan Amount Calculation Examples (Selected examples taken directly from http://www.benefits.va.gov/HOMELOANS/purchaseco_loan_limits.asp)

Example 1 The veteran has their full entitlement available and is purchasing a home for $300,000 where the county loan limit is $417,000.

$417,000 X 25% = $104,250 maximum guaranty and available entitlement $300,000 X 25% = $75,000 guaranty and downpayment combination required

Since the VA guaranty is limited to the lesser of 25% of the county loan limit or 25% of the loan amount, the VA will guaranty $75,000 on the veteran’s $300,000 loan in this county. A downpayment should not be required.

Example 2 The veteran has used $48,000 of their entitlement on a prior loan, which may not be restored, and is purchasing a home for $320,000 where the county loan limit is $625,000.

$625,000 X 25% = $156,250 maximum guaranty $156,250 - $48,000 = $108,250 entitlement available $108,250 X 4 = $433,000 maximum loan amount with 25% guaranty

Since the proposed loan amount will be less than $433,000, the lender will receive a 25% VA guaranty on the loan of $320,000. A downpayment should not be required.





Guaranty and Loan Amount Calculation Examples, continued

Example 3 The veteran has their full entitlement available and is purchasing a home for $480,000 where the county loan limit is $417,000.

$417,000 X 25% = $104,250 maximum guaranty and entitlement available $104,250 / $480,000 = 21.72% guaranty

Since the VA’s guaranty will be less than 25%, a downpayment will be required to meet investor requirements.

$480,000 X 25% = $120,000 $120,000 - $104,250 = $15,750 downpayment

Example 4 The veteran has used $36,000 of their entitlement on a prior loan, which may not be restored, and is purchasing a home for $120,000 where the county loan limit is $417,000. Since the loan amount will not be over $144,000, the veteran’s additional entitlement cannot be used. Therefore, the guaranty would be 0%: $0 / $120,000.




VA Loan Amount Exercises

Total Loan Amount Exercise #1 Assumptions: • Regular military first-time use • Lesser of sales price or value – $220,000 • Downpayment – $0 • COE entitlement used – $0 • COE entitlement available – $36,000 $_______available entitlement + $_______bonus entitlement = $_______(total entitlement) $_______ (total entitlement) X 4 = $________loan amount maximum ________% funding fee X lesser of sales price or value = $_________ funding fee amount $______ __funding fee amount + $ lesser of sales price or value = $________total loan amount




VA Loan Amount Exercise Answers Total Loan Amount Exercise #1 Assumptions: • Regular military first-time use • Lesser of sales price or value – $220,000 • Downpayment – $0 • COE entitlement used – $0 • COE entitlement available – $36,000 $36,000 available entitlement + $68,250 bonus entitlement = $104,250 (total entitlement) $104,250 (total entitlement) X 4 = $417,000 loan amount maximum 2.15 % funding fee X lesser of sales price or value = $4730 funding fee amount $4730 funding fee amount + $220,000 lesser of sales price or value = $224,730 total loan amount




VA Loan Amount Exercises

Total Loan Amount Exercise #2 Assumptions: 1. Regular military (used eligibility to purchase a previous single-family home which has been paid-in-full) 2. Lesser of sales price or value – $199,000 3. Downpayment – 5% 4. COE entitlement used – $0 5. COE entitlement available – $36,000 $_________available entitlement + $________ bonus entitlement = $_________ (total entitlement) $_________ (total entitlement) X 4 = $_________loan amount maximum $_________lesser of sales price or value – $_________downpayment = $_________(a) proposed loan amount (providing entitlement covers) % funding fee X proposed loan amount = $_________ funding fee amount $_________ funding fee amount + $ (a) proposed loan amount = $ total loan amount




VA Loan Amount Exercise Answers

Total Loan Amount Exercise #2

Assumptions: 1. Regular military (used eligibility to purchase a previous single-family home which has been paid-in-full) 2. Lesser of sales price or value – $199,000 3. Downpayment – 5% 4. COE entitlement used – $0 5. COE entitlement available – $36,000 $36,000 available entitlement + $68,250 bonus entitlement = $104,250 (total entitlement) $104,250 (total entitlement) X 4 = $417,000 loan amount maximum $199,000 lesser of sales price or value - $9950 downpayment = $189,050 (a) proposed loan amount (providing entitlement covers) 1.5 % funding fee X proposed loan amount = $2835.75 funding fee amount $2835.00 funding fee amount + $189,050 (a) proposed loan amount = $ 191,885 total loan amount


MAXIMUM/MINIMUM LTV/CLTV

Maximum/Minimum LTV/CLTV 100% LTV/CLTV on purchase transactions calculated on the base loan amount 100% LTV/CLTV on Rate/Term Refinance calculated on the base loan amount 90% LTV/CLTV on Cash-Out Refinance transactions calculated on the base loan amount

o There is no limit on dollar amount of cash back as long as CLTV and loan guaranty parameters are met o This applies to VA standard loan amounts only o Excludes VA Jumbos

100% LTV/CLTV on IRRRL Refinance transactions.

The VA Funding Fee may be added to the base loan amount and the total loan amount may exceed the maximum loan amount permitted for this product. Refer to Purchase, Interest Rate Reduction Refinance Loan (IRRRL), Regular Refinance (Rate/Term or Cash-Out), and “Other” Financing for the loan amount calculation. Existing subordinate financing may remain in place however; the CLTV cannot exceed the maximum allowable LTV for the transaction. No new subordinate financing is allowed on any refinance transaction.


http://www.allregs.com/tpl/content.aspx







CLOSING COST SUMMARY

The following is a closing cost summary for a VA purchase transaction

† – Provided the total of itemized fees paid in lieu of the 1% origination fee does not

exceed 1%.


FEES AND CHARGES

Allowable Fees and Charges With a 1% Origination

The veteran can pay a maximum of: • Reasonable and

customary amounts for any or all of the “Itemized Fees and charges” (refer to Slide 34) designated by the VA, PLUS

• A 1% flat charge (typically called an “Origination Fee”), PLUS

• Reasonable discount points used to buy down the interest rate.


FEES AND CHARGES

Allowable Fees and Charges, With a 1% Origination, Continued

The veteran can pay any or all of the following itemized fees and charges (refer to slide 32), in amounts that are reasonable and customary. It is the VA’s intention for the 1% Origination Fee to cover all other fees and charges that are not listed.


