1 - Introductionfiles.afncorp.com/WebTrac/Ratesheet/PNPs/GaltonUnderwritingGuide.pdf · S. ELLER ....

Effective October 6, 2017 Proprietary and Confidential

SELLER GUIDEGALTON FUNDING

SELLER GUIDE

Effective October 6, 2017G A L T O N F U N D I N G Page 2 / 212

Proprietary and Confidential

TABLE OF CONTENTS

1. INTRODUCTION ....................................................................................7

Objective......................................................................................................................................... 8

General Business Information ..................................................................................................... 8

Contractual Obligations............................................................................................................. 8

Master Sale Contract and Program Documents ....................................................................... 8

Seller ID .................................................................................................................................... 9

Loan Number(s) ........................................................................................................................ 9

Notices ...................................................................................................................................... 9

Guide Updates and Amendments............................................................................................. 9

Hours of Operation.................................................................................................................... 9

Contact Information................................................................................................................... 9

Assumptions.............................................................................................................................. 9

2. SELLER ELIGIBILITY..........................................................................11

Seller Eligibility Standards ......................................................................................................... 12

Net Worth ................................................................................................................................ 12

Approvals ................................................................................................................................ 12

Experience and Reputation..................................................................................................... 12

Compliance ............................................................................................................................. 12

MERS...................................................................................................................................... 12

Private Mortgage Insurance.................................................................................................... 13

Delinquency and Repurchases ............................................................................................... 13

Underwriting and Delivery Standards ..................................................................................... 13

Ownership/Correspondents .................................................................................................... 13

Application Documentation........................................................................................................ 13

Application............................................................................................................................... 14

Financial Information............................................................................................................... 14

Request for Taxpayer Identification Number and Certification Form...................................... 14

Fidelity Bond and Errors and Omissions Insurance................................................................ 14

Corporate Resolution .............................................................................................................. 15

State Licenses......................................................................................................................... 15

Articles of Incorporation, Corporate Bylaws and/or Agreements............................................ 15

Company Summary, Resumes and Organizational Chart...................................................... 15

Fictitious Business Names (DBAs) ......................................................................................... 16

Quality Control Policies and Reports ...................................................................................... 16

Vendor Management Plan ...................................................................................................... 16

Appraisal Management Policies.............................................................................................. 16

Compliance Policies................................................................................................................ 16

Investor Scorecards ................................................................................................................ 16

SELLER GUIDE



Notice of Seller Approval............................................................................................................ 16

Continuing Business Obligations.............................................................................................. 17

Reporting Requirements ......................................................................................................... 17

Ongoing Obligations................................................................................................................ 17

Suspension or Termination ........................................................................................................ 20

Termination ............................................................................................................................. 20

Effect of Termination ............................................................................................................... 20

3. REPRESENTATIONS AND WARRANTIES ........................................21

Introduction.................................................................................................................................. 22

Seller Representations and Warranties .................................................................................... 22

Individual Loan Representations and Warranties.................................................................... 27

Events of Default and Remedies................................................................................................ 40

Events of Default..................................................................................................................... 40

Remedies of the Purchaser and its Assignees ....................................................................... 40

Remedy Standards ................................................................................................................. 42

4. COMMITMENT .............................................................................................44

Commitment and Pricing Overview........................................................................................... 45

Commitment Requirements .................................................................................................... 45

Pricing and Delivery Options................................................................................................... 45

Enforcement............................................................................................................................ 47

Transferability of Commitments .............................................................................................. 47

Commitment Loan Schedule................................................................................................... 48

5. UNDERWRITING .................................................................................49

Introduction.................................................................................................................................. 51

Seller Underwriting Responsibility .......................................................................................... 51

Underwriting Review ............................................................................................................... 51

Underwriting Considerations................................................................................................... 51

Ability to Repay (ATR), Qualified Mortgage, and Net Tangible Benefit Requirements .......... 52

Fraud Detection Requirements ............................................................................................... 53

Electronic Signature and Disclosure Requirements ............................................................... 53

Borrower Eligibility...................................................................................................................... 55

Immigration and Naturalization Service (INS) Classifications................................................. 55

Borrower Types....................................................................................................................... 56

Maximum Loans to One Borrower .......................................................................................... 58

Loan Application Analysis ....................................................................................................... 59

Credit ............................................................................................................................................ 60

Credit Report Requirements ................................................................................................... 63

Selecting the Credit Score ...................................................................................................... 64

Limited, No Credit History or Alternative Credit History.......................................................... 65

Minimum credit requirements/Tradelines................................................................................ 65

Major Adverse Credit .............................................................................................................. 65

Consumer Credit Counseling Services (CCCS) ..................................................................... 67

Foreclosures ........................................................................................................................... 67

SELLER GUIDE



Loss Mitigation History - Modifications, Forbearances, Rearrangements, Extensions, or Workouts ................................................................................................................................. 68

Mortgage/Housing History.......................................................................................................... 69

Analyzing Delinquent Mortgage/Housing Payments............................................................... 70

Grade Determination ................................................................................................................... 71

Qualifying Ratios ......................................................................................................................... 71

Loan-to-Value (LTV) and Combined Loan-to-Value (CLTV) Ratios ....................................... 71

Housing and Debt-to-Income Ratios....................................................................................... 72

Payment Shock ....................................................................................................................... 73

Second Trust Deeds, Junior Liens, and Secondary Financing .............................................. 73

Sales and Financing Concessions.......................................................................................... 75

Liabilities ...................................................................................................................................... 75

Debt to Income Calculations ................................................................................................... 75

Installment Debt ...................................................................................................................... 76

Revolving Debt........................................................................................................................ 76

Alimony/Child Support/Separate Maintenance Obligations .................................................... 76

Negative Cash Flow from Rental Property/Other Real Estate Owned ................................... 76

Current Principal Residence – Pending Sale.......................................................................... 77

Business Debts ....................................................................................................................... 77

Un-Reimbursed Business expenses....................................................................................... 77

Automobile Depreciation ......................................................................................................... 77

Debt Payoff ............................................................................................................................. 77

Co-Signed Debt / Contingent Liabilities .................................................................................. 77

Retirement / Savings Plan Loans............................................................................................ 78

Student Loans ......................................................................................................................... 78

Income .......................................................................................................................................... 78

Income verification Requirements........................................................................................... 78

Income Types.......................................................................................................................... 80

Full Documentation ................................................................................................................. 87

Reduced Documentation......................................................................................................... 87

4506-T and Tax Transcripts.................................................................................................... 88

Ineligible Income Documentation types .................................................................................. 88

Assets ........................................................................................................................................... 88

Requirements and Guidelines................................................................................................. 88

Asset Documentation .............................................................................................................. 89

Minimum Down Payment ........................................................................................................ 89

Earnest Money Deposits ......................................................................................................... 89

Age of Asset Documentation .................................................................................................. 90

Reserve Requirements ........................................................................................................... 90

Ineligible Assets and Sources of Funds.................................................................................. 90

Acceptable Assets and Sources of Funds .............................................................................. 91

Transaction Types....................................................................................................................... 94

Purchase ................................................................................................................................. 94

Rate/Term Refinance .............................................................................................................. 95

SELLER GUIDE



Cash-Out Refinance................................................................................................................ 96

1031 Tax Exchange ................................................................................................................ 97

Consolidation, Extension, and Modification Agreements (CEMA).......................................... 97

Continuity of obligation............................................................................................................ 97

Delayed Financing .................................................................................................................. 97

Construction-to-Permanent Refinance.................................................................................... 97

Land Contract Refinance ........................................................................................................ 98

Lease Option-To-Purchase..................................................................................................... 98

Inherited Properties................................................................................................................. 99

Lease Back Purchase transaction .......................................................................................... 99

6. LOAN PROGRAMS ...........................................................................100

Asset Qualifier Program ........................................................................................................... 101

Program Eligibility ................................................................................................................. 101

Selecting The Credit Score ................................................................................................... 102

Income Verification................................................................................................................ 102

Asset Documentation ............................................................................................................ 102

Examples For Qualifying assets ........................................................................................... 105

Other Real Estate Owned ..................................................................................................... 106

Examples for Additional Required Assets for Other Real Estate Owned ............................. 107

Gift Funds and Gifts of Equity ............................................................................................... 108

4506-T Requirement ............................................................................................................. 108

Borrower Affirmation Regarding Ability to Repay ................................................................. 108

Bank Statement Program (24-Month and 12-Month Verification Options) .......................... 109

Income Documentation Requirements.................................................................................. 109

Bank Statement Requirements ............................................................................................. 110

Streamlined Second Lien Program.......................................................................................... 114

Program Overlays ................................................................................................................. 114

Non-Warrantable Condominiums ............................................................................................ 126

7. COLLATERAL ...................................................................................127

Eligible Property Types............................................................................................................. 128

Single-Family Residence ...................................................................................................... 128

Row Home ............................................................................................................................ 128

Townhouse............................................................................................................................ 128

Multi-Family........................................................................................................................... 128

Modular Homes (Panelized, Pre-Cut Homes)....................................................................... 128

Planned Unit Development (PUDs) ...................................................................................... 128

Condominiums ...................................................................................................................... 131

Non-Warrantable Condominiums ............................................................................................ 137

Rural Properties......................................................................................................................... 137

Ineligible Property Types.......................................................................................................... 137

Occupancy ................................................................................................................................. 139

Owner Occupied Primary Residence.................................................................................... 139

Second Home or Vacation Homes........................................................................................ 139

SELLER GUIDE



Non-Owner Occupied Investment Properties ....................................................................... 139

Property Underwriting............................................................................................................... 140

Seller Considerations: ........................................................................................................... 140

Appraiser Qualifications ........................................................................................................ 141

Appraisal Requirements........................................................................................................ 141

Appraisal Evaluation ............................................................................................................. 143

8. SERVICING.......................................................................................151

Servicing..................................................................................................................................... 152

Designation of the Servicer ................................................................................................... 152

Junior Lienholder Notification................................................................................................ 152

Compliance with Statutes and Regulations .......................................................................... 152

Borrower Notification Requirements ..................................................................................... 152

IRS Reporting........................................................................................................................ 152

Life of Loan Flood Certification Requirements...................................................................... 152

Tax Service Contracts Requirements ................................................................................... 153

Current Payment History....................................................................................................... 153

Property Insurance Requirements ........................................................................................ 153

Escrow Accounts................................................................................................................... 156

Temporary Buydowns ........................................................................................................... 157

9. DELIVERY AND FUNDING................................................................158

Delivery and Funding ................................................................................................................ 159

Funding into the Month ......................................................................................................... 159

File Requirements ................................................................................................................. 159

Funding ................................................................................................................................. 162

Post Funding ......................................................................................................................... 163

10. DEFINITIONS.....................................................................................167 11. FORMS...............................................................................................172

Galton Funding Seller Application............................................................................................ 173

Certificate of Corporate Resolution (Form 102) ..................................................................... 183

Annual Seller Re-Certification Form (Form 200) .................................................................... 186

Seller Commitment Form (Form 205) ...................................................................................... 202

New Wire Account Set-Up Form (Form 250)........................................................................... 202

Project Review Questionnaire (Form 450) .............................................................................. 204

Delivery File Checklist (Form 500) ........................................................................................... 208

Borrower Affirmation – Asset Qualifier Loan Program ......................................................... 210

Borrower Affirmation – Asset Qualifier and Bank Statement Programs ........................... 212

SELLER GUIDE CH AP TE R 5. UNDE RW RITING



5. UNDERWRITING

Introduction ..................................................................................................................................51

Seller Underwriting Responsibility ...........................................................................................51

Underwriting Review................................................................................................................51

Underwriting Considerations ...................................................................................................51

Ability to Repay (ATR), Qualified Mortgage, and Net Tangible Benefit Requirements ...........52

Fraud Detection Requirements................................................................................................53

Electronic Signature and Disclosure Requirements ................................................................53

Borrower Eligibility ......................................................................................................................55

Immigration and Naturalization Service (INS) Classifications .................................................55

Borrower Types .......................................................................................................................56

Maximum Loans to One Borrower...........................................................................................58

Loan Application Analysis........................................................................................................59

Credit .............................................................................................................................................60

Credit Report Requirements....................................................................................................63

Selecting the Credit Score.......................................................................................................64

Limited, No Credit History or Alternative Credit History ..........................................................65

Minimum credit requirements/Tradelines ................................................................................65

Major Adverse Credit ...............................................................................................................65

Consumer Credit Counseling Services (CCCS)......................................................................67

Foreclosures ............................................................................................................................67

Loss Mitigation History - Modifications, Forbearances, Rearrangements, Extensions, or Workouts.................................................................................................................................................68

Mortgage/Housing History ..........................................................................................................69

Analyzing Delinquent Mortgage/Housing Payments ...............................................................70

Grade Determination....................................................................................................................71

Qualifying Ratios..........................................................................................................................71

Loan-to-Value (LTV) and Combined Loan-to-Value (CLTV) Ratios........................................71

Housing and Debt-to-Income Ratios .......................................................................................72

Payment Shock........................................................................................................................73

Second Trust Deeds, Junior Liens, and Secondary Financing...............................................73

Sales and Financing Concessions ..........................................................................................75

Liabilities.......................................................................................................................................75

Debt to Income Calculations....................................................................................................75

Installment Debt.......................................................................................................................76

Revolving Debt ........................................................................................................................76

Alimony/Child Support/Separate Maintenance Obligations ....................................................76

Negative Cash Flow from Rental Property/Other Real Estate Owned....................................76

Current Principal Residence – Pending Sale ..........................................................................77

Business Debts........................................................................................................................77

Un-Reimbursed Business expenses .......................................................................................77

Automobile Depreciation .........................................................................................................77




Debt Payoff ..............................................................................................................................77

Co-Signed Debt / Contingent Liabilities...................................................................................77

Retirement / Savings Plan Loans ............................................................................................78

Student Loans..........................................................................................................................78

Income...........................................................................................................................................78

Income verification Requirements ...........................................................................................78

Income Types ..........................................................................................................................80

Full Documentation..................................................................................................................87

Reduced Documentation .........................................................................................................87

4506-T and Tax Transcripts ....................................................................................................88

Ineligible Income Documentation types...................................................................................88

Assets............................................................................................................................................88

Requirements and Guidelines .................................................................................................88

Asset Documentation ..............................................................................................................89

Minimum Down Payment.........................................................................................................89

Earnest Money Deposits .........................................................................................................89

Age of Asset Documentation ...................................................................................................90

Reserve Requirements............................................................................................................90

Ineligible Assets and Sources of Funds ..................................................................................90

Acceptable Assets and Sources of Funds...............................................................................91

Transaction Types .......................................................................................................................94

Purchase..................................................................................................................................94

Rate/Term Refinance ..............................................................................................................95

Cash-Out Refinance ................................................................................................................96

1031 Tax Exchange.................................................................................................................97

Consolidation, Extension, and Modification Agreements (CEMA) ..........................................97

Continuity of obligation ............................................................................................................97

Delayed Financing ...................................................................................................................97

Construction-to-Permanent Refinance ....................................................................................97

Land Contract Refinance.........................................................................................................98

Lease Option-To-Purchase .....................................................................................................98

Inherited Properties .................................................................................................................99

Lease Back Purchase transaction ...........................................................................................99




INTRODUCTION

Galton Funding’s guidelines strive to provide clear underwriting standards to help Sellers understand the types of loans eligible for purchase. These guidelines outline the level of risk acceptable to Galton Funding and describe general and specific requirements for each program, including criteria pertaining to the Borrower’s employment, income, assets and liabilities, credit, and qualifying ratios.

Although these guidelines cover most circumstances, they may not comprise all possible loan scenarios. Where a specific circumstance is not addressed, Galton Funding will apply prudent underwriting principles at its sole discretion to determine loan eligibility. These guidelines represent the minimum necessary for a loan to be purchased by Galton Funding. The crucial requirements are that the terms of the loan must relate to the Borrower’s ability to repay and that the value and marketability of the property is acceptable.

These guidelines must be interpreted and applied by the Seller in a manner that complies with all applicable laws and regulations, including consumer protection laws and regulations.

Galton Funding is under no obligation to purchase any loan that satisfies these underwriting standards. Compliance by the Seller with these underwriting standards shall not be deemed to create a Commitment by Galton Funding to purchase, or cause any third-party to purchase any loan, such decision to purchase being at the sole discretion of Galton Funding.

SELLER UNDERWRITING RESPONSIBILITY

The Seller has approved and determined that each loan is of investment quality. All eligibility and underwriting guidelines set forth in this Guide must be met.

