capital markets memo 2012 16 government loan updates[1]

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2/3!!

FHA!Update"Self!Employed!Income!Documentation!Requirements!(ML!12"3)!To!determine!if!the!borrower’s!business!is!expected!to!generate!sufficient!income!his/her!needs,!we!must!carefully!analyze!the!business!financial!strength!including!the!source!of!the!business!income!and!general!economic!outlook!for!similar!businesses!in!the!area.!!Annual!earnings!that!are!stable!or!increasing!are!acceptable!while!businesses!that!show!a!significant!decline!in!income!are!not!acceptable,!even!if!the!current!income!and!debt!ratios!meet!FHA!guidelines.!!!!SWBC!policy!currently!allows!underwriter!discretion!for!incomes!declining!less!than!10%!year!over!year.!!Year!over!year!decline!in!income!in!excess!of!10%!must!be!submitted!to!MortgageUnderwritingExceptions@swbc.com!!for!a!case"by"case!review!for!an!exception!to!determine!if!the!income!may!be!used!for!qualifying.!!This!policy!will!remain!in!place!until!any!further!clarification!is!given!by!our!government!investors!regarding!their!parameters!for!defining!a!significant!decline!in!income.!!A!P&L!and!Balance!sheet!is!required!if!more!than!a!calendar!quarter!has!elapsed!since!the!date!the!most!recent!calendar!or!fiscal"year!end!tax!return!was!filed!by!the!borrower.!!Additionally,!if!income!used!to!qualify!the!borrower!exceeds!the!two!year!average!of!tax!returns,!an!AUDITED!P&L!is!required.!!

This!policy!is!effective!with!case!numbers!assigned!on!or!after!April!1,!2012!and!will!apply!to!all!FHA!loans!except!non"credit!qualifying!streamline!refinances.!!

FHA!Update"Definition!of!Family!Member!as!related!to!Identity!of!Interest!(ML!12"3)!For!purposes!of!Identity!of!Interest!transactions,!the!definition!of!family!member!includes:!Child!(son,!stepson,!daughter!or!stepdaughter),!parent!(includes!step"parent!or!foster!parent),!grandparent!(includes!step"grandparent!or!foster!grandparent),!spouse,!legally!adopted!son!or!daughter!(including!a!child!who!is!placed!with!the!borrower!by!an!authorized!agency!for!legal!adoption),!foster!child,!brother,!stepbrother,!sister,!stepsister,!uncle!and!aunt.!!

This!policy!is!effective!with!case!numbers!assigned!on!or!after!April!1,!2012!and!will!apply!to!all!FHA!loans.!!FHA!Update"Disputed!or!Collection!Accounts!(ML!12"3)!If!the!Automated!Underwriting!System!rates!the!mortgage!loan!application!as!an!Accept,!the!mortgage!application!will!no!longer!be!referred!to!a!DE!underwriter!for!review!due!to!disputed!accounts,!as!long!as!these!accounts!meet!both!of!the!following!conditions:!!! The!total!outstanding!balance!of!all!disputed!credit!accounts!or!collections!are!less!than!$1,000!and!!! Disputed!credit!accounts!or!collections!are!aged!two!years!from!date!of!last!activity!as!indicated!on!the!most!

recent!credit!report.!!!If!the!borrower!has!individual!or!multiple!disputed!credit!accounts!or!collections!with!singular!or!cumulative!balances!equal!to!or!greater!than!$1,000,!the!accounts!must!be!resolved!(e.g.!payment!arrangements!with!a!minimum!three!months!of!verified!payments!made!as!agreed)!or!paid!in!full,!prior!to,!or!at!the!time!of!closing.!Documentation!supporting!the!payment!arrangements!or!that!the!debt!has!been!paid!off!must!be!provided.!!The!payments!arranged!for!the!accounts!must!be!included!in!the!calculation!of!the!borrower’s!debt"to"income!ratios.!!!Disputed!credit!accounts!or!collections!resulting!from!identity!theft,!credit!card!theft,!or!unauthorized!use,!etc.,!will!be!excluded!from!the!$1,000!limit!under!the!terms!shown!below:!! A!credit!report!or!letter!from!the!creditor,!or!other!appropriate!documentation,!to!support!that!the!

borrower!filed!an!identity!theft!or!police!report!to!dispute!the!fraudulent!charges!must!be!provided!! Documentation!must!be!provided!to!show!all!disputed!or!collection!accounts!are!resolved,!verified!as!not!a!

debt!to!the!borrower,!arrangements!made!for!payment,!or!paid!in!full.!!Continued!on!the!next!page!

3/3!!

If!the!total!outstanding!balance!of!all!collection!accounts!is!equal!to!or!greater!than!$1,000!the!borrower!must!resolve!the!accounts!(e.g.!entered!into!payment!arrangements!with!minimum!three!months!verified!payments"!paid!as!agreed)!or!paid!in!full!at!the!time!of,!or!prior!to!closing.!Documentation!must!be!provided!showing!each!account!was!resolved!or!paid!in!full.!!!If!the!total!outstanding!balance!of!all!collection!accounts!is!less!than!$1,000,!the!borrower!is!not!required!to!pay!off!the!collection!accounts!as!a!condition!of!mortgage!approval!unless!otherwise!required!by!the!underwriter!based!on!specific!investor!overlays.!!Note:!Paying!“down”!of!balances!on!disputed!accounts!and!collections!to!reduce!the!singular!or!cumulative!balance!to!below!$1,000,!is!not!an!acceptable!resolution!of!accounts.!!

This!policy!is!effective!with!case!numbers!assigned!on!or!after!April!1,!2012!and!will!apply!to!all!FHA!loans!except!non"credit!qualifying!streamline!refinances.!!!

The!program!guidelines!will!be!updated!to!include!this!information!as!we!get!closer!to!the!April!1,!2012!implementation!date.!!Guidelines!that!are!effective!immediately!will!be!included!in!the!program!description!and!posted!by!tomorrow.!