FEES AND CHARGES

Fees and Charges, cont.

Unallowable Fees and Charges The following are examples of fees and charges that cannot be charged to the veteran when a 1% Origination Fee is paid. If no Origination Fee is paid, the veteran may pay fees and charges that would otherwise be unallowable, provided the total does not exceed 1%.

• Attorney fees • Loan broker fees, real estate broker fees, finder fees • Pre-payment fees of an existing loan (may not be

paid with VA-guaranteed loan proceeds) • HUD/FHA inspection fees (for proposed construction

constructed under HUD supervision)

• Notary fees • Commitment fees or marketing fees of any

secondary purchaser of the mortgage and preparation and recording of assignment of mortgage to such purchaser.

• Trustee fees or charges • Loan application or processing fees • Fees for preparation of truth-in-lending disclosure

statement • Fees charged by loan brokers, finders, or other third

parties whether affiliated with the lender or not • Tax service fees

Interested Party/Seller Contributions Interested Party Contributions (IPCs) are costs which are normally the responsibility of the borrower but are paid, directly or indirectly, by a third party who has a financial interest in or can influence the terms of the sale or transfer of the property. • IPCs are not permitted to be used to make the borrower’s

downpayment, meet financial reserves requirements, or meet the minimum borrower contribution requirements, but may be used to supplement the cost of the transaction.

• The maximum contribution is limited to 4% of value as indicated on the Notice of Value.

o Any amount over 4% of the reasonable value of the property is considered excessive and is not permitted on VA loans.

Seller concessions totaling more than 4% must be subtracted from the purchase price in determining LTV.

Seller concessions included in the 4% limit: • Payments by the seller of the veteran's VA Funding Fee • Prepaid taxes and insurance • Gifts such as microwave and television sets • Extra discount points paid to provide permanent interest rate

buydown • Payoff of credit balances or judgments on behalf of the buyer. The following contributions are not included in the 4% limit: • Payment of the veterans closing costs • Payment of normal discount points


UNDERWRITING GUIDELINES

Documentation Standards Please refer to the Lending Guide for complete VA underwriting guidelines and product descriptions.

• Age: all verification documents (credit, employment, income, assets, etc.) must be dated within 120 days of the note (180 days for

new construction).

Non-Purchasing Spouse Issues When the spouse is not an applicant (not contractually obligated, does not complete the application or sign the note), the ECOA prohibits inquiring about the spouse’s income, debt, and credit history, or a divorce situation unless:

• The veteran is relying on alimony, child support, or maintenance payments from the spouse or former spouse – sufficiently verify the past and future income stream from the spouse/ former spouse to the veteran.

• The subject property is located in a community property state

o Community Property States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

o Debts of a non-purchasing spouse must be counted in the borrower’s qualifying ratios. o Credit of a non-purchasing spouse must be evaluated by DU/LP since the VA does require the credit performance of a non-

purchasing spouse to be considered. o The non-purchasing spouse need not meet Franklin American Mortgage minimum credit score requirements. o If a married veteran wants to obtain the loan in his or her name only, the veteran may do so without regard to the

spouse’s credit only in a non-community property state.

Number of Properties Owned Unless otherwise restricted by the Product Description, the borrower(s) is not permitted to own more than four (4) financed residential properties, including the subject property. This limitation includes joint or total ownership, and is cumulative across all borrower(s) on the loan. • Additional restrictions apply to Jumbo transactions.



UNDERWRITING GUIDELINES

Documentation Standards, continued Non-Purchasing Spouse Issues, Continued In order to pull credit on a non‐purchasing spouse/domestic partner, the Fair Credit Reporting Act (FCRA) requires the non‐purchasing spouse/domestic partner give his or her authorization in writing. If the non‐purchasing spouse/domestic partner does not give written authorization, then the loan is ineligible. While the non‐purchasing spouse/domestic partner is not considered to be a borrower and does not have to sign the loan application (1003), the VA requires the credit history of the non‐purchasing spouse/domestic partner be considered when underwriting the loan. Refer to the Income and Debt sections for further details on required documentation. Note: The CFPB’s Memorandum on Ensuring Equal Treatment for Same Sex Married Couples specifies the definition of spouse and domestic partner. It is the policy of the CFPB and FAMC to recognize all marriages as valid at the time of marriage in the jurisdiction where the marriage was celebrated. The terms “marriage”, “spouse”, “married”, “husband”, “wife”, and any other similar terms related to family or marital status are to include same sex marriages and married same‐sex spouses. Consistent with other federal agencies, the CFPB and FAMC will not regard a person to be married by virtue of being in a domestic partnership, civil union, or other relationship not designated by law as marriage.


MINIMUM DOWNPAYMENT REQUIREMENTS

When assets are used for the downpayment or closing costs, documentation must be provided to evidence and verify the sale or liquidation of the funds. For additional information on documentation guidelines, refer to VA Underwriting Guidelines and Validation Requirements within the FAMC Lending Guide. No downpayment is required except in the following circumstances: When the sales price exceeds the reasonable value as determined by VA, the portion of the downpayment attributable to reducing the

loan amount to reasonable value still counts as a downpayment for the purpose of calculating the funding fee. If a veteran has less than full entitlement available, the borrower's downpayment/equity (plus available entitlement) must equal at least

25% of the purchase price or Notification of Value (NOV) (whichever is less) on purchases, new construction, and non-IRRRL refinances. o This does not apply to VA Jumbo transactions. A veteran could have full entitlement, but still be required to make a downpayment

in order to have sufficient guaranty. The downpayment may not be derived from a second mortgage on the property. Cash Reserves Cash reserves for the subject property are as determined by AUS, or by the Underwriter on a manual underwrite except in the following instances: • Loan transactions consisting of a 2-4 unit property require six (6) months of PITI reserves if rental income from units not occupied by Veteran

is being used to qualify. • Rental income being used for qualification from a property other than the property securing the VA loan require three (3) months of PITI

reserves for that property. • Refer to Conversion of Principle Residence to Investment Property, if applicable. • Refer to Minimum Reserve Requirements for general guidelines and requirements. Earnest Money Deposit Earnest money can be refunded to the veteran on a no-downpayment loan. Gifts Gifts are allowed.


https://www.allregs.com/tpl/content.aspx


INCOME SUMMARY AND DOCUMENTATION

Income Summary and Documentation (Reference: Chapter 4, Section 2, of the VA Lender’s Handbook (current version published at http://www.benefits.va.gov/warms/pam26_7.asp)

Employment History

• Verify a two-year employment history (including past employers if needed). • Applicants with less than 12 months of civilian employment history will be evaluated for acceptability as provided in Chapter 4,

Section 2.f. of the VA Handbook, taking into consideration documented experience, training, and education related to the present position.