The Seller is responsible for the credit and property underwriting regardless of the program’s credit and appraisal requirements, or if any loan processing functions were performed by an entity other than the Seller, its affiliates, or agents.

To ensure that the Loan has been fully underwritten by the Seller, each Loan file delivered must contain the Seller’s underwriting approval form and FNMA 1008. These forms must be signed, dated, and contain the underwriter’s signature and contact information.

Galton Funding has a no-tolerance policy as it relates to fraud. Loans containing fraudulent documentation or information will immediately be declined and forwarded to Quality Assurance. If there is any determination that there has been any Originator/Seller involvement, the Originator/Seller will be made inactive and appropriate agencies notified. Galton Funding will also pursue Borrower fraud to the fullest extent.

UNDERWRITING REVIEW

Galton Funding may perform, at its sole discretion, a quality-control review or underwriting of any loan prior to or after Galton Funding has funded the loan.

Upon completion of its review, Galton Funding or its designee may notify the Seller of any material loan deficiencies. In its sole discretion, Galton Funding may deny funding for, re-price, or require repurchase of any loan that is ineligible for the program under which the loan is submitted to Galton Funding.

UNDERWRITING CONSIDERATIONS

Galton Funding evaluates many aspects of the Loan but will focus on the Borrower’s current credit, ability and willingness to repay, and the property being used for collateral.

When underwriting a loan, all elements of the loan will be examined to determine the level of risk, including the Borrower’s capacity and willingness to repay, the Borrower’s credit, compensating factors, the appraisal, and the overall investment quality of the loan.

The following are examples of underwriting considerations and compensating factors:

Borrower’s demonstrated ability to pay housing expenses greater than or equal to the proposed monthly housing expenses.

Verified reserves of Principal, Interest, Taxes, Insurance and HOA dues in excess of Program Requirements.




Borrower receives documented compensation or income (i.e., public benefits) that is not reflected in effective income, but directly affects their ability to pay the mortgage.

A Borrower’s demonstrated ability to:

Accumulate savings;

Devote a greater portion of his or her income to housing expenses;

Maintain a good credit history, including current and previous mortgage/housing payments;

Provide a large (typically 10% more than required) down payment on the Mortgaged Property.

A Borrower’s:

Potential for increased earnings based on education, job training, and time employed, or practice in a specific profession;

Verified net worth, liquid, and other verified assets substantial enough to evidence an ability to repay the loan regardless of income;

Conservative approach toward using credit;

Evidence of significant monthly residual income (above program requirements).

Cash-out proceeds do not qualify as a compensating factor.

A loan may present a distinct circumstance or additional compensating factors not listed above. All underwriting considerations must be well documented and will be reviewed on a case-by-case basis.

ABILITY TO REPAY (ATR), QUALIFIED MORTGAGE, AND NET TANGIBLE BENEFIT REQUIREMENTS

The Consumer Financial Protection Bureau adopted a rule that implements the Ability to Repay (“ATR”) and Qualified Mortgage (“QM”) provisions of the Dodd-Frank Act. Galton Funding will only purchase loans in which the Borrower’s ability to repay has been established as laid out in the Truth In Lending Act’s threshold. Sellers are responsible for providing evidence of compliance with ATR/QM rules.

Benefit to the Borrower

In keeping with the Commitment to responsible lending, all Loans purchased by Galton Funding must have a measurable benefit to the Borrower. When determining the benefit on a transaction, one of the following items must exist to support the benefit to the Borrower:

1. Purchasing a home

2. Lower principal and interest housing payment

3. Lower total monthly payments

4. Lower interest rate

5. Conversion from an adjustable rate to a fixed rate

6. Pay-off of a balloon payment

7. Conversion from negative amortization to fully amortization

8. Reduction of loan term

9. Reduction of total interest payments

10. Consolidation of debt

11. Resolution of loss mitigation actions

12. Pay-off of a tax lien

13. Proceeds (cash-out) to Borrower in excess of the costs and fees to refinance

14. Pay-off of a Construction Loan




15. Pay-off of property taxes

16. Title transfer/Court order

17. Eliminating mortgage insurance

18. Cash-out for medical needs

19. Cash-out for education needs

20. Pay-off of a privately held mortgage

21. Other as defined by the Borrower

On a Loan where the only benefit is monthly savings, closing costs and fees must be taken into account and recouped within state-specified timeframes as applicable. Originators must adhere to any state-specific or federal benefit to Borrower compliance requirements. The benefit to Borrower must be calculated based on the qualifying housing payment.

Higher-Priced Mortgage Loans (HPML)Galton Funding will purchase Higher –Priced Mortgage Loans (HPML) that meet ATR requirements.

Non-QM Loans

Galton Funding will purchase non-QM loans that meet ATR requirements.

Points and Fees

Clear itemization of fees and application of all credits that indicate paid by/to will be required on all loans. Galton Funding will accept a broad number of documents as evidence of compliance.

FRAUD DETECTION REQUIREMENTS

The Seller must obtain the following for each Loan submitted to Galton Funding for review and purchase.

GSA, LDP and Exclusionary List

The Seller must verify that no company or individual who are material parties to the transaction is listed on HUD’s “Limited Denial Participation” list, the federal General Services Administration (GSA) Excluded Party list, and Freddie Mac’s Exclusionary List. All lists must be checked for all parties to the transaction.

If any of the names appear on either list, the Loan is not eligible for purchase. This applies to all Loans and is not limited to FHA and VA loans.

Fraud Detection Reports

Galton Funding will use fraud detection tools (i.e. FraudGUARD) to screen every loan submitted for purchase. The Seller must provide evidence in the Loan file that they have ordered third party fraud detection reports and resolved

any red flags, discrepancies, and conflicting information.

ELECTRONIC SIGNATURE AND DISCLOSURE REQUIREMENTS

Documents Eligible for Electronic Signatures (eSignatures)

Galton Funding will purchase loans on which certain documents are signed using an “Electronic Signature”.

Initial application documents associated with the 1003, (i.e. initial disclosures, sales contract) may be signed electronically. The Seller is responsible for determining that the documents have been properly signed by all parties (as with non-electronic documents). Any transaction involving the use of a Power of Attorney will not be permitted to use an “eSignature”.

The Seller will not be permitted to submit any final documents with “eSignatures” other than an appraisal.

The documents received under the “E Signature” process must adhere to Uniform Electronic Transactions Act (“UETA”), or the Electronic Signatures in Global and National Commerce Act (“ESIGN”), as applicable with the eMortgage delivery process referenced in section 18D of the Seller Guide.




All disclosures must be in compliance with state, federal and local mortgage lending laws and regulations. Galton Funding will accept loans for purchase, in which the Borrowers received initial federal and state disclosures electronically according to the requirements outlined by the Electronic Signatures in Global and National Commerce (E-SIGN) Act of 2000.




BORROWER ELIGIBILITY

The guidelines below describe a person’s eligibility to be a Borrower in Galton Funding’s Loan Programs. Galton Funding will purchase loans made to individual, natural persons only. Loan applications from corporations, general partnerships, limited partnerships, and “Doing Business As” (DBAs) or religious/non-profit organizations are ineligible.

IMMIGRATION AND NATURALIZATION SERVICE (INS) CLASSIFICATIONS

The U.S. Department of Immigration and Naturalization Service (INS) has defined specific residency classifications. Galton Funding offers programs to individual persons who are citizens and/or legal permanent or non-permanent residents of the United States. For eligibility and restriction details, refer to the Galton Funding Loan Program Matrices.

The following are some of the classifications defined by the INS:

INS Classification

INS Definition Program Guideline

U.S. Citizen A citizen of the United States is a native-born, foreign-born, or naturalized person who owes allegiance to the United States and who is entitled to its protection.

United States citizens are eligible Borrowers for all of Galton Funding’s Loan Programs.

Permanent Resident Alien

A permanent resident alien is a person who is not a U.S. citizen but is legally able to maintain permanent residency in the United States.

A permanent resident alien may be an eligible Borrower, if the Borrower is a holder of an alien registration card (green card). The Seller is responsible to verify that the Borrower has a valid registration card.

Non-Permanent Resident Alien

A non-permanent resident alien is a person who is not a U.S. citizen but resides in the United States under the terms of a Visa.

A non-permanent resident alien may be eligible if they maintain a current G-1 to G-5, H-1, L-1, or E-1 Visa and they can provide a copy of the Visa with underwriting documentation.

Foreign Nationals

A foreign national is a person who is not a U.S. citizen and who lives and works outside of the United States.

Not eligible

Persons with Diplomatic Immunity

A person with diplomatic immunity is allowed to live in the United States to carry out their official diplomatic duties. They are not U.S citizens, and are exempt from lawsuit or prosecution under the host country’s laws.

Not eligible

Evidence of Residency

Acceptable evidence of permanent residency for Borrowers who are not U.S. citizens must be provided. The Borrower must provide the INS evidence as follows:

Alien Registration Receipt Card I-151 (referred to as a green card).

Alien Registration Receipt Card I-551 (Resident Alien Card) that does not have an expiration date on the back (also known as a green card).

Alien Registration Receipt Card I-551 (Conditional Resident Alien Card) that has an expiration date on the back, and is accompanied by a copy of the filed INS Form I-751 (petition to remove conditions).




Non-expired foreign passport that contains a non-expired stamp (valid for a minimum of three years) reading “Processed for I-551 Temporary Evidence of Lawful Admission for Permanent Residence. Valid until [mm-dd-yy]. Employment Authorized.”

The U.S. Citizenship and Immigration Services Web site is:https://egov.immigration.gov/cris/caseStatusSearchDisplay.do

Other forms of evidence of residency that are not listed may be acceptable, and will be reviewed on a case-by-case basis.

BORROWER TYPES

The following are the types of Borrowers allowed by Galton Funding programs. Galton Funding limits the number of Borrowers per Loan to four. For eligibility and restriction details, refer to the Galton Funding Loan ProgramMatrices.

Primary Borrower

The Primary Borrower is the individual who earns the most income. Non-Occupant Co-Borrowers cannot be the Primary Borrower on the Mortgaged Property.

Co-Borrower

A Co-Borrower is an individual other than the Primary Borrower whose credit history, income, or assets are used for qualifying the loan. The Co-Borrower is the Borrower’s spouse, domestic partner, or any individual jointly responsible for repayment of the loan with the Borrower. All Co-Borrowers must be on title.

First-Time Homebuyers (FTHB)

Borrowers are considered First-Time Homebuyers (FTHB) when there is no evidence of owning residential property in the previous three years. First-Time Homebuyers generally must fulfill specific requirements in addition to the conditions stipulated for experienced homebuyers. A Borrower(s) who has experience owning a home, but has not owned one in the past three years, will be considered a FTHB.

In the following instances, Galton Funding will treat the transaction as a non-FTHB transaction for grading and program eligibility:

Where one Borrower is a FTHB and the other Borrower(s) is not

If the Borrower owns a property free and clear. Evidence of free and clear ownership must be provided.

For LTV/CLTV restrictions, reserve requirements and other guidelines specific to FTHBs, refer to the Galton Funding Loan Program Matrices.

Non-Borrowing Occupant

A Non-Borrowing Occupant is the Borrower’s legal spouse, domestic partner, or any person residing in the Mortgaged Property whose credit, income, and/or assets are not considered in the loan qualifying process. Non-Borrowing Occupants that appear on title will have to execute the documents required by law to create a valid lien on the property.

When a married Borrower purchases a property without involving a spouse, Galton Funding requires the spouse to sign the security instrument, and any other applicable documentation under governing state law to confirm relinquishment of their rights to the property.

Non-Occupant Co-Borrower

A Non-Occupant Co-Borrower (co-signer) is an individual who will not be living in the Mortgaged Property, but whose income and/or assets have been used to qualify for the loan. The co-signer must sign the Note. Although the Non-Occupant Co-Borrower does not reside in the Mortgaged Property, he or she is jointly responsible (with the Primary Borrower) for repaying the loan. If the Loan Program allows for a Non-Occupant Co-Borrower, the loan is subject to the following conditions:

Mortgage Loan:

Owner occupied or second vacation home

Full Documentation only




The Primary (occupant) Borrower’s credit profile will be used for grade determination, and the Primary Borrower must have a DTI of no more than 60%

A minimum of 5% of the down payment must come from the Primary (occupant) Borrower’s own funds. A down payment of 100% gift funds is allowed at LTVs less than 80% or the program maximum, whichever requires the greater down payment. Secondary financing is not allowed on Non-Occupant Co-Borrower transactions. Closing costs may also be in the form of a gift.

Non-Occupant Co-Borrower:

Individual cannot be the Primary Borrower, and must be a close family member such as a parent, child, grandparent, or sibling. Credit must meet the minimum credit standards for the grade assigned to the loan. Must provide income and asset documentation to be used for loan qualification.

Must be vested on the Mortgaged Property for a minimum of six months for a Rate/Term Refinance and twelve months for a Cash-Out Refinance transaction.

Up to two Non-Occupant Co-Borrowers allowed.

Title Held in a Trust or LLC on Behalf of the Borrower

The Borrower must be an individual with the exception of inter-vivos revocable trusts and limited-liability companies (LLCs) under certain circumstances. Title must be in the Borrower’s name as an individual, trust or LLC at the time of application for refinance transactions. However, at closing the Loan must be in the name of the Borrower as an individual or acceptable trust. Non-individual legal entities such as corporations, general partnerships, limited partnerships, real estate syndications or investments trusts are not eligible.

Limited Liability Company (LLC)

Title in the name of an LLC at time of application is acceptable provided the Borrower is a member of the LLC and the Loan will be in the Borrower’s name as an individual at closing. Galton Funding’s ownership seasoning requirements must be met by the LLC.

Trusts

The inter vivos revocable trust, also called a family trust, living trust, or revocable living trust, can be used as an alternative form of property ownership.

Eligibility Requirements

Created by an individual during his/her lifetime.

Becomes effective during its creator’s lifetime.

Can be changed or canceled by its creator at any time, for any reason, during his or her lifetime

At least one individual establishing the trust must be on the Loan.

Trust Agreement Requirements

The Seller must obtain copies of the entire trust document and include them in the loan file submitted for purchase. The copies must be certified by an attorney or the grantor/trustor/settlor. The title company must also be supplied with copies of the trust.

A review of the trust agreement is required to ensure the agreements meets all of the following requirements:

The trust is established by one or more natural persons, solely or jointly. The person establishing the trust is known as the “Settlor”, “Trustor”, or “Grantor”, referred to below as “Settlor”.

The trust is effective during the Settlor’s lifetime.

The Settlor is the primary beneficiary of the Trust. If there is more than one Settlor there can be more than one primary beneficiary.

The Settlor is the trustee or one of the co-trustees

The trustee has the power to mortgage the Subject Property for the purpose of securing a loan to the party (or parties) who are the borrowers on the Note.




The trustee is not required to obtain written consent from the beneficiaries to mortgage the subject property if written consent has been provided.

There is no unusual risk or impairment of lender’s rights, such as distributions required to be made in specified amounts other than net income

The trust is valid under federal, state, and local law

If the trust agreement requires more than one trustee to borrow money or purchase, construct, or encumber realty, the Seller must confirm that the requisite number of trustees have signed the loan documents.

Certification of Trust

A certification of trust or a summary of trust is acceptable if required by state law. In states that require a Seller to rely on an abstract, summary or certification of the trust agreement instead of the trust agreement, a copy of the abstract, summary or certification is acceptable.

California (CA) Only Exception

California (CA) law provides for the use of a Certification of Trust that states the various facts about the trust in lieu of obtaining copies of the trust. Sellers can rely upon this certification so long as it is signed by all of the trustees (Powers of Attorney are not allowed). Sellers must review the certification to verify the above requirements are met.

Title

The title insurance policy must ensure full title protection, and must indicate that title to the subject property is vested in the name of the trustees. The policy may not list any exceptions with regard to the trust or the trustees.

Additional documentation:

Inter Vivos Revocable Trust Rider to the Deed of Trust/Mortgage

Inter Vivos Trust as Borrower Acknowledgment

Verbiage on this Acknowledgement may be incorporated into the Inter Vivos Revocable Trust Rider to the Deed of Trust/Mortgage. If the verbiage is included in the Rider, then the Acknowledgement is not required

MAXIMUM LOANS TO ONE BORROWER

In order to reduce the level of risk and ensure lien security, Galton Funding limits the potential Borrower’s open loans, total number of properties owned, and number of mortgaged properties owned in one area.