Employed less than 12 months with Current Employer In order to be considered effective income, the following requirements apply: • A full VOE supporting the probability of continued employment in current position • Document previous employment and/or training/education in related field and position. • If unable to document as shown above, the income may only be considered on a case-by case basis to partly offset installment

debt of 10 to 24 months duration.

Gaps in Employment • AUS Approval:

o No Explanation for employment gaps is required if the gaps are less than 60 days • Manual Underwrite:

o No Explanation is required for employment gaps if the gaps are less than 30 days




Income and Summary Documentation, continued

Standard Documentation

• Written Verification of Employment/VOE (VA Form 26-8497 or equivalent), PLUS • Most recent 30 days worth of paystubs.

Alternative Documentation

• Verbal VOE (identifying the person contacted, their position, phone number, date contacted, and probability of

continued employment). • Pay stub(s) covering the most recent 30-day period. The VA requires consecutive pay stubs covering the 30-day

period. A single pay stub showing a YTD figure does not meet the VA requirement. • W-2 forms for the previous two years and an explanation of all gaps in employment. • Alternative documentation may be combined with standard documentation to meet the

two-year requirement. Please refer to the Lending Guide for complete underwriting guidelines and product descriptions.



Income and Summary Documentation, continued Active Duty and Reservists, National Guard Applicants • A certified copy or original Leave and Earnings Statement (LES) is required to verify military employment and substitutes for

the VOE. • An original military Leave and Earning Statement (LES) dated no more than 120-days prior to the Note is required in place of

a VOE. Determine if the service member is within 12-months of release from active duty or end of the contract term. Find the date of expiration on the LES. For a National Guard or Reserve member, find the expiration date of the applicant's current contract. If the date is within 12-months of the anticipated loan closing date, obtain any of the following:

o Documentation is required that the service member has already re-enlisted or that the period of active duty has been

extended to a date beyond the 12-month period following the projected closing of the loan, OR

o Verification is required of a valid offer of local civilian employment following release from active duty. All data pertinent to the employment, including, but not limited to, the date employment will begin and earnings must be included, OR

o A statement from the service member indicating their intention to re-enlist or extend the period of active duty to a date beyond the 12-month period plus:

A statement from the service member's commanding officer confirming the service member is eligible to re-enlist or that the service member is eligible to extend active duty, AND

That the commanding officer has no reason to believe that the re-enlistment or extension of active duty will not be granted, OR

o At Underwriter’s discretion



How to Read an Active Duty Leave and Earnings Statement This is a guide to help you understand the Leave and Earnings Statement (LES). The LES is a comprehensive statement of a member’s leave and earnings showing entitlements, deductions, allotments (fields not used for Reserve and National Guard members), leave information, tax withholding information, and Thrift Savings Plan (TSP) information. The function of each numbered box is reviewed on the following pages. Source: http://www.dfas.mil/militarymembers.html

The LES Samples of other military branches can be found at: http://www.dfas.mil/militarymembers.html


http://www.dfas.mil/militarymembers.html




How to Read an Active Duty Leave and Earnings Statement, continued


CREDIT SUMMARY

Credit Summary Please refer to the Lending Guide for complete Credit Summary underwriting guidelines and product descriptions. General Rule A borrower who has made satisfactory payments on traditional credit accounts for 12 months since the date of the last derogatory credit item can generally be considered to have acceptable credit. Exceptions are: • Bankruptcy • Outstanding judgments • Unresolved federal debts Credit history and credit scores are required for each borrower on an application. Non-traditional credit is not allowed. Minimum credit score is 620, regardless of AUS. IRRRL refinance transactions require a minimum 640 credit score.

AUS Manual Downgrades Loans with borrowers having more than 1X30 in the past 12 months or any significant non-mortgage debt that has been omitted with more than 1x30 day late in the past 12 months requires an AUS manual downgrade in accordance with the VA handbook. • Refer to the Lending Guide for additional manual downgrade requirements.

Disputed Accounts Disputed accounts do not require a manual downgrade if the disputed account has a zero balance or has no derogatory rating and does not impact overall qualification. • Refer to the Lending Guide for additional Disputed Tradeline guidelines and requirements.


CREDIT SUMMARY

Credit Summary, continued

Collection Accounts Payment of collection accounts at or near the time of loan application does not improve creditworthiness of the borrower. A borrower with an unacceptable credit history does not become acceptable simply by paying collection accounts. Conversely, a borrower with an overall favorable history might be considered acceptable with isolated unpaid collection accounts. In the strictest sense, unpaid collection accounts are considered derogatory items the entire time they remain unpaid. Under the “General Rule” above, the 12 months of clean credit would start the date collection accounts are satisfied.

• If the collections and judgments were not considered in the AUS decision, the loan will require a manual downgrade, refer

to AUS Manual Downgrades. • Unpaid collection accounts must be considered current derogatory items on a manual underwrite.

o Isolated unpaid medical collection accounts, such as one or two unpaid medical collections, do not necessarily have to be paid off.

• Collection accounts must be considered as part of the borrower’s overall credit history.

Judgments/Tax Lien • Judgements must either be paid in full and satisfied or subject to a repayment plan with a history of twelve (12) months

consecutive timely payments.

Consumer Credit Counseling • Participation in a consumer credit counseling program does not disqualify a borrower from obtaining a VA guaranteed loan,

provided the following requirements are met: o At least 12 months of satisfactory payments on the plan, and o Approval is obtained from the counseling agency permitting issuance of new credit.



CREDIT SUMMARY

Bankruptcy Chapter 7 Bankruptcy • Discharged more than two (2) years: May be disregarded. • Discharged between one (1) full year and two (2) years is not acceptable unless both of the following requirements are met:

o The borrower(s) or spouse has obtained consumer items on credit subsequent to the bankruptcy and has satisfactorily made the payments over a continued period, and

o Documentation is provided supporting the bankruptcy was caused by circumstances beyond the borrower(s) control. Documentation must be complete and all dates must coincide with the date of the bankruptcy. Refer to the VA Lender’s Handbook for additional guidance.

• Discharged less than one (1) year: Not eligible. • Full bankruptcy documents, including discharge papers, are required.

Chapter 13 Bankruptcy • Discharged greater than two (2) years: May be disregarded. • In Repayment: May be considered if all of the following requirements are met:

o Full bankruptcy documents must be provided, including monthly payment agreement. Borrower(s) must qualify with the monthly payment in the ratios.

o At least 12 months have elapsed from the payout period under the bankruptcy, and o Satisfactory payment history has been documented from the Trustee, and o The borrower receives permission from the court to enter into the mortgage transaction. o Borrower(s) must qualify with the monthly payment for the bankruptcy plan included in the ratios.

Foreclosures or “Deed-in-Lieu” • Foreclosure or Deed-in-Lieu of foreclosure: Must be completed more than two (2) years ago from the date the deed was surrendered or

the claim was paid by the VA. • If the foreclosure was not considered in the AUS decision, the loan will require a manual downgrade; refer to AUS Manual Downgrades.


http://benefits.va.gov/warms/pam26_7.asp

CAIVRS

CAIVRS For all VA loans including Interest Rate Reduction Refinancing Loans (IRRRLs), lenders must screen all borrowers using CAIVRS. FAMC will check the borrowers on a VA loan when the file has been placed in line with the Underwriter.

Credit Alert Interactive Voice Response System (CAIVRS)

• If CAIVRS indicates the borrower is presently delinquent or has had a claim paid within the previous three years on a government-

insured loan made on their behalf, the borrower is not eligible. Exceptions to this may be granted under the following situations: o Assumptions – if the borrower sold the property, with or without a release of liability, to a mortgagor who

subsequently defaulted and it can be established that the loan was not in default at the time of assumption, the borrower is eligible.

o Divorce – a borrower may be eligible if the divorce decree or legal separation agreement awarded the property and responsibility for payment to the former spouse. However if a claim was paid on a mortgage in default at the time of divorce, the borrower is not eligible.

o Bankruptcy – when the property was included in a bankruptcy that was caused by circumstances beyond the borrower's control (such as the death of the principal wage earner; loss of employment (due to business closings, reductions-in-force, etc.), or serious long-term uninsured illness), the borrower may be eligible.

• If the processor has reason to believe the CAIVRS message is erroneous, or must establish the date of claim payment, the lender

must contact the local VA Regional Office for instructions or provide documentation to support the borrower's eligibility.


CAIVRS

CAIVRS, continued Using CAIVRS • FHA Approved Lenders – while logged-in to The FHA Connection, select Single Family FHA/Single Family Origination/Case Processing/CAIVRS

Authorization. In the drop-down for SSN/TIN Indicator select SSN. Enter the Social Security Number for the first borrower. Continue until you have selected the SSN indicator and entered the Social Security Number for each borrower on the loan. Enter your company’s 10-digit VA ID Number in the Lender ID box. In the Agency drop-down box select Veterans’ Affairs/SEND. If successfully completed, a CAIVRS authorization number beginning with an “A” will be returned and should be entered on the VA Loan Analysis Worksheet or the IRRRL Worksheet.

• Non-FHA Approved Lenders – A non-FHA-approved lender or non-HUD Federal agency CAIVRS user accesses the CAIVRS Credit Alert System,

a delinquent Federal borrowers database, to pre-screen loan applicants' creditworthiness. Each non-FHA lender must request at least one Application Coordinator User ID as well as a Standard User ID for each individual user.

o Go to: https://entp.hud.gov/caivrs/public/home.html o Click “Registration for Lender User ID” The following page will appear with the following instructions:

To apply for an Application Coordinator ID (Note: You need at least one Application Coordinator User ID), check the "Coordinator" radio button, fill out the form below, and click Send Application. Upon verification of the information, an ID will be assigned and mailed to the CEO of your organization. The password will not be disclosed, so make sure you remember it! To apply for a Standard User ID, check the "User" radio button, fill out the form below and click Send Application. Upon verification of the information below, a User ID will be assigned. The “Application Coordinator” of your organization will retrieve the User ID. The password will not be disclosed, so make sure you remember it!

And remember: Warning! Misuse of Federal Information at this Web site falls under the provisions of Title 18, United States Code, section 1030. This law specifies penalties for exceeding authorized access, alteration, damage or destruction of information residing on Federal Computers.


DEBTS AND OBLIGATIONS

Debts and Obligations Debts and obligations of the applicant must be rated and a tri-merge credit report must be obtained. When a pay stub or leave-and-earnings statement indicates an allotment, the lender must investigate the nature of the allotment and determine if it is related to a debt. Include significant debts and obligations in the borrower’s debt ratio when determining ability to meet mortgage payments. Significant debts and obligations include: Debts and obligations with a remaining term of 10 months or more (long-term). Closed-end installment debts do not have to be included in the ratios if:

• The account has less than 10 payments remaining, and • The omission of the debt would not have a significant impact on the borrower(s) ability to pay the mortgage loan and meet all

other monthly obligations. • Any omission of an installment debt will be considered on a case-by-case basis.

When omitting payments, it is important to consider the total monthly payments that are being omitted.

• Example: Several omissions could add up to a large monthly amount of debts being omitted. VA requires consideration of non-borrowing spouse self-employed business losses when calculating the Veteran’s income if a joint tax return is filed, regardless if community or non-community property state.

Community Property States Reminder….. If the property is located in a community property state (currently AZ, CA, ID, LA, NV, NM, TX, WA, and WI), the broker must obtain a credit report on the spouse and treat their debts and credit history just like those of the veteran, regardless of whether or not the veteran and spouse choose to have the spouse’s income considered as qualifying income. Refer to the non-purchasing spouse section for further information. Please refer to the Lending Guide for complete Debt and Obligations underwriting guidelines and product descriptions.