The occupancy of the property being financed will determine the limitations on how many other financed 1-4 family properties the Borrower may own and/or be obligated on. These limitations apply to each Borrower, individually and all Borrowers collectively that own and/or are obligated on a note secured by a mortgage. The Borrower(s) obligation on a mortgage is important when evaluating capacity. Therefore, even if the Borrower is not an owner of record, but is obligated on a note of a financed property, it must be included in the maximum number of financed properties.

The following are excluded from these limitations:

Properties owned free and clear

Joint or total ownership in property this is held in the name of a corporation, even if the Borrower is the owner of the corporation. However, if the Borrower is individually obligated on the note, it must be included

Ownership in a multi-family property (5+ units)

Ownership in commercial property

Ownership in timeshares

Ownership in unimproved land

For all loans, the Borrower's primary residence, the subject property and any properties owned separately by a Co-Borrower must be included in the total number of properties owned.




Maximum Dollar Amount Sold to Galton

The aggregate dollar amount of all loans made to one Borrower sold or serviced by Galton Funding may not exceed $4M.

Maximum Loans to One Borrower Sold to Galton

There is no limit to the number of loans that can be submitted for the same Borrower to be sold to Galton Funding. Rather, the maximum number of loans to one Borrower is limited by the aggregate dollar amount of the total loans sold or serviced by Galton Funding.

Maximum Properties One Borrower May Own

A Borrower may finance or own multiple properties. Galton Funding offers two options for Borrowers that own multiple properties. They include:

If the Loan being sold to Galton Funding is secured by the Borrower’s principal residence, there are no limitations to the number of properties that the Borrower can own or are currently financing.

If the Loan being sold to Galton Funding is secured by the Borrower’s second home or an investment property:

The Borrower may have up to ten financed properties (including their principal residence)OR

The Borrower may own or have financed an unlimited number of properties if the Loan being sold to Galton Funding has a maximum LTV/CLTV that does not exceed the lesser of the program maximum or 70%.

More stringent lending practices should be implemented in cases where the Borrower’s loan documents exhibit escalation of late payments and multiple refinances. New investors that have made multiple real estate acquisitions (more than 50% of the properties purchased) in the past 12 months may require additional review, documentation, or be ineligible for purchase.

Maximum Loans in One Market Area Sold to Galton

The number of loans to one Borrower in any single market area is limited to two. The term “single market area” refers to the physical location of the property—meaning two or more homes owned by the same Borrower within a several block radius, defined neighborhood, or lending area.

LOAN APPLICATION ANALYSIS

The Loan File assists in determining the Borrower’s eligibility for the loan. During the completion and review of the application, the Seller should analyze the application in the following manner:

Verify and substantiate the quantity, quality, and durability of the Borrower’s income.

Verify and analyze the Borrower’s assets to determine if adequate funds are available to meet the equity and reserve requirements of the transaction.

Verify and substantiate the Borrower’s liabilities and credit history in relation to the Borrower’s assets and income.

Evaluate the Borrower’s net worth in relation to his or her ability to manage financial affairs and accumulate assets/wealth.

Verify that the declarations are consistent with program eligibility.

The Loan File must contain a complete, fully executed Loan application (1003). Both the initial and final 1003’s must be provided. The following applies:

Must be signed and dated by the Borrower

All HMDA data must be completed.

Seller is determined by auditing the interviewers section

Seller Contact information is included




Potential “Buy and Bail” Loan Scenarios

Loans that exhibit the following characteristics, sometimes referred to “Buy and Bail Characteristics”, may be deemed ineligible for sale to Galton:

The borrower defaults on the original mortgage shortly after purchasing a second property

The borrower will be a first time landlord (renting out the original property)

The borrower has minimal or no equity in the original property

Inability to validate lease terms with the purported tenant

Purported tenant has a pre-existing relationship with the homeowner

CREDIT

Credit is defined as the Borrower’s history of credit payments and financial obligations. An assessment of the Borrower’s capacity and willingness to pay financial obligations is a major factor used in determining a Borrower’s creditworthiness. A Borrower(s) who has consistently met financial obligations in the past may indicate reasonable justification that he or she is likely to continue to do so in the future. A Borrower’s credit history provides a strong measure of their intent to repay.

Credit history is measured on credit depth, number of obligations, delinquency patterns, and demonstrated intent to repay. In a subjective evaluation of credit, many factors are considered when evaluating a Borrower’s credit history. The factors include:

Credit repayment history

Line utilization

Proportion of balances versus limits on revolving accounts

Patterns of debt pyramiding

Recent inquiries and newly opened accounts

Recent changes in the number of open accounts or overall amount of credit outstanding

The number of open accounts and length of credit history

Public record information

Equal Credit Opportunity Act

The Federal Equal Credit Opportunity Act prohibits lenders from discriminating against credit Borrowers on the basis of race, color, religion, national or ethnic origin, sex, marital or familial status, age (provided the Borrower has the capacity to enter into a binding contract), disability, because all or part of the Borrower’s income is derived from a public assistance program or because the Borrower has, in good faith, exercised any rights under the Consumer Credit Protection Act. State laws may also prohibit discrimination on certain additional basis such as sexual orientation.

Number of Open Accounts

It is generally not one credit usage factor, but the combination of factors that establish whether or not the overall pattern of credit use is acceptable.

In general, the greater the number of credit accounts, the higher the credit risks. However, it is important to analyze the number of accounts within specific types of credit (i.e., retail, installment, revolving and mortgage). The higher risk group includes Borrowers with a large number of bank revolving accounts, and/or accounts with outstanding balances. On the other hand, if there are no bank revolving accounts, this could indicate an inability of the Borrower to obtain credit.

The lack of acceptable credit cannot be compensated for by either capacity or collateral strengths. When determining investment quality, the likelihood of timely repayment, as demonstrated by responsible credit, must always be present. Once credit is established, however, collateral and capacity can be used to strengthen the loan’s overall investment quality.




Recent Inquiry Risk Factors and Undisclosed Liabilities

Recent inquiries indicate that the consumer has actively been seeking credit. A Borrower with minimal credit experience and a number of recent inquiries should be more closely scrutinized than a Borrower with the same number of inquiries and a very long and stable credit history.

Multiple inquiries within the most recent 12 months generally increase risk and, when combined with high balances-to-limits on revolving accounts may indicate that the Borrower is in danger of becoming overextended. In addition, several recent inquiries combined with a credit history of short duration may make even mild derogatory credit information significant.

The following factors should be considered:

Borrower’s payment experience

Type of credit being sought

Total amount of credit outstanding

Credit utilization reflected on the report

If the credit report indicated that a creditor has made multiple inquiries within the previous 90-day period, the underwriter must determine whether additional credit was granted as a result of the Borrower’s request. A review and evaluation of the inquiries section of the Borrower’s credit report is required to determine if the Borrower has received additional credit that is not reflected in the credit report or disclosed in the Loan File.

As a result of the credit inquiries, the loan may be subject to additional requirements. If additional credit was obtained, a verification of that debt must be provided and the Borrower must be qualified with the monthly payment. The verification can be achieved through a direct verification with the creditor or use of a credit supplement.

Sellers are expected to proactively identify any and all undisclosed liabilities that may affect the loan approval in relation to underwriting guidelines, eligibility parameters, or pricing. It is the Seller’s responsibility to develop and implement its own business processes to support compliance with Fannie Mae’s requirements for undisclosed liabilities. Although Sellers may already have such processes in place, some best practices that may be incorporated include:

Refreshing a credit report prior to closing to uncover additional debt or credit inquiries

Adopting new services from credit vendors that provide Borrower credit report monitoring services between the time of loan application and closing

Investigating credit inquiries listed on the credit report to determine whether the Borrower did in fact, open additional debt resulting in repayment obligations. In some cases, it is possible to obtain a direct verification with the creditor associated with the inquiry

It is also highly recommended that a Mortgage Electronic Registration System (MERS) report be run, prior to closing, to determine if the Borrower has undisclosed liens and/or if another mortgage is being originated. If new debt has been obtained, the Loan File must be re-evaluated to ensure compliance with debt-to-income and Borrower eligibility requirements.

Recently Opened Accounts

Like inquiries, several recently opened accounts may be a warning that the Borrower(s) may be getting overextended. In addition, a credit history with all accounts recently opened may signal that the Borrower(s) do not have sufficient experience managing financial obligations. The following factors should be considered:

Borrower’s payment experience

Utilization of revolving credit lines

Total amount of credit outstanding

Recent inquiries

Whether the Borrower has sufficient experience in managing investment property




Outstanding Debt/Line Utilization

Two very important indicators of repayment ability are the number of accounts with sizable outstanding balances and high credit line utilization. The number of trade lines with balances reported in the last three years should be considered and reviewed in relationship to the number and activity in the last 12 months.

Analyze the current balance for each open account to the high credit limit to determine whether there is a pattern of accounts with balances at or near their limits. Generally, if a Borrower has credit balances that represent at or near 70% of their open and active credit limit, this may require additional review and/or compensating factors. The more accounts with high balances-to-limits and the higher the percentage used, the higher the risk.

High balances-to-limits may also indicate the Borrower is making minimum payments on revolving accounts rather than reducing the debt and may be at or near payment capacity. Any derogatory information in a credit history within the most recent two years combined with several revolving accounts at or near their limits should be considered derogatory information when evaluating the credit profile of the Borrower. Generally, the higher the Borrower’s overall utilization of revolving credit, the higher the amount of risk. Compensating factors or additional documentation may be required to offset this risk.

Reason/Score Codes

Along with the credit scores, credit repositories return up to four reason codes with each credit score provided. These codes are sometimes referred to as score factor codes. These reason codes provide an explanation as to why the Borrower(s) did not receive a higher score. This is taken into consideration when evaluating borrower’s credit.

HAWK Alerts

All three national credit repositories have developed automated messages to help messages to help identify possible fraudulent activity on a credit report. These alerts are commonly known as HAWK Alerts. All HAWK Alert messages shown on a credit report, especially those in the Fraud Verification Information section must be addressed and resolved.

Military Active Duty Alert

Military personnel are particularly susceptible to identity theft because many of their records, orders, and identification documents display their social security number. An active duty alert is a type of fraud alert established under the Fair and Accurate Credit Transactions Act (FACTA) that provides credit identity theft protection for U.S. military service personnel.

The Mortgagee must contact the Borrower directly to verify their identity whenever an active duty alert appears on the Borrower’s credit report.

Customer Identification and OFAC Alert Screening

The mortgagee must comply with Section 326 of the USA Patriot Act and OFAC, including:

Provide each Borrower with a customer identification notice

Obtain at least four items verifying the Borrower’s identity through documentary or non-documentary methods

OFAC alert screening

Determine if the Borrower is questionable or suspicious

Monitor questionable instances which may require internal and external reporting of suspected individuals

Ensure Seller’s employees are trained and informed of suspicious activities related to anti-money laundering or terrorist activities

Weighing Risk Factors

When evaluating Borrower(s) with adverse credit information, more weight should be given to derogatory credit information or late payments occurring within the past two years. The following factors should still be considered:

The number, timing and extent of the delinquency

Eventual repayment of delinquent obligations




Any previous bankruptcy, mortgage foreclosures, or deed-in-lieu of foreclosure within the past seven years

Whether other characteristics of the Borrower’s credit profile, such as age of credit, use of outstanding credit, and inquiries, make any significant difference in the derogatory credit

Delinquency and Derogatory Credit

There are a number of factors to consider in the analysis of delinquency or derogatory credit:

The type of accounts on which the delinquency occurred

The reason for delinquency

The severity of the delinquency

The frequency of delinquent accounts, AND

How recently the delinquency occurred

More weight is placed on installment loan delinquency than on revolving debt delinquency. The most weight is placed on mortgage payment history. The most serious types of delinquency include foreclosures, bankruptcy, judgments, collection accounts and tax liens. Explanations and supporting documentation should be in the Loan File to show these events were an isolated occurrence and are unlikely to happen again.

Please refer to the Galton Funding Credit Grade Matrix for details.

CREDIT REPORT REQUIREMENTS

For each Borrower whose income or assets are required to qualify for the loan, the Loan File must contain one of the following:

A full Residential Mortgage Credit Report (RMCR)

An in-file merged credit report that accesses the three national credit repositories

Joint merged credit reports are allowed without regard to marital status

General Requirements

The following outlines the general requirements for credit reports. The credit report must contain merged credit information provided by all three national repositories.

Residential Mortgage Credit Reports:

Credit Report must not be dated more than 90 days from the Note Date. In the event that the Disbursement Date causes the Borrower’s credit report and/or credit file to be greater than 90 days old, Galton reserves the right to request updated credit, asset, and/or income documentation. Disbursement Date is the day on which the loan closes.

Must contain all discovered credit and legal information that is not considered obsolete under the Fair Credit Reporting Act

Be issued by an independent consumer reporting agency that obtains or verifies all information from sources other than the Borrower.

Identify the full name, address, and phone number of the consumer reporting agency

Identify the names of the national credit repositories from which the information was obtained. The consumer reporting agency must contact at least two national credit repositories for each area in which the Borrower has resided during the most recent two-year period.

Indicate the dates the accounts were last updated with creditors. Each account should have been updated within 90 days of the credit report.

Include a certification stating that it meets the standards that Fannie Mae, Freddie Mac, the FHA, and VA prescribe for an RMCR. Separate credit repository inquiries are necessary when Co-Borrowers have maintained credit individually.

List all credit inquiries received within the previous 90 days.

Evidence the consumer reporting agency verified the Borrower's current employment and, if obtainable, income. The report must show the date of verification. Verification may be made by




telephone. If there has been a change in employment in the past two years, the report must also describe the Borrower's previous employment and income. In cases in which employment was not verified, the report must indicate why it was not.

Show responsive statements concerning items on the report. For example, the consumer reporting agency must report unable to verify or employer refused to verify. The same responsive reporting applies to trade and credit history.

Must contain specific information regarding legal items found in public records, including judgments, foreclosures, tax liens, bankruptcies, etc.

Tri-Merged Credit Reports:

Must contain all the information from the three in-file credit reports.

If the information is not exactly the same on each report, then the merged report must repeat the information as stated on each report or include the most derogatory of the duplicate information that pertains to the payment history and/or current payment status.

Identify the repositories that were used for the in-file credit reports.

Must provide a credit bureau score, accompanied by reason codes, for each Borrower.

The report must include all of the information verified by the three repositories.

Any social security number discrepancy must be disclosed by the repositories.

Each individual trade line must identify the primary repository that provided the account information.

No Borrower in a transaction may have frozen credit. Frozen credit is where the Borrower’s credit has been involuntarily frozen by a court order, government entity or similar mandate. If a Borrower has frozen credit and unfreezes their credit after the original credit report was ordered, a new credit report must be obtained to reflect current updated information for evaluation.

Each credit report must contain a Fair Isaac credit score (“Empirica” on TransUnion, “Beacon” on Equifax, and “FICO” on Experian) for all Borrowers whose income and/or assets are used to qualify for the loan. The Seller must provide at least two qualifying credit scores for each Borrower. These credit scores will be used as a component in determining the credit grade of the loan. A Co-Borrower with no valid credit score will be allowed in cases where income and/or assets are not required for qualification purposes. For grade determination, refer to the Galton Funding Loan Program Matrices.

Multiple Credit Reports in a File/Expired Credit Reports:

Galton Funding will use the credit report and corresponding credit scores that were pulled at the time the Borrower made application for the Loan. In the event that the initial credit report expires, the updated credit report will be compared and reconciled to the initial report. Any changes such as new debt, increased credit balances, delinquencies, or major adverse credit may cause the selected credit score for the borrower to be impacted and may cause the credit score used in the transaction to be lowered. If the credit score should increase but the information on the report is essentially the same, the original score will be used.

Galton Funding does not allow the re-pulling of credit, including Rapid Rescores (check on accuracy of the term) to enhance the Borrower’s credit score. In all cases the credit report pulled at application will be used to determine the Borrower’s selected credit score and credit grade.

SELECTING THE CREDIT SCORE

Galton Funding will select the Borrower’s credit score using one of the following methods:

If all three scores are available, the middle score will be used.

If only two scores are available, the lower score will be used.

Once the score is selected for each Borrower, it is used for loan qualification as follows:

For Full/Alternative (except Asset Qualifier) Documentation Loans, the Primary Borrower’s selected score is used.

For Reduced Documentation and Asset Qualifier Loans, the lowest selected score among all Borrowers is used.




If in the case where both Borrowers earn equal income, the Borrower with the lower score will be used for grade determination.

To ensure credit score validity, the Originator should review the scores, the score codes and the Borrower’s credit history, Score codes must be consistent with tradeline information and use. Scores that do not appear to represent an accurate assessment of the Borrower’s credit risk will not be considered usable and valid.