ELIGIBLE VETERAN/BORROWER

COMBINATIONS

Eligible Veteran/ Borrower Combinations • Veteran. • Veteran and non-veteran spouse. • Two veterans who are married to each other where only one veteran will be using entitlement. • Two Veterans who are married to each other where each Veteran will be using entitlement. • Un-remarried surviving spouse of an eligible veteran who died due to service-connected injuries (if determined

eligible by a VA-issued COE). • Spouse of an active-duty service person who has been listed as MIA or POW for more than 90-days (if determined

eligible by a VA-issued COE). (Reference: Chapter 7, Section 1, VA Lender’s Handbook at http://www.benefits.va.gov/warms/pam26_7.asp) Eligible Veteran/ Borrower Combinations that require VA Approval (Joint Loans) The following borrower combination require underwriting approval by the VA: • Two veterans who are not married to each other where each veteran will be using entitlement.

Ineligible Veteran/ Borrower Combinations Any type of borrower not listed as eligible, including, but not limited to: • Veteran and non-veteran who is not the veteran’s spouse (because the VA will only issue guaranty on the veteran’s

portion of the loan). • Any individual without a valid US Social Security Number. • Individuals with a US Individual Taxpayer Identification Number (ITIN). An ITIN is formatted like a Social Security

Number but begins with “9.” No valid Social Security Number begins with a “9.” • Non-occupying veteran, except for an IRRRL on a previously owner-occupied property. • Foreign nationals and borrowers with diplomatic immunity.



POWER OF ATTORNEY

Power of Attorney The VA will allow a veteran to use an attorney-in-fact to execute any documents necessary to obtain a VA guaranteed loan. This enables active duty service persons stationed overseas, and other veterans who cannot be present to execute loan documents, to obtain VA loans.

Requirements The veteran must execute a general or specific power of attorney, which is valid and legally adequate. The veteran’s attorney-in-fact may use this power of attorney to apply for a Certificate of Eligibility and initiate processing of a loan on behalf of the veteran. To complete the loan transaction using an attorney-in-fact, ensure that the general or specific power of attorney complies with state law to the extent that the mortgage can be legally enforced in that jurisdiction, and clear title can be conveyed in event of foreclosure. To complete the loan transaction using an attorney-in-fact, the VA also requires the veteran’s written consent to the specifics of the transaction. This requirement can be satisfied by either: • The veteran’s signature on both the sales contract and the URLA, as long as the veteran’s intention to obtain a VA loan on the

particular property is expressed somewhere in those documents, OR • A specific power of attorney or other document(s) signed by the veteran, which encompasses the following elements:

o Entitlement – A clear intention to use all or a specified amount of entitlement. o Purpose – A clear intention to obtain a loan for purchase, construction, repair, alteration, improvement, or refinancing. o Property Identification – Identification of the specific property. o Price and Terms – The sales price, if applicable, and other relevant terms of the transaction. o Occupancy – The veteran’s intention to use the property as a home to be occupied by the veteran (or other applicable VA

occupancy requirement).


VETERAN’S STATUS AS ALIVE AND NOT MIA

Veteran’s Status as Alive and not MIA In addition, at the time of loan closing, the lender must: • Verify the veteran is alive and not missing in action (if on active duty), AND • Make the following certification: “The undersigned lender certifies that written evidence in the form of correspondence from the veteran or, if on active military duty, statement of his or her commanding officer (including statement of person authorized to act for said officer), affirmatively indicating that the veteran was alive and, if the veteran is on active military duty, not missing in action status on (date), was examined by the undersigned and that the said date is subsequent to the date the note and security instruments were executed on the veteran’s behalf by the attorney-in-fact.” The lender must always verify that the veteran is alive at the time of loan closing, whether or not the veteran is still in the military. For service members who are deployed, an e-mail certification that the service member is alive and not missing in action is acceptable, but the e-mail must be identifiable that it came from a military installation or marine vessel. The VA may deny guaranty on a loan if the lender failed to properly verify the veteran’s status and the veteran was deceased (or MIA) at the time the loan was closed.


RATIOS AND COMPENSATING FACTORS

Ratios • The qualifying debt-to-income ratio is 41% unless there are significant compensating factors or an AUS Approval is received.

Refer to Compensating Factors. • Transactions with a credit score < 650 (where allowed) are limited to 45% DTI, regardless of AUS approval. • A second level signature is required if the ratio exceeds 41% and there is less than the 120% required residual income,

regardless of the AUS decision.

Compensating Factors A valid compensating factor is an unusual factor to strengthen the loan, not mere satisfaction of a program requirement. For example, significant liquid assets might compensate for a residual income shortfall whereas long-term employment would not. Compensating factors cannot be used to compensate for unsatisfactory credit. Compensating factors include, but are not limited to, the following: • Excellent credit history • Conservative use of consumer credit • Minimal consumer debt • Long-term employment with current employer • Verified and documented liquid assets available after closing • Sizable downpayment • Equity in subject property on refinance transactions • Minimal increase in total housing payment • Military benefits that are not being considered in effective income in qualifying • Satisfactory prior housing payment history • High residual income • Low debt-to-income ratio • Tax credits for child care • Tax benefits of home ownership


TABLE OF RESIDUAL INCOMES BY REGION

Loans with DTI ratios greater than 41% must exceed the residual income guideline by at least 20% as published by the VA. Reduce the residual income figure by a minimum of 5% if: • The applicant or spouse is an active-duty or retired serviceperson, AND • There is a clear indication that they will continue to receive the benefits resulting from use of military-based facilities

located near the property.

Table of Residual Incomes by Region (Reference: Chapter 4, Section 9e, VA Lender’s Handbook at http://www.benefits.va.gov/warms/pam26_7.asp)




TABLE OF RESIDUAL INCOMES BY REGION

Table of Residual Incomes by Region, continued (Reference: Chapter 4, Section 9e, VA Lender’s Handbook at http://www.benefits.va.gov/warms/pam26_7.asp)

Maintenance and Utilities • Use $0.14 per square foot.



VA QUALIFYING EXERCISE

Use the following assumptions to complete these sections on the attached Loan Analysis Worksheet: SECTION C – estimated monthly shelter expenses SECTION D – debts and obligations SECTION E – monthly income and deductions – items 41 through 45 Loan Type 30-year fixed Interest Rate 6.25% Purchase Price $199,000 Funding Fee 2.15% Downpayment $0 Size of Home 1,450 sq. ft. Maintenance Costs $0.14/sq. ft. Property Taxes $200/month Hazard Insurance $52/month Revolving Debt $20/month Child Care Expense $585/month Number of Children Two Property Location Kansas City, Missouri SS/Medicare Deductions 7.65% Remember: All boxes need to be completed on the Loan Analysis Worksheet. Refer to the example on the next slide.

Veteran is salaried, employed for four years with same company with monthly income of $2,800.

Federal Income Tax = $251

State Income Tax = $86

Veteran’s spouse is hourly, with same company for two years, 40 hours/ week with an hourly income of $12.80.

Federal Income Tax = $237

State Income Tax = $69

They have two children with child care expenses of $135.00 per week.


VA QUALIFYING EXERCISE

VA Qualifying Exercise, continued Loan Analysis Worksheet


THE VA CASE NUMBER AND APPRAISAL

Ordering VA Case Number and Appraisal:

1. A VA case number must be ordered for every VA loan using VA TAS (The Appraisal System). 2. You may register for TAS in the Veterans Information Portal at https://vip.vba.va.gov/portal/VBAH/Home. Brokers should

register as user type “Lender.” You will need the following information: • Your company’s VA Lender ID number • Your company’s VA PIN number (the last four digits of your VA Lender ID number) • Franklin American Mortgage’s VA Sponsor ID number: 8753180000

3. When registration is complete, proceed to the log-in function. 4. From the menu at the far left under “Applications,” select “WebLGY.” 5. For Purchase or Non-IRRRL refinance – select “Request Appraisal,” then select “LAPP” and submit. 6. IRRRL – select “Order IRRRL.” 7. Complete subsequent screens and click “Submit.” 8. Print the TAS-generated VA Form 26-1805-1 “VA Request for Determination of Reasonable Value” for your records. Include a

copy with your loan submission to Franklin American Mortgage. 9. E-mail, fax, or mail the VA Form 26-1805-1, the sales contract, and any other required documentation (see section 10.04 of the

VA handbook) to the assigned appraiser on the same day the case number is assigned. 10. For more details and training on the VA system, please contact your Account Executive. If you do not have access to the VA

system you may access the “Forms” section of our website and select “VA Case Number Request Form.” Complete the necessary information and fax to the number listed on the bottom and Franklin American Mortgage will order the VA case number for you.

11. It will be the broker’s responsibility to order their own VA case numbers after the VA has issued their VA Lender ID number.


https://vip.vba.va.gov/portal/VBAH/Home

THE VA CASE NUMBER AND APPRAISAL

Ordering VA Case Number and Appraisal, continued

IMPORTANT NOTE: With the exception of IRRRLs, when you order a case number you are automatically ordering an appraisal. When you click “Submit” to generate the case number, you are placing the order for an appraisal and making the following certification to the VA: “We agree to forward to the appraiser the approved fee which we are holding for this purpose.” Even if the loan does not close, you are responsible to pay the appraiser unless you cancel the order before the appraisal has been performed.

Canceling a VA Appraisal Order E-mail the assigned appraiser and the appropriate VA Regional Loan Center (RLC) with the case number, property address, and request to cancel. • The appraiser’s e-mail address can be found on the VA Form 26-1805-1. • E-mail links to the RLCs are located at http://www.benefits.va.gov/homeloans/contact_rlc_email.asp • For RLC address and phone information see http://www.benefits.va.gov/homeloans/contact_rlc_email.asp Be sure to confirm the appraisal order has been cancelled. If the request to cancel is not received and processed by the VA before the appraisal is performed, then the broker will be liable for the cost of the appraisal. (Reference: Chapter 10, VA Lender’s Handbook)


http://www.benefits.va.gov/homeloans/contact_rlc_email.asp

http://www.benefits.va.gov/homeloans/contact_rlc_email.asp

PROPERTY ELIGIBILITY

Property Eligibility

Existing Construction 1-4 family owner-occupied dwelling that at the time of appraisal: • Has been previously owner-occupied, OR • Fully completed for 12-months or more.

No special requirements.

New Construction

1-4 family owner-occupied dwelling that at the time of appraisal: • Has been fully completed for less than 12-months and never owner-occupied, OR • Is fully completed EXCEPT for “Customer Preference” items (interior wall finishes, floor covering, appliances, fixtures and

equipment, etc.). The broker and builder should work closely together to determine when the property has reached this stage and when the appraisal should be ordered.

The following are required for existing new construction • Builder’s VA ID number, AND • One-year VA builder’s warranty (VA Form 26-1859 “Warranty of Completion of Construction”), OR • 10-year Warranty Acceptance Letter.* • In required states (or if required by sales contract) Form NPMA-99-A AND NPMA-99-B, (as applicable).

* The warranty plan that must be accepted by HUD is found at http://portal.hud.gov/hudportal/documents/huddoc?id=hoctenyr.pdf


http://portal.hud.gov/hudportal/documents/huddoc?id=hoctenyr.pdf


Property Eligibility, continued

Proposed or Under Construction 1-4 family owner-occupied dwelling that at the time of appraisal: • Is not completed to the “Customer Preference” stage (see above). The following are required: • Builder’s VA ID number, AND • One-year VA Builder’s Warranty (VA Form 26-1859 “Warranty of Completion of Construction”), AND • Certificate of Occupancy or equivalent issued by the local building authority, OR • 10-year Warranty Acceptance Letter AND Final Inspection by a VA Fee Inspector, VA Appraiser, or the local building

authority. From this final inspection, Franklin American Mortgage must be able to confirm that the property is 100% complete and meets the VA’s Minimum Property Requirements for an existing construction.

• In required states (or if required by sales contract) Form NPMA-99-A AND NPMA-99-B, (as applicable). The following must be provided to the Appraiser with the TAS-generated VA Form 26-1805-1: • One set of construction exhibits (see Section 10.10 VA Lenders Handbook). Veteran must sign “Description of Materials”. • Fully completed Builder’s Certification (HUD Form 92541), OR • A certification identifying the property, signed and dated by a technically qualified and properly identified individual

(such as a builder, architect, engineer, etc.) which states “I certify that the construction exhibits meet all local code requirements and are in substantial conformity with the VA Minimum Property Requirements, including the energy conservation standards of the 1992 Council of American Building Officials’ Model Energy Code and the requirement for lead-free water piping.”