LIMITED, NO CREDIT HISTORY OR ALTERNATIVE CREDIT HISTORY

Borrowers with limited, no credit history, or that do not meet Galton Funding’s minimum credit requirements are not eligible. Each Borrower must have at least two valid and usable credit scores as defined by Galton Funding.A Borrower not using income to qualify and showing $0 earned or is not employed does not need to meet the minimum trade line requirements.

MINIMUM CREDIT REQUIREMENTS/TRADELINES

A Borrower(s) without an established credit history is ineligible. A valid and usable score is one that is generated based upon credit history and credit patterns that accurately reflect the Borrower’s history. It should contain at least:

Three established open and active trade lines:

One reported for a minimum of 24 months.

All active in the last 12 months (defined as last activity within 12 months of credit report date).

At least one of the three established trade lines must have a minimum $2,500 high credit limit.

Borrower’s failing to meet the 3 trade lines criteria but have a minimum of 1 open and active trade line with 12 months or more reporting history can be considered without exception if the following requirements are met:

8 or more trade lines reported with at least one being a mortgage trade line AND

Minimum 7 years of established credit history

OR

6 months additional reserves and meets one of the following requirements: DTI < 35%, LTV/CLTV < 70%, or the program maximum, whichever is less.

Unacceptable Tradelines

The following cannot be used to meet the minimum trade line requirement:

Collections

Charge-offs

Public records and derogatory credit, included in or prior to a bankruptcy

Accounts currently over 90 days delinquent

Student loans not currently in repayment

“Authorized User” accounts

MAJOR ADVERSE CREDIT

Collection accounts, charge-off accounts, judgments, liens, delinquent property taxes, repossessions, accounts currently 90 days past due, and garnishments are considered to be major adverse credit. Major adverse credit does not impact the grade determination, since these elements have already been included in the credit score; however, the allowance of adverse credit is restricted by grade and program.




All delinquent credit that may or does impact title must be paid off prior to or at closing. Title must insure Galton Funding’s lien position without exception. The following are examples of major adverse credit that may or have impact on title:

Mechanics liens

Delinquent Property Taxes

Tax liens

Tax Payment Plans

However, Charge-Offs or collection accounts that do not impact title are not required to be paid off. For eligibility and restriction details, refer to the Galton Funding Loan Program Matrices.

Major Adverse Credit Events

Any adverse information requires a full investigation including:

A written explanation from the Borrower that outlines the cause of the major adverse credit event and the likelihood of re-occurrence.

Explanations must make sense and cannot conflict with other verified information or documentation in the Loan File. When a Borrower indicates unusual circumstances have contributed to serious delinquencies or adverse credit, documentation to support those circumstances should be obtained to justify a decision to approve a loan with recent credit problems.

Proof that the incident has been resolved and documentation supporting the resolution and conclusion of the matter. If an adverse item is being paid through this transaction, the file should note it in the closing statement.

A Borrower may provide medical information to explain a pattern of late payments. Medical information must never be specifically requested. However, explanation for a pattern of late payments or adverse information on the credit report should be requested. The underwriting decision to grant credit should not be based on a Borrower’s physical, mental or behavioral health condition.

Divorce Debt

Delinquent credit which belongs to an ex-spouse may be excluded from the credit evaluation when all of the following apply:

Loan File contains a copy of the filed/recorded divorce decree or recorded separation agreement which shows the derogatory accounts belong solely to the ex-spouse;

Late payments that have occurred after the date of the divorce or separation; and

If debt in question is a mortgage, evidence of title transfer prior to any delinquent debt must be provided and evidence of “buyout” as part of court proceedings.

Co-Signed Debt

Delinquent credit that belongs to a co-signer must be considered in determining the Borrower’s credit acceptance.

If the Borrower is a co-signer on an account, the debt must be included in the qualifying DTI.

BANKRUPTCY

Bankruptcy is defined as court proceedings to relieve the debts of an individual or business unable to pay creditors. Bankruptcy may be declared under one of the Chapters of the Federal Bankruptcy Code.

Chapter 7. Covers liquidation of individual or business assets.

Chapter 11. Covers reorganization of bankrupt businesses.

Chapter 13. Covers contractual repayment by individuals.

Requirements and Guidelines

The following requirements and guidelines apply to bankruptcies:




Loans to Borrowers with multiple bankruptcies are ineligible for purchase by Galton Funding. For example, a Borrower who filed for bankruptcy in 2009 and later in 2012 is ineligible under these guidelines regardless of whether the bankruptcy was discharged or dismissed.

Galton Funding does not consider the following scenarios as multiple bankruptcies:

When a Chapter 13 rolls into a Chapter 7 bankruptcy

When individual Borrowers each have filed separate bankruptcies.

Bankruptcies discharged greater than 15 years from application date.

Bankruptcy dismissal dates are treated the same as discharge dates.

If a discharge/dismissal date cannot be established, documentation validating the dates must be provided.

If a Foreclosure is included in the Bankruptcy, each event is treated separately for grade determination. The Seller must determine the seasoning for each event and grade the Loan accordingly.

Please refer to the Galton Funding Credit Grade Matrix for bankruptcy seasoning information, and Loan Program restrictions. Credit depth requirements must be met post-bankruptcy. Credit prior to bankruptcy will not be considered for meeting the tradeline requirements.

Chapter 7 Bankruptcy

Chapter 7, also called liquidation, is the most common type of bankruptcy. It provides for the absolute and complete elimination of most types of debt, thereby giving the debtor a fresh start. The goal of a Chapter 7 bankruptcy is to obtain a court order discharging one’s debts.

For all credit grades, the aging of the Chapter 7 bankruptcy is measured from the discharge date. For further details, refer to the Galton Funding Credit Grade Matrix.


Chapter 11 bankruptcies allow businesses the opportunity to reorganize business debt without having to liquidate all assets. The debtor presents a plan to creditors that allows the debtor to reorganize financial obligations in order to improve the financial stability of the business.

If there is evidence in the Loan file that the Borrower’s business filed or has filed a Chapter 11 bankruptcy, the Seller must provide documentation to show the reason for the bankruptcy action, evidence that the bankruptcy has been discharged, and third-party verification that the business is currently stable and a going concern.

The Chapter 11 Bankruptcy will not impact the Borrower’s credit grade unless the Borrower is personally liable for the re-organized debt.


Chapter 13 bankruptcies provide individuals who have a regular income, but are overcome with debt, the opportunity to repay within a reasonable period of time. Chapter 13 bankruptcies permit the debtor to file a plan to pay a certain percentage of future income to the bankruptcy court for payment to creditors. If the court approves the plan, the debtor will be under the court’s protection while repaying stated debts.

Depending on the Loan Program, the aging of a Chapter 13 bankruptcy is measured from the discharge date. Forfurther details, refer to the Galton Funding Credit Grade Matrix. If Borrower enters into Bankruptcy and cancels, the seasoning is measured from the Cancellation Date

CONSUMER CREDIT COUNSELING SERVICES (CCCS)

Consumer Credit Counseling Services (CCCS) assist Borrowers with financial management of debts in an attempt to avoid further delinquencies or possible bankruptcy. Generally, creditors agree to a reduced repayment under a consumer credit counseling plan. In all cases, the CCCS plan must have been paid in full. A payment history is required in this situation and if delinquent in the most recent 12 months, the CCCS will be treated as an open Chapter 13 and is ineligible. The date the CCCS was paid off will be considered the discharge date. If Borrower enters into CCCS and subsequently cancels, the seasoning is measured from the cancellation date.

FORECLOSURES




A foreclosure is a proceeding that enables the creditor, in accordance with the terms of the security instrument, to take legal action that could ultimately result in the forced sale of the collateral property for full or partial satisfaction of the debt. Such action typically extinguishes the property owner’s rights, title, and interest. In the instance where a Borrower has been or is currently delinquent 120 days or longer and the lender has not initiated formal actions, the 120 days plus delinquency will be treated as a foreclosure for grading purposes. Documentation should be provided to show the individual Borrower’s circumstance.

Foreclosure is substantiated by real estate loans that are delinquent 120 days or longer, as mentioned above or the existence of any of the following:

Breach

Lis Pendens

Notice of Sale

Service

Sheriff’s Sale

Short Payoff

Bankruptcy Notice


The following requirements and guidelines apply to foreclosures:

The length of time elapsed since the occurrence or completion of the foreclosure is considered in the grade determination.

Applicants who have undergone foreclosure procedures must provide a mortgage/housing history in accordance with specific Program Guidelines.

A Borrower with a history of more than one foreclosure is ineligible. For example, a Borrower who had a foreclosure in 2009 and then loses a home through bankruptcy in 2012 is ineligible.

Any repossession or 120-day delinquency on a mobile home, manufactured home or timeshare, even if shown as an installment debt, will be considered a foreclosure.

Galton Funding does not consider the following scenarios as multiple foreclosures:

When individual Borrowers each have completed separate foreclosures.

Foreclosures discharged greater than 15 years from application date.

If a Foreclosure is included in the Bankruptcy, each event is treated separately for grade determination. The Seller must determine the seasoning for each event and grade the Loan accordingly.

Please refer to the Galton Funding Credit Grade Matrix for foreclosure seasoning information, and Loan Program restrictions.

LOSS MITIGATION HISTORY - MODIFICATIONS, FORBEARANCES, REARRANGEMENTS, EXTENSIONS, OR WORKOUTS

Loss mitigation history includes the following:

Deed-in-Lieu

Short Sale

NOD

Short Refinance

Pre-Foreclosure Sale

Loan Extensions

Loan Modification

For further details, refer to the Galton Funding Credit Grade Matrix.

An agreement to forbear, workout, extend, or rearrange the terms of the original loan does not change the fact that the loan was not paid in accordance with its original terms. This applies even if the extension or modification was initiated by the Borrower, and the debt was subsequently paid in accordance with the rearranged terms. Any forbearance on a mortgage including deed-in-lieu, notice of default (NOD), pre-foreclosure sale, short sale, short refinance, modification or non-foreclosure action will be considered a loss mitigation action for grading purposes.

Please refer to the Galton Funding Credit Grade Matrix for loss mitigation action seasoning information, and Loan Program restrictions.




Lawsuits and Pending Litigation

If the application, title, or credit documents indicate that the Borrower is involved in a lawsuit or litigation additional documentation, such as an attorney’s explanation, copy of the complaint and answer, etc. is required. The title company closing the loan must provide a letter stating affirmative coverage of subject lien position.

Generally, lawsuit and pending litigation is not eligible under the Galton Funding Program. Situations in which the lawsuit or pending litigation does not have a meaningful impact on the borrower’s ability to repay the mortgage may be permitted.

MORTGAGE/HOUSING HISTORY

Each loan must include a mortgage/housing history for the Borrower’s primary residence and any other properties the Borrower owns. On non-owner occupied transactions, a mortgage/housing history is required on the Mortgaged Property as well as the primary residence. For specific program requirements refer to the Galton Funding Loan Program Matrices and the Loan Program section of the Guide. Individual Loan Programs may have different requirements.

Mortgage/Housing Requirements

Borrowers must have a fully documented, recent, consecutive, twenty-four-month primary housing history.

Borrowers without a primary mortgage or rent history in the last twenty-four (24) months are Ineligible. This includes situations where the Borrower may have received a “rent holiday”, payments lapsed due to divorce/separation, or other instances where the most recent twenty-four-month housing history is not consecutive and complete.

The housing history requirement is not required in the following instances:

The borrower is a recent college/technical school graduate and has completed school within the last 12 months. Documentation to support graduation must be supplied (Primary residence only) OR

Borrowers who have moved in with family (parents, grandparents, siblings, spouse, children, aunts, and uncles) to save for a new home purchase. The length of time living rent free may not exceed twelve (12) months. A letter of explanation by the Borrower is required and documentation for the months not covered by living rent free must be provided to complete a 24-month history (Primary residence only) OR

Borrowers who own their primary residence free and clear and Evidence property is owned free and clear must be documented in the file.

Mortgage/housing payment history on any property, regardless of the occupancy or lien status, is considered mortgage/housing history for grading purposes. A copy of the title or credit report must document the free and clear status.

If there is a private mortgage holder or the landlord is a private party then 24 months cancelled checks or bank statements are required to verify a satisfactory housing history.

Any payments on a timeshare will be treated as installment debt, regardless of how it is reported on the credit report.

Each contractual delinquency must be considered separately (i.e. a first and second lien). If the first lien and the second lien on a property are delinquent, it would be considered two delinquencies in the credit grade determination of the Borrower.

Verification of Mortgage (VOM)

The following are acceptable for verifying mortgage payments:

An institutional verification of mortgage (VOM)

Copies of canceled checks (front and back)

Bank statements

A current credit bureau report

Third-party verification or copies of canceled checks (front and back) are always required for non-arm’s length verifications of mortgage (private mortgage, Land Contract/Contract-for-Deed, or Lease Option to purchase).




Verification of Rent (VOR)

Any of the following documents are acceptable for verifying rent payments:

An institutional Verification of Rent form

A letter and rating from a property management company

Copies of canceled checks (front and back)

A credit supplement for a rental rating

Third-party verification or copies of canceled checks (front and back) are always required for non-arm’s length or private party verifications of rent (related landlords, seller landlords, employers or any interested party to the transaction).

To use rental history as a tradeline, the Borrower must verify rent using copies of canceled checks (front and back),provide a credit supplement that includes the rental history, or provide an institutional VOR.

If the Borrower does not have a checking account, money orders may be accepted if they are valid and legible, are purchased from a legitimate vendor, and can be validated by conducting a telephone audit with the vendor.

ANALYZING DELINQUENT MORTGAGE/HOUSING PAYMENTS

Mortgage/housing payment history is determined as follows:

Rolling Lates. Consecutive, identical delinquencies. There is no limit to the number of rolling delinquencies that can occur to be counted as one event.

Intermittent Lates A pattern of late payments that is not consecutive, but is broken into intervals.

Progressive Lates Delinquencies that increase in severity. The most severe delinquency reached is considered one event.

When evaluating the mortgage/housing history, all delinquencies must be added. For example, if the Borrower has a First and Second Mortgage on his or her property and each one had one late payment (1x30) in the last 12 months, the Borrower’s mortgage/housing history is equal to two late payments (2x30).

Mortgage/housing delinquencies must be calculated as follows (with the mortgage history beginning in January and read from right to left):

Example 1:

Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan

1 1 C 1 1 1 1 1 1 2 2 2

30 30 30 30 30 30 30 30 60 60 60

This account would be counted as 1x60 rolling and 2x30 rolling for determining the mortgage/housing component of the grade determination. The eight 30-day and the three 60-day delinquent payments are counted as two 30-day rolling delinquencies and one 60-day rolling delinquency because there is no limit to the number of rolling lates that are considered one event.

Example 2:

Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan

C C C C 1 1 1 1 1 3 2 2

30 30 30 30 30 90 60 60

This account would be counted as 1x90 non-rolling and 1x30 rolling for determining the mortgage/housing component of grade determination. The two 60-day and the one 90-day delinquency are considered a progressive delinquency and one event. The five 30-day delinquencies are rolling and considered one event because there is no limit to the number of rolling lates that are considered one event.




GRADE DETERMINATION

The Borrower’s grade is based on the following factors:

Housing (mortgage/rental) payment history

Credit score

Bankruptcy history

Foreclosure history

Loss mitigation history, including non-foreclosure actions such as deed-in-lieu, NOD, pre-foreclosure sale, short sale, short refinance and modification

Required Program Reserves

The Borrower’s least favorable factor will determine the credit grade. For example, a negative rating on a mortgage will determine the credit grade if it is worse than the aging of the bankruptcy. The Borrower’s initial application date will be used to determine the seasoning for the events listed above.

For details on determining credit grade refer to the Galton Funding Credit Grade Matrix.

QUALIFYING RATIOS

Qualifying ratios are ratios used to calculate the Borrower’s debt versus collateral and debt versus income in order to qualify the Borrower for a Loan Program. Note that all Loan Programs limit the ratios allowed when underwriting the loan. For specific details, refer to the Galton Funding Loan Program Matrices.

LOAN-TO-VALUE (LTV) AND COMBINED LOAN-TO-VALUE (CLTV) RATIOS

Calculating LTV/CLTV Ratio

The loan-to-value (LTV) ratio is the loan amount divided by the value of the Mortgaged Property. The combined loan-to-value (CLTV) ratio is the sum of all liens on the Mortgaged Property divided by the value of the property. Note that all Loan Programs offered limit the maximum LTV ratio allowed and may have seasoning requirements when underwriting the loan. Value is determined as follows:

Determining the Value for LTV/CLTV

Purchase Transactions:

Purchase Transactions. Loans must use the lesser of the purchase price or the Appraised Valueas the value amount for calculating the LTV/CLTV ratios. The purchase price can be documented using the original, fully executed purchase agreement or the closing statement (HUD-1).