Property Eligibility, continued Eligible Properties • 1-4 unit attached or detached SFRs and PUDs. • Condominiums must be VA approved. Refer to Condominium and PUD Projects.

EEM Program • Energy Efficient Mortgage (EEM) program is allowed. • VA allows up to $6,000 to be added to the loan amount to cover the cost of energy efficiency improvements made in

conjunction with a purchase or refinance loan on an owner-occupied “existing” property. • Subordinate financing is allowed. • Escrow waivers are not allowed.



Property Eligibility, cont. Ineligible Properties (See Franklin American Mortgage Product Description for additional property types)

• Manufactured or mobile housing • Leasehold condominiums and multiple unit condominiums • Geodesic dome, Earth or Geothermal homes • Ranches, orchards, working or hobby farms or commercial operations • Co-ops • Any property that does not meet VA’s Minimum Property Requirements. • Any property where the seller is not the owner of record. • Properties which are not primarily residential in nature and use. • All non-owner occupied properties (except IRRRLs meeting the previous occupancy requirement). • Properties with sinkholes • Properties with new or existing PACE (Property Assessed Clean Energy) liens • Refer to Flood Insurance and VA Property Eligibility in the Lending Guide for additional guidance and/or restrictions on

utility/power lines, properties near airports and properties in flood zones. NOTE: space heaters and similar sources are not considered permanent heating sources. Remember: The VA guarantees the loan, not the condition of the property. It is the purchaser’s responsibility to see that all components (i.e., heating, cooling, plumbing, etc.) of the house are in proper working condition. The Appraiser and/or underwriter may require evidence items are in working order.


VA REFINANCES/IRRRL

Overview A refinance transaction is a mortgage loan used to payoff an existing real estate obligation on the same property for borrower(s) with legal title to the subject property. Not all borrowers have to be obligated on the loan being paid off, but at least one borrower must be on the existing note. A home that is owned free and clear is not permitted to be refinanced as a VA loan, there must be a lien to payoff. The types of refinance transactions available are: • Refinance (Rate/Term or Cash-Out) • Interest Rate Reduction Refinancing Loans (IRRRL) • Construction-Permanent Refinance • “Other” Refinance

Refinance (Rate/Term or Cash-Out) VA considers all refinances (Except IRRRLs) as “Cash-Out” transactions. FAMC has specific LTV/CLTV and eligibility criteria for Rate/Term vs. Cash-Out refinances.

Interest Rate Reduction Refinancing Loan (IRRRL) is a VA-guaranteed loan made to refinance an existing VA-guaranteed loan, generally at a lower interest rate than the existing VA loan, and with lower principal and interest payments than the existing VA loan.

Construction-Permanent Refinance involves the granting of a long-term mortgage to the veteran for the purpose of replacing interim financing the borrower obtained in order to fund the construction of the home. Construction-to-Permanent financing is considered a cash-out and follows the Funding Fee chart for refinance transactions.

“Other” Refinance The only type of “Other” refinance transaction permitted by FAMC is the refinance of installment land contracts.

NOTE: VA IRRRLs need to be AIR compliant Conventional appraisals for VA IRRRLs must be AIR-compliant; the AIR appraisal ordering process does apply.


VA REFINANCES/IRRRL

VA IRRRL Qualified Mortgage

Requirements for IRRRL Loans In order for an IRRRL to be exempt from the income verification under ATR/QM (Ability to Repay/Qualified Mortgage) provisions under TILA, the total QM points and fees on the loan must not exceed 3% of the principal loan amount of the new loan. This is different than the current QM points and fees limits, which allows for points and fees above 3% for loan amounts below $100,000 (e.g. $3,000 for a loan greater than or equal to $60,000 but less than $100,000, etc.). A proposed IRRRL that does not meet the requirements for exemption of income verification, as explained above, will be subject to income verification and must receive prior approval from the VA to be guaranteed. As a reminder, all loans will continue to be tested for QM points and fees. In addition, FAMC has developed internal processes and procedures to ensure that all VA IRRRL transactions are in compliance with the updated VA guidelines. When required, income verification and VA prior approval will be coordinated through FAMC Underwriting and the loan will be conditioned accordingly.


VA IRRRL RECOUPMENT/OLD VS. NEW STATEMENT

VA IRRRL Recoupment/Old vs. New Statement In order to comply with the VA's directive, refinance transactions should “make sense” and be in the borrower's best interest. Refinance transactions must provide a net tangible benefit for the borrower. The interest rate on the new loan must be lower than the interest rate on the old loan unless the old loan is an

ARM and the new loan is a fixed rate. The P & I payment on the new loan must be less than the P & I payment on the old loan unless one of these

exceptions applies: o The old loan is an ARM and the new loan is a fixed rate, or o The term of the new loan is shorter than the term of the old loan, or o Allowable energy efficient improvements are included in the new loan

If the monthly payment (PITI) increases by 20% or more, the underwriter must: o Determine that the borrower qualifies for the new monthly payment, and o Include a certification that the borrower qualifies for the new monthly payment.

The VA requires a signed statement of acknowledgement regarding the effect of the change in the veteran’s loan payment and interest rate. This statement must also include the amount of time it would take to recoup ALL closing costs. All closing costs must include those paid outside of closing, any financed into the new loan amount, all prepaid items and any costs that are being paid with lender credits from premium pricing. o This VA required statement of acknowledgement is located in the VA Forms section. o Refer to VA Old vs New Statement. o This form is required for all VA IRRRL transactions.


VA IRRRL FORMS

VA IRRRL Submission Form An abbreviated 1003 is acceptable. The income and assets and other sections of the 1003 that do not pertain to VA IRRRLs can be left blank.


VA IRRRL FORMS


VA JUMBOS

30-year fixed rate only

Owner-occupied primary residence only

Purchase, regular refinance (rate and term or cash-out) IRRRLs – allowed 100% financing

Construction to Permanent – construction to permanent financing is allowed.

Secondary Financing – new or existing secondary financing is not eligible, regardless of the source.

Appraisal – UAD (Uniform Appraisal Data) compliant appraisals are required for VA loans as of January 1, 2012

CAIVRS – a clear CAIVRS number must be provided for each borrower

Cash Reserves – cash reserves for the subject property are as determined by AUS,


VA JUMBOS

73

Credit • Credit history and credit scores are required for each borrower on an application. Non-traditional credit is not allowed. • No bankruptcy or foreclosure in most recent two (2) years, regardless of DU/LP. • Minimum FICO is 680, depending on loan amount. • The credit report for the mortgage history must include the payment made for the most recent month due. • The mortgage history requires no 30-day mortgage late payments in the last 12-month mortgage history, regardless of AUS.

Downpayment – may be required

Gifts – allowed

Escrow Waivers – not allowed

Escrow Holdbacks – allowed

EEM Program • Energy Efficient Mortgage (EEM) Program is allowed. All EEM improvements must be completed prior to closing. • The VA allows up to $6,000 to be added to the loan amount to cover the cost of energy efficiency improvements made in

conjunction with a VA 30-year term purchase or refinance loan on an owner-occupied “existing” property.


VA JUMBOS

Maximum/Minimum Loan Amount Maximum loan amount: $1,000,000 for Purchase, Rate/Term and IRRRL transactions with a minimum FICO of 700. Minimum FICO of 680 is allowed up to a final loan amount of $700,000. Maximum loan amount includes any portion of the financed funding fee. Loan amounts up to $700,000 will be subject to a max 41% DTI unless compensating factors present. Loan amounts greater than $700,000 will be subject to a max 41% DTI.

• To confirm county loan limits for calculating maximum VA entitlement, refer to: http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp AND https://www.allregs.com/tpl/Viewform.aspx?formid=00024559&formtype=agency Minimum loan amount: $417,001.

• All loans must be submitted in whole dollar amounts.

Maximum/Minimum LTV 100% LTV on purchase transactions calculated on the base loan amount. 100% LTV on regular refinance (Rate/Term) calculated on the base loan amount. 100% LTV on IRRRLs. 90% LTV/CLTV calculated on the base loan amount on refinance transactions when the Veteran is receiving cash out at closing.

The VA Funding Fee may be added to the base loan amount; however, the total loan amount may not exceed the maximum loan amount permitted for this product. Refer to Purchase, Regular Refinance (Rate/Term or Cash-Out), and Interest Rate Reduction Refinance Loan (IRRRL) for the loan amount calculation.

Manual Underwriting – not allowed, except on IRRRLs

Manual Downgrades – not allowed


http://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp

https://www.allregs.com/tpl/Viewform.aspx?formid=00024559&formtype=agency







VA JUMBOS

Number of Financed Properties Borrowers may own one other financed property. The additional financed property will require the borrower to have a minimum of 3 months reserves if rental income is being used from that property to qualify the Veteran.

Property Eligibility Eligible: • 1 unit attached or detached SFRs and PUDs. • Condominiums • 1 unit REO properties. These include properties owned by:

o HUD o Fannie Mae o Freddie Mac o VA o USDA o Banking Institutions o New Construction – Refer to Property Eligibility–New Construction in the Lending Guide

Ineligible: • 2-4 units • Refer to Property Eligibility for all specific ineligible property types.

Jumbo Refinances • Regular refinance (rate/term or cash-out): • Maximum $325,000 cash-out; subject to maximum LTV and guaranty requirements.

Please refer to the Lending Guide for complete VA Jumbo guidelines and product descriptions.






REGIONAL LOAN CENTERS


USEFUL VA WEBSITES

Useful VA Websites

Veterans Information Portal https://vip.vba.va.gov/portal/userprofiling/login.jsp INCLUDING:

• WebLGY (Certificate of Eligibility Online) • TAS (The Appraisal System) • e-Appraisal

Circulars/News http://www.benefits.va.gov/homeloans/resources_circulars.asp

Condos, PUDs, Builder IDs https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch

Construction and Valuation http://www.benefits.va.gov/homeloans/appraiser_cv.asp

Forms http://www.va.gov/vaforms/

Handbook http://www.benefits.va.gov/warms/pam26_7.asp

IRRRL Worksheet (fillable) http://www.vba.va.gov/pubs/forms/VBA-26-8923-ARE.pdf

Lenders Homepage http://www.benefits.va.gov/homeloans/lenders.asp

Loan Guaranty Homepage http://www.benefits.va.gov/homeloans/

Local Requirements http://www.benefits.va.gov/homeloans/appraiser_cv_local_req.asp

Military Pay Charts http://www.dfas.mil/militarymembers/payentitlements/military-pay-charts.html

Regional Loan Centers http://www.benefits.va.gov/homeloans/contact_rlc_info.asp

Training Homepage http://benefits.va.gov/homeloans/resources_video.asp


https://vip.vba.va.gov/portal/userprofiling/login.jsp

http://www.benefits.va.gov/homeloans/resources_circulars.asp

https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch

http://www.benefits.va.gov/homeloans/appraiser_cv.asp

http://www.va.gov/vaforms/


http://www.vba.va.gov/pubs/forms/VBA-26-8923-ARE.pdf







http://www.benefits.va.gov/homeloans/lenders.asp

http://www.benefits.va.gov/homeloans/

http://www.benefits.va.gov/homeloans/appraiser_cv_local_req.asp

http://www.dfas.mil/militarymembers/payentitlements/military-pay-charts.html





http://www.benefits.va.gov/homeloans/contact_rlc_info.asp

http://benefits.va.gov/homeloans/resources_video.asp


Equal Housing Lender; Franklin American Mortgage Company, 6100 Tower Circle, Suite 600, Franklin, TN 37067. Company NMLS #1599. This is an advertisement intended for mortgage banking professionals only; not authorized for distribution to consumers or third-parties. All info herein is current as of 11/10/16 and subject to change without notice.

This presentation is made available to trusted partners of Franklin American Mortgage Company and is intended for sales enhancement purposes only. The material present herein is not intended as legal advice nor does it represent the counsel or opinion of Franklin American Mortgage or its employees. Borrowers must qualify in accordance with current Franklin American Mortgage product and program guidelines (login as a registered user at www.franklinamerican.com to view). All attendees should consult their company’s policies, procedures, and/or internal compliance/legal guidelines regarding all regulatory or compliance matters. MKT-17433