Refinance Transactions:

Cash-Out Refinance. Loans on properties owned less than 12 months must use the lesser of the purchase price plus the added value of any documented improvements or the Appraised Value asthe value amount for calculating the LTV/CLTV ratios. Cash-Out Refinance Loans on properties owned more than 12 months may use the Appraised Value as the value amount for calculating the LTV/CLTV ratios. The purchase price can be documented using the closing statement (HUD-1) from the original financing. The value of the improvements must be documented for each improvement.

Rate/Term Refinance. The Appraised Value can be used as the value amount for calculating the LTV/CLTV ratios.

Lease Option to Purchase:

Lease Options must be treated as purchases for disclosure/documentation purposes. A rescission notice is not required.

Less Than 12 Months’ Seasoning. A documented lease with a lease option-to-purchase will be treated as a purchase transaction when there is less than 12 months of seasoning. The lesser of the Lease Option price or the Appraised Value will be used to determine the LTV/CLTV.

At Least 12 Months’ Seasoning. The Lease Option will be treated as a refinance transaction if there is at least 12 months of seasoning. The Appraised Value will be used to determine the LTV/CLTV.




Construction-to-Permanent Refinances:

A Construction-to-Permanent transaction may be closed as a purchase, limited Cash-Out Refinance or a Cash-Out Refinance. When a refinance is used, the Borrower must have held legal title to the lot before he applied for the construction financing and must be named as the Borrower for the Construction Loan.

Cash Recapture. When the Borrower wishes to recapture monies paid out-of-pocket and to pay off an existing Construction Loan, the loan will be considered a purchase transaction. Evidence of the acquisition cost of the property will be required. The lower of the total acquisition cost (lot plus improvements) or the Appraised Value will be used to determine the LTV/CLTV ratios:

Owned Less Than 12 Months. If the lot was purchased less than 12 months prior to the date of application, the value of the lot will be based on the lower of the purchase price or land value as indicated on the appraisal.

Owned at Least 12 Months. If the lot has been owned for more than 12 months, the value will be determined by the appraisal.

Construction Loan Payoff. When the Borrower does not require cash recapture and the proceeds from the loan are being used to pay off the construction financing and closing costs, the loan will be considered a Rate/Term Refinance transaction. The Appraised Value will be used to determine the LTV/CLTV ratios.

Equity Withdrawal. When the Borrower wishes to withdraw equity, the loan will be considered a Cash-Out Refinance transaction. Program guidelines for allowable cash-out limits must be met. The LTV/CLTV is determined by one of the following:

Owned Less Than 12 Months. If the lot was purchased less than 12 months prior to the date of application, the lesser of the Appraised Value or acquisition cost of the lot plus the documented cost of property improvements will be used.

Owned at Least 12 Months. If the lot has been owned for more than 12 months, the LTV/CLTV will be determined by the current Appraised Value.

Borrower/Builder Transactions are considered non-arm’s length transactions and are ineligible.

Land Contracts, Installment Land Contract, Contract for Deed Refinance (applies to both recorded and unrecorded transactions):

Land Contracts must be treated as refinances for documentation purposes. The Borrower must be given the right to rescind the transaction.

Executed Less Than 12 Months. If the Land Contract/Contract for Deed has been executed for less than 12 months, then the LTV will be based on the current Appraised Value or the purchase/contract price, whichever is less.

Executed at Least 12 Months. If the Land Contract/Contract for Deed has been executed for at least 12 months, the LTV will be based on the current Appraised Value.

Inherited Property:

If the subject property was inherited less than 12 months prior to application, the transaction will be treated as a Cash-Out Refinance and is subject to the following:

Proceeds are used to buy-out the documented equity interest of others. Equity owners must be paid through settlement

The Mortgaged Property has cleared probate and property is vested in the Borrower’s name, AND

Current Appraised Value is used for LTV/CLTV determination

HOUSING AND DEBT-TO-INCOME RATIOS

The debt-to-income (DTI) ratio is the sum of all the Borrower’s applicable monthly debt obligations divided by the Borrower’s gross monthly income. The Seller must verify all of the Borrower’s outstanding liabilities. Note that all Loan Programs offered limit the maximum DTI ratio allowed when underwriting the loan – refer to the Galton Funding Credit Grade Matrix for details. The following debts must be included in the Borrower’s DTI ratio:

Qualifying rate for monthly housing expense calculation:

Fixed Rate Loans qualified using the fully amortized payment calculated at the note rate




Adjustable Rate (ARM) Loans qualified using the higher of the fully indexed rate or the initial note rate plus the periodic adjustment (2%)

Interest Only Loans qualified at the note rate based on the fully amortizing Principal &Interest payment during the principal repayment period. Borrowers will not be qualified on the interest only payment amount.

Monthly housing expense includes the following charges divided by the Borrower’s stable monthly income:

Monthly principal and interest payment (as per the qualifying rate)

1/12th of the annual hazard insurance premium

1/12th of the annual real estate taxes and assessments

1/12th of the annual flood insurance premium, when applicable

1/12th of the annual private mortgage insurance premium (when applicable)

Monthly leasehold payments (when applicable)

Monthly HOA dues, condominium maintenance fees, monthly assessments (when applicable)

Monthly payment for other secured financing (when applicable).

For equity lines of credit (as applicable), the monthly payment used for qualification should be based on:

The payment noted on the credit report or monthly statement, OR

1% of the maximum current available draw if the payment is not verified

The DTI ratio includes the monthly housing expenses plus the following charges:

Revolving charges (if no payment is showing on the credit report, use 5% of the outstanding balance)

Installment debts with 10 or more remaining payments

Real estate loans

Real estate net rental losses from all investment properties owned (commercial properties are excluded)

Automobile loans

Automobile leases (must be included in the DTI even if fewer than 10 payments remain)

Net rental losses from real estate owned

Alimony, child support, or maintenance payments with 10 or more remaining payments

Joint obligations, if applicable, for divorced or separated Borrowers

Student loans, whether deferred, in forebearance, or in repayment, 1% of the unpaid balance or the actual documented payment

Monthly paid charge accounts, such as an Amex account, payment will not be included but outstanding balance amount will be netted out of available assets For maximum DTI ratio allowed when underwriting the loan, refer to the Galton Funding Credit Grade Matrix for details.

PAYMENT SHOCK

Payment shock is the percentage that a Borrower’s mortgage/housing payment increases with the new loan. One of the strongest indicators of a Borrower’s ability to repay is his/her past record of handling housing payments. The percentage of payment shock, even when not limited expressly by the Loan Program will be analyzed to determine the likelihood of the Borrower to pay promptly. Generally, payment shock >150%, may require further review and additional compensating factors and/or documentation may be required.

SECOND TRUST DEEDS, JUNIOR LIENS, AND SECONDARY FINANCING

Second trust deeds, junior liens, and secondary financing (subordinate liens) are defined as mortgages having rights that are secondary to a First Mortgage. These are encumbrances on real estate (for example, a Second Mortgage, a tax lien or a mechanic’s lien), where the priority of the secondary financing is subordinate to that of another recorded interest in the same property.




This section outlines the requirements for junior liens or secondary financing that is not the subject Loan being sold to Galton Funding.


Seller must investigate whether the Borrower has applied for any simultaneous loan or subordinate financing, including one that will occur after consummation of the Galton Funding First Mortgage if the simultaneous loan will cover the closing costs of the First Mortgage. The following rights and restrictions apply to second trust deeds, junior liens, and secondary financing when Galton Funding is purchasing a First Mortgage with non-Galton Funding secondary financing:

The CLTV ratio of the first and secondary lien must not exceed the limit outlined in the applicable Galton Funding program matrix. Refer to the Galton Funding Loan Program Matrices for details. The CLTV is calculated by adding the principal balance of the First Mortgage with the current principal balance of the subordinated closed-end second lien or the maximum available credit line of a subordinated open-end second lien and then dividing the sum by the Appraised Value of the property.

A copy of the executed second lien note, recorded trust deed, and signed subordination agreement must be provided to confirm the loan amount, terms, and lien status.

Terms of the subordinate lien must be less than or equal to the term of the First Mortgage.

The subordinate lien must have a minimum remaining term of no less than five years, unless the financing fully amortizes prior to that time.

The financing must not permit the note holder to “call” the financing within the first five years following the loan closing.

The note rate must be at market rates.

The secondary financing must not have a negative amortization feature.

The terms of the note must provide for regular monthly payments of at least the interest due with no provisions for future advances or wrap-around terms.

Monthly payments on the secondary financing must be included in the Borrower’s debt-to-income ratio.

Payments may be graduated or variable, as long as the annual payment adjustment of the secondary financing does not exceed a 2% interest rate increase.

The subordinate lien must be from an institutional lender.

Home Equity Lines of Credit

Secondary or subordinate financing that is a Home Equity Line of Credit (HELOC) is subject to the following:

The calculation of the CLTV must include the total usable Home Equity Line of Credit.

For qualification purposes, in calculating the monthly housing payment, use the following:

For an existing subordinate lien, use the payment noted on the credit report or monthly statement (1% of the maximum current available draw will be used if the payment is not verified). If there is no balance, then no payment will need to be used.

For a simultaneous Home Equity Line of Credit (originated with a new First Mortgage), use the amount to be drawn at funding. The ATR repayment calculation method for simultaneous loans must be used.

Second Trust Deeds, Junior Liens, and Secondary Financing Documentation Requirements

The following outlines the documentation requirements for secondary financing and junior liens.

If the secondary financing is a simultaneous closing, then the following items are required:

A copy of the loan approval from the institution providing the secondary financing prior to closing, AND

A copy of the executed note at closing

If the secondary financing is a subordinate, then the following items are required.




The terms of the current Second Mortgage. If unable to discern from credit, the Seller must obtain a copy of the terms from the lender

An unsigned copy of the subordination agreement prior to closing, AND

A copy of the executed subordination agreement at closing.

SALES AND FINANCING CONCESSIONS

For purposes of determining the impact of costs paid by the Seller or an interested third-party, distinctions are made between financing concessions and sales concessions.

Financing concessions are considered to be funds originating from an interested party to pay closing costs on a purchase transaction. These are sometimes referred to as seller-paid closing costs. Allowable financing concessions include:

Payments in any form that are related to the financing; for example, discount points, Commitment fees, appraisal fees, and origination fees

Contributions related to the mortgage financing charges which traditionally would be paid by the Borrower, including but not limited to the payment of discount points, loan fees, Commitment fees and/or origination fees, property taxes, and insurance escrows

Cost of other items traditionally paid by the Borrower such as application fees, appraisal fees, transfer taxes, tax stamps, attorney fees, surveys, non-recurring closing costs and title insurance, AND

HOA dues are not allowed to be included in an interested party contribution

Concessions not addressed above or in excess of the allowed percentage of the purchase price are considered to be a sales concession.

The Mortgaged Property sales price must be reduced to reflect the amount of any sales concession that exceeds the limits below. The LTV ratio is calculated using the lesser of the reduced purchase price or Appraised Value.

Financing concessions for primary residences and second homes are limited to the following percentages:

6% of the value for Loans with LTV/CLTV ratios less than or equal to 90%

3% of the value for Loans with LTV/CLTV ratios greater than 90%

Financing concessions for investment properties are limited to 3% of the value.

The appraisal must reflect subsidies, contributions, or sales concessions that have an effect on the market value of the property.

LIABILITIES

The Borrower’s liabilities and debts include all installment loans, revolving charge accounts, contingent liabilities (co-signed debts), lines of credit, mortgage loans, alimony/child support, student loans, auto leases, and all other ongoing debts. Seller must verify payments on all simultaneous loans, such as HELOCs. Auto lease payments are included in the debt-to-income (DTI) ratio regardless of the remaining months indicated on the credit report.

DEBT TO INCOME CALCULATIONS

In addition to the subject mortgage payment, the following debts should be included in the calculation of the debt-to-income ratio (DTI):

Other mortgage payments including principal, interest, property tax, and property insurance. Private mortgage insurance premiums and Homeowners’ Association dues or ground rents should be included, if applicable. The monthly payment shown on the credit report or monthly statement will be used for qualifying purposes. This applies to all first lien loan types including fixed, ARM and Interest Only.

Monthly payment reflected on credit report can be used to calculate the DTI. If no monthly payment is stated on the credit report or other form of verification, 5% of the outstanding balance on the account must be used.

Outstanding installment debts with 10 months or less remaining and debts to be paid off at closing do not have to be calculated in the DTI. This does not apply to mortgage debt.




Auto leases must always be included in the DTI, regardless of the number of payments remaining.

Co-signed debts will not be included in the DTI if sufficient proof is provided that the primary debtor makes the payments. Sufficient proof consists of at least 12 months canceled checks from the primary debtor evidencing the proper payment amount and payable to the proper creditor.

INSTALLMENT DEBT

Installment debt is the monthly obligation on accounts with fixed payments and terms. Installment debts include car loans, student loans, etc. The monthly payment may be excluded from the DTI calculation if there are less than 10 monthly payments remaining to pay the debt in full and the payment is not substantial. If there are less than 10 payments remaining and the payment is substantial (exceeds 5% of the Borrower’s qualifying income), the debt must be included in the Borrower’s DTI calculation.

A payment is defined as substantial when it equals or exceeds 5% of the Borrower’s qualifying income. These payments must be included in the Borrower’s DTI calculation. Installment debts showing the term of the debt to be 10 months or less at closing will not be considered in the debt-to-income (DTI) ratio. Paying down of installment debts to 10 payments or less to qualify is not allowed. The installment debt must be paid off if the payment is excluded from the Borrower’s DTI calculation.

Installment debt that is paid in full prior to or at closing may be excluded from the DTI provided the HUD-1 reflects the payoff.

If an installment debt payment does not show on a credit report, a credit supplement or loan statement is required.

REVOLVING DEBT

Revolving debt is open-ended debt of which the principal balance on an account may vary from month to month. The minimum required payment as stated on the credit report or current statement should be used in calculating the DTI unless as noted below. Revolving debt may not be paid down for qualification purposes but may be paid off.

The following debts must be considered as a recurring monthly debt obligation:

The credit report balances suggest that more than 10 payments remain to be paid regardless of whether the loan application indicates the debts will be paid off at or prior to closing

The credit report does not show a required minimum payment amount and there is no supplemental documentation to support a payment of less than 5%. In this situation, an amount equal to a minimum of $10.00 or 5% of the outstanding balance must be used as the Borrower’s recurring monthly debt obligation.

If a revolving or open account is to be paid off, a monthly payment on the current outstanding balance should not be considered as a long-term debt.

ALIMONY/CHILD SUPPORT/SEPARATE MAINTENANCE OBLIGATIONS

Monthly alimony, child support or separate maintenance fees with 10 or more payments remaining must be included in the DTI.

Divorce Debt

Debts opened jointly with a former spouse will be considered an obligation of the Borrower unless a legal separation agreement or divorce decree is provided to prove the former spouse is responsible for the debt, otherwise it will be counted as Adverse Credit.

NEGATIVE CASH FLOW FROM RENTAL PROPERTY/OTHER REAL ESTATE OWNED

The tax and insurance expense for all properties owned by the Borrower must be documented and accounted for in Borrower’s Debt-to-Income ratio. For properties that are rented, the expense may be deducted from rental income. For properties that do not receive rental income, the tax and insurance expense must be part of the Borrower’s liabilities.

Real estate net rental losses from all investment properties owned must be included in the DTI.




CURRENT PRINCIPAL RESIDENCE – PENDING SALE

If the Borrower's current principal residence is pending sale, but the transaction will not close with title transfer to the new owner prior to the subject transaction, and the Borrower is purchasing a new primary residence, the current PITIA and the proposed PITIA must be used in qualifying the borrower for the new mortgage loan.

However, Galton Funding will not require the current principal residence's PITIA to be used in qualifying the Borrower as long as the following documentation is provided:

The executed sales contract for the current residence, and

Confirmation that any financing contingencies have been cleared

BUSINESS DEBTS

Business debts for which the Borrower is personally liable must be included in the debt calculation. This includes business paid personal debt, unless proof of payment by the business is established. If the account is new, it must be included in the DTI calculations. These debts may be excluded if a minimum of 12 months of consecutive canceled checks from the business are provided.

Business debts for which the Borrower is not personally liable will not be considered in the Borrower’s total monthly debt if canceled checks drawn on the business account indicate they have been paid on a regular basis for a minimum of six months.

UN-REIMBURSED BUSINESS EXPENSES

When evaluating the Borrower’s income, the Seller must consider certain tax deductions (as applicable for income documentation program requirements) reported on IRS Form 2106 (Employee Business Expenses):

Out-of-pocket, unreimbursed business expenses: These expenses must be deducted from the borrower’s income.

Actual expenses for a leased automobile, rather than the standard mileage rate. The Seller must analyze the “Actual Expenses” section of IRS Form 2106 to determine the amount of the lease payments, and make sure the lease expense is counted only once in its cash flow analysis, either as an expense on IRS Form 2106 or as a monthly obligation.

AUTOMOBILE DEPRECIATION

If a borrower claims a “standard mileage” deduction, the business miles driven should be multiplied by the depreciation factor for the appropriate year, and the calculated amount added to the borrower’s cash flow.

If a borrower claims an “actual depreciation expense” deduction, the amount the borrower claimed should be added to the borrower’s cash flow.

DEBT PAYOFF

If the Borrower indicates debt will be paid at the closing of the new mortgage, Galton Funding will not include the payment in the DTI ratio. The paid statement(s), canceled check(s), or a settlement statement (HUD-1) evidencing payment must be submitted in the Loan File. Paying down of installment debts to less than 10 payments to qualify is not allowed.

CO-SIGNED DEBT / CONTINGENT LIABILITIES

If the Borrower is a co-signer or guarantor on any loans, those liabilities must be indicated on the application. Debts that have been co-signed by the Borrower may be excluded from the Borrower’s DTI under the following scenarios. In every situation, the debt must be paid current and as agreed for at least the previous 12 months.

Satisfactory documentation is provided to prove that the primary debtor has been making the payments on a regular basis. At least 12 consecutive months of canceled checks from the primary debtor are required

Property resultant from buyout of former co-owner (i.e., divorce). The Loan File must include evidence of transfer of ownership




Mortgage assumed by third-party without a release of liability. A copy of the formal assumption agreement and evidence of transfer of ownership should be in the Loan File. Do not include payment history and assumption does not need to release the Borrower from liability

Court ordered debts - a copy of the court order assigning the debt to another party is required

Co-signed accounts paid by a third-party, with 12 months of cancelled checks evidencing payment by the third-party

If these requirements cannot be satisfied, then the liability must be indicated on the application and considered as a monthly debt payment for mortgage eligibility purposes. Co-signed debts must be paid satisfactorily (0x30), or they will be counted as Adverse Credit.

RETIREMENT / SAVINGS PLAN LOANS

Repayment for loans against a financial asset such as retirement, savings plan, or insurance policy may be excluded from the DTI provided the Borrower can repay the debt by liquidating the asset. The value of the asset must be reduced by the amount of the debt when calculating total assets and/or reserves.

STUDENT LOANS

Deferred student loans are included in the DTI as a long-term obligation. Student loans can be counted in credit depth as long as they are in repayment and not being deferred. Student loans listed as delinquent must be brought current.

If no payment is shown on the credit report for a student loan payment, then proof of payment should be provided by student loan lender. If payment is unable to be determined, use 1% of the unpaid balance.

If a student loan is charged off or in collection, the following must be provided:

A copy of repayment agreement and six months cancelled checks

OR

If not in repayment evidence it won’t affect title

INCOME

This section describes Borrower income. Income analysis is a key element of the underwriting process and is used to determine whether the Borrower’s ability to repay is reasonable.

Income documentation provided by the Borrower must be reviewed and adequately verified. Additionally, the income must be considered stable, likely to continue, and sufficient to enable the Borrower to repay the debt in a timely manner. Material inconsistencies must be investigated.

INCOME VERIFICATION REQUIREMENTS

The Borrower must provide evidence of two years stable income derived from employment or other acceptable and verifiable sources. A complete 2 year history of employment and/or source of income must be stated on the 1003 application. There must also be a reasonable expectation that the income will continue in the foreseeable future and that such income must be sufficient for repaying the proposed monthly debts. Employment across different jobs in the same or related line of work is acceptable. Borrowers who have made job changes for advancement and maintained a stable earning capacity, as well as Borrowers with demonstrated job stability will receive favorable consideration.

Employment gaps that extend beyond 30 days require an explanation letter from the Borrower.

Paystubs and salary vouchers must be computer-generated or typed, not handwritten. In addition, the documents must clearly identify the employer, the Borrower as an employee, show the time period covered, and provide year-to-date earnings.

Income derived from a family-owned business must be documented by the Borrower’s federal tax returns for the prior two years, in addition to a verification of employment.

A Borrower who finished school or military service and who does not meet the length of employment required must provide a copy of his/her diploma or discharge papers. The potential for future income based on job opportunities afforded such individuals, due to their extensive training, may be considered favorable for qualification purposes.




For loan amount and LTV/CLTV limitations, and for income type eligibility for documentation types, refer to theGalton Funding Loan Program Matrices.

Significant Increases/Decreases in Income (Trending)

If the Borrower’s monthly income is stable or increasing, the amount of income should be averaged based on the required number of years of documentation required for the program. A significant increase or decrease is generally considered to be anything greater than 25%.

Increase in Income: When the Borrower has experienced a significant increase in income, the higher income may not be used to qualify the Borrower, unless there is sufficient documentation to determine that the increase is stable and likely to continue at the level used for qualifying (e.g., that the income is not a one-time incentive payment).

Decrease in Income: When the Borrower has experienced a significant decrease in income, the income cannot be averaged using a previous higher level unless there is documentation of a one-time occurrence (e.g., injury) that prevented the Borrower from working or earning full income for a period of time and proof that the Borrower is back to the income amount that they previously earned.

When the Borrower’s current income decreased from the prior year, the lower income amount should be used for qualifying purposes instead of the averaged income.

Disposable/Residual Income

Borrowers must have residual income to maintain housing/living expenses. To calculate the Borrower’s residual income, subtract the total monthly expenses from the total monthly income. For residual income requirement, refer to the Galton Funding Loan Program Matrices.

Verbal Verification of Employment (VVOE)

A Verbal Verification of Employment (VVOE) must be performed for each Loan submitted to Galton Funding for purchase. Written evidence of phone contact with the Borrower’s employers, completed within 10 calendar days prior to the Note Date or prior to delivery to Galton Funding, The verification must identify the name of the person who made the contact, identify the employer and the name and title of the person contacted, show the date of contact, the source of the phone number and confirm that no change in employment status has occurred, regardless of documentation and that the Borrower is currently employed.

Verbal Verification of Employment for Salaried, Hourly and Commission Income:

A verbal verification must be performed within 10 business days prior to the Note Date or prior to delivery to Galton Funding.

The phone number of the employer should be obtained independently and not taken from the application

Employer should confirm the Borrower’s current employment status and title.

Third-party verification sources may be used

The written VVOE Form should include:

Date of the verification

Source used to obtain the phone number (i.e. internet).

Name and title of the person at the employer’s office who confirmed the employment

Name and title of the person who completed the VVOE

Verbal Verification of Employment for Self-Employed:

Verbal Verification of Employment (VVOE) for Self-Employed Borrowers must verify the existence of the Borrower’s business within 30 calendar days prior to the Note Date or for escrow states, the Loan funding date, or prior to delivery to Galton Funding.

This verification can be made with a third party, such as a certified public accountant (CPA),regulatory agency or applicable licensing bureau, or by verifying the phone listing and address for the business using the internet or directory assistance. It is also necessary to verify the phone listing and address for the business.




The written VVOE Form should include:

Date of the verification

Source of the verification of the phone listing and the address of the business (i.e. internet)

Name and title of the CPA or details of other source used to verify the business; and

Name and title of the person who completed the VVOE

INCOME TYPES

The Borrower must be employed as a salary/wage earner, be self-employed, or have a source of verifiable non-employment income. All income sources must be shown on the application and verified for each applicant.

Salary/Wage Earner Income

A salary/wage earner derives income through employment at a business where he or she has little or no ownership interest. A two-year employment history must be established for each Borrower. Compensation may be based on an hourly, weekly, bi-weekly, semi-monthly or monthly basis.

Bonus, commission, overtime, and gratuity income is compensation in addition to the Borrower’s straight salary or hourly wage. Galton Funding will accept stable bonus, commission, overtime, or gratuity income that has been received for two years and verified according to Galton Funding program guidelines. Borrowers must have a two-year history of earning bonus, commission, overtime or gratuity income in order for the income to be included for qualification purposes.

Self-Employed Income

Self-Employed Borrowers must be carefully evaluated because their financial ability to repay debts is directly related to the success of the company and to the stable income and expenses of the business.

Self-Employed Borrowers are identified as follows:

Borrowers who derive 25% or more of their primary income from a business in which they hold a controlling interest.

Borrowers who do not own a business but who derive their primary income from commissions, consultation fees, interest, capital gains, gratuities, or real estate rents.

Borrowers who rely on investments for income such as interest, dividends, capital gains, or real estate.

At least two consecutive years of self-employment in the same business and evidence of ongoing stable income are required. Business income must be reported as a sole proprietorship, partnership, or corporation.

Evidence of Self-Employment

Documentation to support the Borrower’s self-employment in a legitimate and active business covering the most recent two years must be obtained.

One of the following may be used for verification of the business:

A copy of the business license covering the most recent two years.

A copy of the business license for the current business year and a verbal verification through the issuing municipality confirming the business is current and active and has been in existence for two full years.

Alternative documentation may be used only if a license is not required for the particular type of business. They include:

Dunn and Bradstreet report

Articles of incorporation

Fictitious business name filing

Title registration

Liability insurance or surety bond

Letter from a certified public accountant (CPA)

Letters of reference (acceptable for small businesses only)




For Borrowers who operate a business from the Mortgaged Property (such as a home day-care facility, a bed and breakfast, or an auto repair shop), additional property type restrictions exist. For further details, refer to the Property Type section in this Guide.

Self-Employed Income Calculation

Income documentation should be reviewed for increasing or decreasing trends by comparing the current income and the income from the prior year. When calculating the Borrower’s self-employed income, use the Fannie Mae Self-Employed Income Analysis Form 1084A or 1084B.

Sole Proprietorship Income

Self-employed income will be determined by averaging the income from the tax returns, including all schedules and attachments (Schedule C). Income from the year-to-date Profit and Loss Statement (P&L) may be included in the income calculation if consistent with earnings from previous years.

Deductible expenses for the business that are attributable to non-cash expenses are depreciation, depletion, amortization, or non-operating losses (NOL) that have been carried forward (loss taken in previous years that is taken as a deduction to taxes). These non-cash expenses may be added back to the net income/loss for qualifying purposes and are defined as follows:

Depreciation is a deduction for the decline in value of an asset such as real or personal property and is not an out-of-pocket expense.

Depletion is a deduction for the useful life of a natural resource and is not an out-of-pocket expense.

Amortization of an asset spreads the asset’s cost over the asset’s useful life. It may include start-upcosts. Examples are a copyright or a patent. Amortization is not an out-of-pocket expense.

Non-operating loss (NOL) is a business loss that occurred prior to the current tax year. The full loss is not recognized in the year it occurred, but is spread over future years and is not an out-of-pocket expense after the year it occurred.

A partnership is formed when two or more individuals form a business and share profits, losses, and responsibility for running the business. The partnership does not pay the taxes. The income/loss is passed through to the partners based on the percentage of capital ownership and is reported on a K-1.

Partnership cash flow is determined by analyzing the 1065 tax return and giving credit for ordinary income, depreciation, and depletion. Amortization or casualty loss deductions listed under other deductions may be added to the total. Discretionary losses will be excluded from the cash flow analysis if the business is a limited partnership and the Borrower provides a copy of the partnership agreement stating that all subsequent contributions are voluntary.

Corporate Income

A corporation is a state-chartered business that is owned by stockholders. Stockholders are not personally liable for the debts of the corporation. Although legal control of the corporation rests with its stockholders, they are not responsible for the day-to-day operations of the business, as they delegate that responsibility to a board of directors and officers of the company.

Corporations must file corporate tax returns (Form 1120) to report income and losses. Officers who are principals of the corporation generally report their income on a W-2. Income may be determined by using an average of the Borrower’s earnings for the past two years. Additionally, business tax returns must be analyzed to assess the likelihood of continued personal income to the Borrower.

Corporate Income Analysis

To calculate corporate income, total tax must be deducted from taxable income, and factors such as depreciation, depletion, or net operating loss (NOL) deductions listed on the return are added back. Other deductions, including amortization and casualty losses, may also be added back.

Retained earnings in the business are not recognized as cash flow to the Borrower or to the company.

Income from the corporation is recognized as income to the Borrower if he or she is the sole and full owner, and if the withdrawal of funds will have no effect on the corporation’s continued growth.




S-Corporation

An S-corporation operates like a standard corporation; however, any profit or loss from the company is passed to the owners through Schedule E of the 1040s. Stockholders are taxed at individual tax rates for each proportionate share of ownership. Income for an owner that comes from wages is declared on the individual’s tax return.

S-corporation K-1 income is determined by giving credit for any guaranteed payments or salary and property distributions (including cash) made to the Borrower.

When analyzing Form 1120S, only the Borrower’s share of income or loss adjustment should be used to calculate income. The Borrower’s share is based on his or her percentage of stock ownership as reported on the Schedule K-1. Depreciation, depletion, and amortization or casualty loss may be added back to income. Other non-recurring income/loss should be subtracted/added back.

Retained earnings in the business are not recognized as personal cash flow to the Borrower or to the company.

Allowable Age of Federal Income Tax Returns

The “most recent year’s tax return is defined as the last return scheduled to have filed with the IRS.

If Today’s Date is: Then the Most Recent Year’s Tax Return would be:

February 15, 2017 2015

April 15, 2017 2016

December 15. 2017 2016

For business tax returns, if the Borrower’s business uses a fiscal year (a year ending on the last day of any month except December), the Seller may adjust the dates in the above chart to determine what year(s) of business tax returns are required.

In all cases, the tax returns for the current year are required as of June 30, rather than October 15th. If the Borrower has filed an extension and does not file by June 30th, the Loan is ineligible. However, if the borrower filed an extension and has since filed the returns and tax transcripts (or stamped IRS returns) are available then the Loan would be eligible for submission.

Under the Alt Doc-12 Month Verification (Self-Employed only) program, the Borrower must submit the current year’s required tax returns. Extensions are not allowed.

Borrowers Not Required to File Tax Returns with the IRS

There are some instances where a Borrower was not required to file a tax return for the prior year. Acceptable examples may include:

Newly employed Borrower who was a full-time student the most recent tax year

School transcripts are required for documentation

Borrower whose income level was below the minimum reporting standards as required by the IRS

Examples include Borrowers who receive disability, Social Security, or pension income and indicate that they are not required to file tax returns

Active duty military that meet all the requirements to be granted an extension by IRS in accordance with IRS Publication 3-Armed Forces’ Tax Guide.

In addition to the specific requirements noted above, the Loan must be satisfactorily documented to:

Support the income used for qualifying

Document the reason a tax transcript is not available




Include a tax transcript indication “No Record Found” or IRS Verification of Non-Filing Form

Amended Tax Returns

Tax Returns that are amended and filed by the Borrower with the IRS are acceptable in the following circumstances:

Tax Return Amendment filed prior to the Loan application date

Tax returns filed prior to application are acceptable. The original filed return, the amended return and a letter of explanation from the Borrower (or Borrower’s accountant) are required.

If the file was amended 60 days or less prior to the application, evidence of payment must also be provided.

Tax Return Amendment filed after the Loan application date

A letter of explanation regarding the reason for the re-file

Evidence of filing

Evidence of payment or the evidence of the ability to pay the tax

Borrower does not require use of amended income (if increased) for qualification

Under no circumstances are amended returns acceptable if the Loan has already been reviewed and/or deemed ineligible for purchase by Galton Funding.

Bank Statement Income

For qualifying information and eligibility for use of Bank Statement Income, please refer to the Loan Programs chapter of this guide.

Fixed Income

Galton Funding defines fixed income as income derived from sources such as social security and supplemental (dependent’s) social security, temporary or permanent disability, VA disability, retirement/pension, or alimony/child support. If a type of fixed income is used to qualify the Borrower, proof of income and probability of continuance for at least three years must be provided. Some forms of fixed income can be non-taxable. Verified non-taxable income will be given special consideration if it is determined that such income will continue for three years and that it will remain untaxed.

Acceptable forms of non-taxable income include:

Certain military allowances

Disability retirement payments

Child support payments

Social security distributions

Non-taxable public assistance payments

Worker’s compensation benefits

Non-taxable income that is not allowed to be grossed up includes:

Foreign earned income

Foster care income

Housing allowance

Fixed Income Calculation

In order to evaluate a Borrower with non-taxable income in the same manner as a Borrower who has a higher taxable income, the non-taxable income may be adjusted or grossed-up by 125%, provided that:

Only the net income will be used for determining disposable/residual income; Medicare and insurance payments are to be omitted.

The Borrower clearly benefits as a result of income being grossed-up to qualify.

The Borrower’s net income (before gross-up) is sufficient to pay all debts.




Rental Income

Rental income may be used in qualifying a Borrower for a loan. All owner occupied two-to-four unit properties and all investment properties require a rental income analysis to determine positive or negative cash flow. Rental income on a second home is not allowed. One of the following is required to support leases or rental income on the application:

Rent Survey Form 1007 and Operating Income Statement (FNMA Form 216)

Personal 1040s with Schedule E

Rental Income Calculation

Income received from rental properties will be calculated using one of the following methods:

Owned at Least One Year. For properties owned for one or more tax years, cash flow can be calculated in one of the following manners:

75% of actual rents, established by copies of signed leases,

OR

Net income from 1040 tax return Schedule E, plus depreciation

Owned Less Than One Year. For properties owned less than one tax year, cash flow must be based on 75% of the lesser of actual or market rents

Actual rents must be documented with copies of the signed leases. Net cash flow for properties, other than the subject property, will be calculated using Schedule E from the Borrower’s tax returns for the past twoyears.

A positive aggregate monthly cash flow (rental income) will be added to gross income; negative aggregate monthly cash flow (rental loss) will be added to total liabilities and used to qualify the Borrower. Room rents are an ineligible source of income. If any of the units in a property are receiving room rents than none of the rental income received for the property may be used as qualifying income.

Loans for investment properties that generate a negative cash flow will be closely scrutinized and must be appropriate for the Borrower’s circumstances.

Rental income received from a family member may not be used as income without copies of a minimum of six months’ cancelled rent checks provided by the tenant family member.

Rental Income from Departing Residence:

If the Borrower's current principal residence is going to be rented, the following documentation must be provided or the entire PITIA will be included in the Borrower’s qualifying ratios. The rental amount must be documented with either of the following:

If a fully executed lease is not available:

Rent Survey from the appraiser

75% of the rental amount will be used

If an executed lease is available:

Fully executed lease (must be non-arm’s length)

Copy of cancelled check for the first month’s rent

Copy of cancelled check for the security deposit

Interest and Dividend Income

Interest and dividend income may be used if verified through tax returns as stable for two years and if additional verification is obtained as proof that the funds are still on deposit in the financial institution or investment portfolio account.

Income must be proportionately reduced if funds are used to close in a purchase money transaction.




Capital Gain Income

Capital gain or loss that is a one-time transaction will not be considered as a gain or loss in determining the income available to the Borrower. However, if the Borrower’s business has a constant turnover of assets that produce recurring gains or losses, the capital gain or loss may be considered in line with the following:

An average of the gains or losses for the last two years as disclosed on the Borrower’s Form 1040 (Schedule D) will to be used to calculate the income.

When the income from this source represents a substantial portion of the Borrower’s income, the Borrower’s tax returns for the past two years must be reviewed (regardless of documentation type) to determine a more accurate estimate of average earnings. For example, an asset sold during the year might be an income-producing asset, which could result in a reduction in future income.

Borrowers must document an asset base in order to use capital gain or loss on an on-going basis.

Farm Income

Net farm income reported on the Borrower’s income tax return (Schedule F) is eligible with the addition of depreciation, pension, amortization, and depletion.

Military Income

Income verified for clothing allowance, quarters allowance, hardship or hazard pay may be included as stable income if there is a likelihood of continuance. BAH and BAS allowances may be grossed up due to the nontaxable status. Other allowances may be grossed up if documentation is provided evidencing it is nontaxable.

Employed by a Relative

Income derived from a family-owned business or from a relative must be Full or Alt documentation. Reduced income documentation types are not eligible.

Trust Income

Trust income may only be derived from an irrevocable trust or a revocable trust where a Borrower who is the beneficiary has also established the trust. In order to verify trust income, a copy must be provided of the original Trust Agreement showing the length of time and amount of income that will be received. The income must continue for at least three (3) years after closing. A Borrower’s trust income may be taxed at a lower rate or it may be part of a partnership that writes off losses resulting in no tax liability.

A complete copy of trust agreement or certification letter from bank trust administrator outlining total income paid to the Borrower, method of payment, duration of trust and any non-taxable portion is required. Additionally, personal tax returns with all schedules, K-1s, or 1041s or other documentation per program guidelines are required.

Lump sum distributions made before loan closing may be used for down payment or closing costs if they are verified by a copy of the check or the Trustee’s letter that shows the distribution amount. If a distribution was made that reduces the Trust income, the reduction must be taken into consideration in computing the income.

Annuity Income

Income from a retirement annuity may be used for qualification with proper documentation. A statement from the financial institution managing the annuity is required to verify the balance in the annuity, the monthly payments and the term of the payments to be distributed. Payments to the borrower must continue for a minimum of three years.

Note Income

Ongoing note income is eligible for loan qualification. A copy of the note outlining the amount and terms of repayment must be provided. The repayment period must extend at least three years from the date of the new loan.

The Seller must document the regular receipt to the income for the most recent twelve months. Payments on a note executed within the past twelve months, regardless of the duration, may not be used as stable income.

Inherited and Guaranteed Income

Ongoing income received from inheritance, prize earnings, or lottery winnings are eligible for loan qualification. Documentation must verify that the income will continue for at least three years.




Other Income

The following income types will be considered provided that all of the specific stipulations outlined below are met, and the income is fully documented. Furthermore, probability of income continuance for at least three years must be verified.

Second Job Income. Second job income will be considered if income is based on a two-year average.

Seasonal Employment Income: Seasonal employment income, such as farm labor or construction labor, will be considered if it is properly documented and consistent for a minimum of two years. Seasonal employment income and unemployment income must be combined in order to calculate the average annual income.

Unemployment Income: Unemployment Income may also be used if documentation shows that it has been received for a specified length of time (usually a six-month period) during the previous two years.

Housing Allowance: Housing allowance may be used as income for members of the military or clergy only, provided that the income will continue for a minimum of two years, and the Borrower has a history of receiving the income.

Trailing or Relocating Co-Borrower’s Income: A trailing or relocating Co-Borrower is one who trails behind the primary Borrower during relocation. A trailing or relocating Co-Borrower’s income is the amount of income previously received by the trailing or relocating Co-Borrower from employment at the previous location. The use of a trailing or relocating Co-Borrower’s income for loan qualification will be done on a case-by-case basis, and the following apply:

The transaction must be a full documentation purchase that is secured by an owner occupied primary residence.

The Primary Borrower must be relocating with the same employer.

The trailing or relocating Co-Borrower must be a spouse, domestic partner, or future spouse of the Primary Borrower.

The Primary Borrower and the trailing or relocating Co-Borrower must have verified cash reserves (or other verified assets that are easily converted to cash) equal to six months of payments for the mortgage and all other recurring debt obligations.

The trailing or relocating Co-Borrower must have been employed as a salaried employee in the same profession for the last two years and must provide documentation.

As long as it can be determined and documented that a reasonable employment market exists for positions that are the same as, or similar to, the trailing or relocating Co-Borrower’s previous position, Galton Funding may consider 70% of the trailing or relocating Co-Borrower’s documented income from his or her previous employment as “anticipated” income for future employment. This income may be used for loan qualification.

Ineligible Income

The following income types are ineligible:

Foreign Income

Contributions or support from family members (other than alimony/child support)

Deferred income not presently available

Educational benefits

Illegal income

One-time capital gains (continuing capital gains is an acceptable source of income)

Projected income

Refund of federal or state income tax

Rental income on a second home, accessory unit or an ineligible second unit

Reimbursable income

Gambling winnings




Automobile allowances – this is used to offset the auto payment only

Per diem income

Unverified sources

Ownership in a business that is federally illegal

Restricted stock units (RSUs)

FULL DOCUMENTATION

Galton Funding will accept these types of Full Documentation (Full Doc) with a verified two-year history of receipt.

Salary/Wage Earner Full Documentation Requirements

One of three methods must be used to provide full income documentation:

Pay stubs for the most recent 30-day period showing year-to-date income and two years IRS W-2 forms.

If the bonus or commission income represents 25% or more of the Borrower’s income, two years of personal tax returns are required

Written Verification of Employment (WVOE) showing earnings for the past two years and YTD earning and paystubs for the most recent 30-day period showing YTD earnings.

Personal tax returns for the past two years, including all schedules and paystubs for the most recent 30-day period showing YTD earnings.

Verbal Verification of Employment:

A verbal verification of employment is required within 10 days of the loan closing.

Self-Employed Full Documentation Requirements

Documentation includes the following:

Two years of personal tax returns, with all schedules

If the borrower has 25% or more ownership interest in a Partnership, S-Corp, or Corporation, business tax returns for the past two years including all schedules must be provided.

For all self-employed borrowers, if more than 120 days has lapsed since filing the latest Schedule C or business tax return, a dated year-to-date profit and loss (P&L) statement is required.

Verbal Verification of Employment:

A verbal verification of employment is required within 30 days of the loan closing.

Alternative Documentation – Asset Qualifier Requirements:

Please refer to Chapter Six, Loan Programs for specifics regarding this income documentation type and program requirements.

Alternative Documentation – Bank Statements (24-Month):


REDUCED DOCUMENTATION

Galton Funding will accept these types of Reduced Documentation (Reduced Doc) with a verified, one-year history of receipt. Anything less than a 12-month history of receipt is not allowed. Verification of two years of employment history is required. The income must be reasonable for the profession and experience level of the Borrower.




Reduced – Bank Statements (12-Month):


Reduced Documentation - Self-Employed Only Requirements

Personal tax returns for the past one year, including all schedules in addition to the following:

One-year business tax returns, with all schedules. If more than 120 days has lapsed since filing, a signed and dated year-to-date profit and loss (P&L) statement is required.

If the Borrower has 25% or more ownership interest in an S-corp., business tax returns for the past one year including all schedules must be provided for the S-corp.

Proof of the existence of the business for two years. Acceptable documentation includes a copy of the business license, business credit report, or a certified public accountant (CPA) letter.

4506-T AND TAX TRANSCRIPTSRequired for personal and business income (if applicable).

If most recent year’s tax transcript, for the income used to qualify, is not available, the income may be verified by one of the following:

Officially stamped return by the IRS as received; OR

Evidence that the return was electronically received (must reflect refund or amount owed to IRS).

In addition, evidence of a refund check or payment made must be supplied.

INELIGIBLE INCOME DOCUMENTATION TYPES

No Ratio, No Income No Asset (NINA), Stated Income, and No Doc income documentation types are not allowed.

ASSETS

The Seller must determine and provide evidence that the Borrower has sufficient cash to pay the down payment, prepaid items, financing cost, and closing costs, along with adequate cash reserves as the documentation type or program requires. When the Borrower will be paying off debts, adequate funds should be documented to complete the debt payoff, in addition to the funds required to close the transaction and any required cash reserves. For details on a specific program’s asset verification requirements, refer to Galton Funding Loan Program Matrices.

The financial strength of the Borrower, including accumulation of verifiable assets, is a strong indication of creditworthiness. An established pattern of savings demonstrates skill in financial management. Evidence that the savings are liquid also strengthens the loan transaction as these funds are readily available to repay debt obligations, pay unexpected expenses and provide protection against short-term interruption of income.

Galton Funding encourages the Seller to verify sources of liquid assets beyond the amount needed to meet the requirement of the transaction so that, if necessary, these assets may be considered as a compensating factor when the loan is reviewed.

REQUIREMENTS AND GUIDELINES

Assets and reserves must be sourced and seasoned for at least 60 days

All assets need to be deposited in U.S. financial institutions

If Borrower is not of retirement age, the Borrower must document that they have unrestricted access to allretirement-based funds, including funds used for closing costs, down payments and reserves

Large disparities between the current balance and the opening balances may require additional verification or documentation




Large or irregular deposits must be explained and may require further documentation.

A large deposit is considered any amount that exceeds 50% of the Borrower’s gross monthly income.

A signed letter of explanation from the Borrower is required and must sufficiently explain and source the funds

Documentation supporting the source of the funds may be required

Gift funds may not be used to meet the reserve requirements

Proceeds from a Cash-out Refinance on the Mortgaged Property may not be used to meet reserve requirements.

ASSET DOCUMENTATION

The Loan File must disclose all sources of funds to close, unless it is not required by the income documentation program. Assets must be sourced and seasoned for 60 days and may be verified with the following documentation:

Direct, written verification of deposit (VOD), completed by the depository. In cases where the Borrower has a joint account with someone other than the Co-Borrower(s), the VOD must clearly show the Borrower has authorized access to all the funds. The VOD must cover a minimum of 60 consecutive days.

Two months’ current and consecutive account statements from each bank, brokerage, mutual fund account, or investment portfolio covering a minimum of 60 consecutive days.

Account statements must include the following information:

Borrower as the account holder

Account number

Time period covered

Current balance

Statement date

Name of the depository or investment institution

The Borrower must explain any recent large deposits, newly opened accounts (within the last 90 days), or account balances that are considerably greater than the average balance over the previous few months. Any indications of borrowed funds must be investigated.

A written explanation of the source of funds from the Borrower must be obtained and the source of funds verified.

MINIMUM DOWN PAYMENT

Galton Funding requires the Borrower to make a minimum down payment of 5% from his or her own funds. The balance must be paid from cash, other equity, gift funds, or secondary financing.

At LTVs of 80% or less, the full down payment may come from a gift when no secondary financing exists. In this instance, closing costs may also be in the form of a gift. Reserves must be from the borrower’s own funds. The Loan File should clearly state the source of funds for the down payment and closing costs.

Gift funds are not allowed on Non-Owner-Occupied (NOO) transactions.

Please Note: The Asset Qualifier and Streamlined Second Lien Programs do not allow gift funds or gifts of equity.

EARNEST MONEY DEPOSITS

Earnest money deposits are considered part of the down payment. The source of the earnest money deposit(s) must be verified using the following:




Copy of the Borrower’s cancelled check and two months’ bank statements, up to and including the date the check cleared, to evidence a sufficient average balance to support the amount of the earnest money deposit.

Any large deposit to the account must be addressed in writing with supporting documentation.

Verification that there are sufficient funds on deposit to cover the earnest money deposit and any other required funds to close.

The canceled check or bank statement and the deposit receipt must agree with the Purchase Agreement.

If additional earnest money deposits are made, an amendment to the original Purchase Agreement must be provided

AGE OF ASSET DOCUMENTATION

The verification of assets, including the source of funds, may not be greater than 90 days old at the time of closing. If the funds are required for closing, then the most recent account statement(s) at the time of the validation will be required. In the event that the Disbursement Date causes the Borrower’s verification of assets to be greater than 90 days old, Galton reserves the right to request updated credit, asset, and/or income documentation. DisbursementDate is the day on which the loan closes.

RESERVE REQUIREMENTS

When reserves are required by a Galton Funding program and documentation type, the number of months required will be indicated in the Galton Funding Loan Program Matrices. To calculate the dollar amount of the required reserves, multiply the Borrower’s new PITIA payment by the number of months indicated. Reserves are defined as assets remaining, from down payment and closing costs, exclusive of cash-out received from the transaction. Reserves must be verified, sourced, and seasoned for 60 days.

PITIA is defined as:

Principal and interest

Hazard, flood, mortgage insurance premiums (as applicable)

Real estate taxes

Ground rent

Special assessments

Association dues

Any subordinate financing payments on mortgages secured by the Mortgaged Property

INELIGIBLE ASSETS AND SOURCES OF FUNDS

The following are ineligible assets and sources of funds:

Stocks held by privately held corporations

Stock options

Non-vested restricted stock units

Windfall assets (i.e., inherited funds, proceeds from a lawsuit, lottery winnings)

Cash-Out Refinance proceeds

Non-financial assets (collectibles, stamps, coins, artwork, etc.) unless liquidated

Assets titled in an irrevocable trust

Custodial accounts

Escrow accounts

529 Accounts




Accounts pledged as collateral on another loan

Below investment grade corporate and municipal bonds

Cash value of life insurance

Foreign assets.

ACCEPTABLE ASSETS AND SOURCES OF FUNDS

Checking/Savings and Money Market Accounts

Funds held in checking, savings, certificates of deposit, money market and other deposit accounts are acceptable sources of funds provided verification of deposit (VOD) or acceptable alternative documentation is used to verify these accounts.

The source of funds for a recently opened account or for a large increase must be explained and verified. Copies of the Borrower’s bank statements must reliably document that the funds were not recently borrowed. The statements should show that the funds were accumulated prior to funding.

Asset Type Qualifying Amount

Checking, Savings, and Money Market Accounts 100%

Business Funds

The use of business funds for down payment, closing costs and reserves is allowed for sole proprietors, partnerships and corporations, including S-corporations. When using these funds, each transaction must be analyzed in order to determine the Borrower’s percentage of ownership in the business, validate the Borrower’s ability to access business funds without any detrimental effect to the business and to ensure there is strength and stability within the business. When business funds are used for down payment, closing costs or reserves a letter from a CPA/Third Party is required to confirm that the use of the funds is not detrimental to the business and that the funds are not borrowed.

Ownership Verification:

Borrower’s ownership or interest in the business must be confirmed by documentation such as a business license or corporate or partnership tax returns.

Verification of the Availability of Funds:

Sole Proprietor: Verification that the Borrower has 100% ownership of the business, for example using the tax returns provided or a copy of the business license.

Partnership: Borrower must be a general partner and verification of the percent of ownership is required. Verification of the ability to withdraw funds to the extent of the percentage of ownership andapproval of the other general partners is required. The percentage of ownership can be validated using the U.S. Partnership Return of Income (IRS Form 1065) and the Partner’s Share of Income, Credits, Deductions, etc. (IRS Schedule K-1) for filing income tax returns for the partnership.

Corporation: Verification that the Borrower is 100% owner of the corporation or if the Borrower is not a 100% stockholder verification of the percent of ownership. In addition, verification of the ability to withdraw funds to the extent of the percentage of ownership is required, along with approval of the stockholders with a corporate resolution. The Borrower’s percentage of ownership can usually be determined from the Compensation of Officers section of the corporate tax return.

Self-Employed Borrowers

The following requirements are applicable for Self-Employed Borrowers using business funds:

All funds must be seasoned with the source of funds for any large deposits fully documented and explained.

Business assets must be verified using standard documentation requirements.




When business funds are used for down payment, closing costs or reserves a letter from a CPA/Third Party is required to confirm that the use of the funds is not detrimental to the business and that the funds are not borrowed. The Loan File must contain evidence that the funds are not advancement against future earnings or future cash distributions. The Loan File documentation must include a review of any potential tax implications on funds received.

Credit Card Financing

Certain loan costs may be paid outside of closing by the Borrower’s use of a credit card. The following costs can be financed:

Appraisal

Lock-in fees

Credit report

The aggregate total may not exceed $1,000. Sufficient funds to pay off the charged amounts must be verified. The Borrower does not need to pay off the charged amounts. The minimum monthly payment will be added to the debt ratios.

Retirement Accounts

Vested funds from individual retirement accounts (IRA/Keogh accounts) and tax-favored retirement savings accounts (401(k)) are acceptable sources of funds for down payment, closing costs and reserves.

Seller must verify the ownership of the accounts and the Borrower’s actual receipt of the funds from the liquidation of the assets, if needed to complete the transaction.

When funds from retirement accounts are used for reserves, it is not necessary to withdraw the funds from the account. It is necessary, however, to exercise caution when considering retirement accounts as reserves since these accounts often feature significant penalties for early withdrawal or have limited access and have vesting requirements. If the borrower has a scheduled distribution from a retirement account then the amount remaining after deducting the assets needed for a 3-year continuance can be used as reserves.

When using the funds as reserves, the Seller may use the following percentage of the vested amount:

Retirement Accounts (401(K) IRA, SEP, KEOUGH):

If the Borrower is < 59.5 years old) 55%

If the Borrower is > 59.5 years old) 65%

If the retirement account only allows withdrawals in connection with Borrower’s termination of employment, retirement or death, the Seller may not consider the vested funds for reserves.

Stocks, Bonds, and Other Securities

If the source of funds to close is proceeds from the sale of stocks, bonds, or other securities, then the Loan File must document their value and must contain proof that the Borrower owned such commodities. Acceptable evidence of ownership and value include:

A statement from the brokerage company indicating ownership of the securities and verifying the sale.

Verification from the bank where the securities were sold or redeemed.

Copies of sale documents.

A copy of the bond redemption tables (for value verification), and proof of liquidation, is required for government bond proceeds.





Publicly traded Stocks and Bonds 70%

Mutual Funds 70%

Other Accounts

Accounts such as annuities, trust funds and hedge funds may be utilized. Documentation must be provided to show that the funds are available to the Borrower and under what conditions the funds may be withdrawn. If being used for reserves, annuities are treated the same as retirement accounts.

Borrowed Funds Secured by Assets

Proceeds from a loan that was fully secured by the Borrower’s assets qualify as a source of funds to close, subject to the following requirements and guidelines:

The loan must be secured by an asset owned by the Borrower, such as a certificate of deposit, stock, bond, real estate (other than the Mortgaged Property), life insurance policy, savings account, or a bridge loan.

The loan must be from an institutional lender.

The DTI ratio calculation must show that the Borrower is qualified to pay the additional debt.

A copy of the executed note reflecting the terms and proof of the receipt of the funds must be provided.

Sale of Real Property

If the source of funds to close is proceeds from the sale of real estate owned by the Borrower, the amount of net proceeds must be documented with a copy of the final HUD-1 along with the receipt of the proceeds by the borrower.

Gift Funds

A Borrower purchasing may receive a gift to be used towards the down payment, prepaid items, closing cost andfinancing cost. For details on a specific program’s gift of equity or gift fund requirements, refer to the Galton FundingLoan Program Matrices.

Gift of equity is defined as equity in a property given by the owner to the Borrower when the Borrower purchases a home from an immediate family member, defined as parents, grandparents, siblings, spouse, children, aunts, and unclesGift of equity is acceptable from immediate family members and no repayment is expected. Property must be owner occupied. Verification of a gift of equity must be reflected on the purchase agreement or HUD-1. Gift of equity transactions must also comply with Interfamily Transfer requirements in this chapter.

A down payment of 100% from gift funds is allowed for LTVs of less than or equal to 80% or the program max when no secondary financing exists. In this instance, closing costs may also be in the form of a gift. Reserve requirements must be met by the Borrower’s own funds.

Gift funds must be verified by the following:

Signed gift letter

Must be from an immediate family member and indicate the donor’s relationship to the Borrower

Donor’s address and phone number

Subject property address

Dollar amount of the gift

Certification that it is a gift with no repayment required

Receipt of funds

Proof of the donor’s ability to provide the funds

Must be sourced and seasoned for 60 days

Gift funds received from foreign sources are unacceptable




Examples of acceptable proof of receipt of funds are a bank statement showing the deposit or a copy of the cashier’s check.

If the Borrower received a gift from a relative or domestic partner who has lived with the Borrower for the last 12 months, or from a fiancée, the gift is considered the Borrower’s own funds and may be used to satisfy the minimum Borrower contribution requirement if all individuals occupy the property.

Gift funds are not permitted from any donor that is a party to the transaction (except gifts of equity from the Seller) or is a real estate builder, developer, or in the business of owning, financing, or selling real estate.

Gifts of Equity

Gift of equity is defined as equity in a property given by the owner to the Borrower when the Borrower purchases a home from an immediate family member, defined as parents, grandparents, siblings, spouse, children, aunts, and uncles. Gift of equity is acceptable from immediate family members and no repayment is expected. Property must be owner occupied. Verification of a gift of equity must be reflected on the purchase agreement or HUD-1. Gift of equity transactions must also comply with Interfamily Transfer requirements in this chapter. Gift of equity transactions should be supported by an appraisal at fair market value. Generally, sales prices less than or greater than 10% of fair market value established by the appraisal are subject to further review and documentation.

TRANSACTION TYPES

This section describes the types of transactions for which Galton Funding will purchase loans.

PURCHASE

A Purchase transaction involves the purchase of a real property, as defined by a Sale and Purchase Agreement executed by the Borrower and home Seller that represents a First or Second Mortgage on the property.

Non-Arm’s Length

A non-arm’s length transaction is a transaction between family members, co-workers, friends or anyone associated with the transaction such as the listing agent, mortgage lender or broker.

Non-Arms’ length transactions are not eligible for purchase except for Gift of Equity (GOE) or inherited properties. Examples of non-arm’s length transactions include but are not limited to:

Relatives: Relatives are defined as individuals related by blood, marriage, adoption, or legal guardianship. Transactions between an individual and their spouse, parent, sibling, grandparent, aunt, uncle, cousin, stepparent or stepchild, regardless of whether the relationship is by blood, adoption, marriage, or legal guardianship are considered non-arm’s length. The definition also includes domestic partners and fiancées.

A purchase and sale transaction between relatives, including the estate of a deceased family member unless the transaction is a probate sale.

A financing transaction between relatives, such as the processing or origination of a Loan for a relative by an employee of the Seller.

Parents purchasing and financing a property for a child who then wants to refinance to pay-off the parents.

Employer/Employee

A purchase and sale transaction between an employer and an employee.

A financing transaction between an employer and an employee, including a Loan originated by the Seller for the Seller’s employee, contractor, or principal.

Landlord/Tenant

A purchase and sale transaction between a landlord and tenant, including lease option purchase options.

A Financing transaction between a landlord and tenant, such as the processing or origination of a loan for a tenant when the landlord is an employee of the Seller.

Home Builders

Purchase transactions where the Borrower is the owner of, or is employed by the homebuilder who has constructed the subject property.




Transactions where the principals of construction companies are involved in the sale and financing of the subject property, with the exception of qualifying builder owned lending operation transaction.

Real Estate Brokers/Agents: A transaction where the Borrower or a relative of the Borrower, is a licensed real estate broker or agent employed in the real estate industry and is involved in the financing or sale of the subject property, regardless of whether he/she receives a sales commission. This includes a Borrower or a relative of the Borrower.

Acting as the property seller’s agent under a listing agreement with the seller of the property;

Acting as his/her selling agent for a real estate broker;

Acting as both the listing agent and as the seller agent (dual representation); and

Employed by the Galton Funding Seller acting as the Loan interviewer.

Note: A transaction where the Borrower acts as his/her own real estate agent (buyer’s agent) in the purchase of a property will be considered arm’s length.

Third Party Service Vendors: A transaction where the Borrower is also a principal of a third-party vendor, such as a settlement agent, escrow company, title company, appraisal company, or credit reporting company providing such service for the subject Loan.

Seller Employees

A Borrower who is employed by the Seller of the Loan (i.e. no employee loans).

Owner Financed

The payoff of a loan currently financed by the seller of the property

A Interfamily Transfer

The HUD-1 must reflect the gift of equity as part of the transaction or the purchase price.

The property must be owner occupied (non-owner occupied interfamily transfers will be reviewed by Galton Funding on a case-by-case basis).

Interfamily transfers are considered Purchase transactions. For an interfamily transfer to be eligible for purchase by Galton Funding, the appraisal must support the value, AND:

Existing liens on the property must be current.

Full Documentation loans only.

The HUD-1 must reflect the gift of equity as part of the transaction or the purchase price.

For owner occupied properties, the maximum LTV/CLTV is 80% or the program maximum, whichever is lower.

For non-owner occupied properties, the maximum LTV/CLTV is 70% or the program maximum, whichever is lower.

Family members are defined as parents, grandparents, siblings, spouses, children, aunts and uncles

Renting Back the Current Residence

The Borrower may rent back their current home for up to 30 days from the closing sale date. In some cases such as relocations, Galton Funding, at their sole discretion may allow the rent-back period to be greater than 30 days.

RATE/TERM REFINANCE

A Rate/Term Refinance represents a First Mortgage that is used to pay off an existing mortgage(s) or lien(s) with a new loan. This loan secures the Mortgaged Property in order to acquire a different interest rate or loan term. Cash removal or debt consolidation other than incidental cash (the lower of 1% of the loan amount or $2,000), is not permitted.

A Rate/Term Refinance is when the Mortgage Loan proceeds are used for:

Reasonable and customary loan closing costs/fees.

Payoff of the First Mortgage.




Payoff of closed end subordinate mortgage(s) that:

Are at least 12 months seasoned

Were used to purchase the Mortgaged Property

Were used for documented home improvements

Payoff of Home Equity Lines of Credit where:

A cash draw greater than $2,000 has not been taken in the last 12 months.

OR

Proceeds have been used for documented home improvements.

Refinance Resulting from Divorce

A refinance transaction resulting from a divorce settlement wherein either the Borrower or the Co-Borrower is required to buy out the interest of the other spouse in the Mortgaged Property may be considered a Rate/Term Refinance transaction if:

The Borrower who will be acquiring sole ownership of the property receives no cash-out from the proceeds of the transaction.

The Borrower provides a copy of the divorce decree or the property settlement agreement reflecting the required buy-out.

Other divorce-related property right dissolution shall be treated as a Cash-Out Refinance transaction.

CASH-OUT REFINANCE

A Cash-Out Refinance is a loan whose proceeds are distributed for:

Debt consolidation

Cash-in-hand

Payoff of non-seasoned, closed-end subordinate mortgage(s)

Payoff of Home Equity Lines of Credit where cash has been drawn in the last 12 months and/or is greater than $2,000

Payoff of property tax liens

Payoff of federal and state tax liens

Here is an example of a Cash-Out Refinance:

Loan amount $175,000

Mortgage payoffs - $131,400

Consumer debt payoffs - $ 25,000 (cash-out)

Payoff property tax liens - $ 5,000 (cash-out)

Closing costs - $ 7,000

Cash to Borrower = $ 6,600 (cash-in-hand)

Total cash-out = $ 36,600 (cash-in-hand + cash-out)

Debt Consolidation

A debt consolidation refinance transaction involves the repayment of an existing loan from the proceeds of a new mortgage. If payment of credit cards or installment loans is a condition of loan qualification, the payoff must be indicated on the HUD-1 or otherwise documented.

In all cases, a 6-month property seasoning is required for cash-out/cash-in-hand transactions.




Multiple Refinances in Less Than Twelve Months:

If the Borrower has refinanced the subject property twice in the past twelve months, the borrower is ineligible for another refinance (rate/term or cash-out) under Galton Funding programs.

Property Owned Free and Clear

A Borrower who obtains a mortgage on a property that does not already have a mortgage lien against it is also defined as a Cash-Out Refinance transaction.

1031 TAX EXCHANGE

These transactions are not eligible.

CONSOLIDATION, EXTENSION, AND MODIFICATION AGREEMENTS (CEMA)

These transactions are not eligible.

CONTINUITY OF OBLIGATION

For Refinance Transactions, there must be a continuity of obligation if there is currently an outstanding lien that will be satisfied through the refinance transaction. Continuity of obligation is met when any one of the following exists:

At least one (1) borrower is obligated on the new loan who was also a borrower obligated on the existing loan being refinanced;

The borrower has been on title and residing in the property for at least twelve (12) months or can demonstrate a relationship (relative, domestic partner, etc.) with the current obligor;

The loan being refinanced and the title to the property are in the name of a natural person or a limited liability company (LLC), as long as the borrower was a member of the LLC prior to transfer. Transfer of ownership from a corporation to an individual does not meet the continuity of obligation requirements.

The borrower has recently inherited, or was legally awarded, the property (divorce, separation or dissolution of a domestic partnership).

Loans with an acceptable continuity of obligation may be considered either a Cash Out or Limited Cash Out as described in this Chapter.

If the borrower is currently on title but is unable to demonstrate an acceptable continuity of obligation, or if there is no outstanding lien against the property, the loan is still acceptable as a Cash Out Refinance, as detailed below:

If the purchase date is within six (6) to twelve (12) months prior to application date and there is no lien, the LTV must be based on the lesser of the original sales price or the current appraised value

If the purchase date is more than twelve (12) months and there is no lien, the LTV may be based on the current appraised value

If there is a lien and the borrower has been on title for at least six (6) months, the LTV is limited to 50%, or the program maximum, whichever is less based on the appraised value

DELAYED FINANCING

Borrowers who purchased the subject property less than six months prior to application are ineligible for a cash-out refinance. This includes transactions where the Borrower purchased the Subject Property for cash and is looking to obtain delayed financing.

CONSTRUCTION-TO-PERMANENT REFINANCE

A Construction-to-Permanent Refinance is a loan obtained to pay off an interim (short-term) loan used to finance the construction of the subject property. The transaction may be treated as a Purchase, Rate/Term Refinance, or Cash-Out Refinance. For information regarding the treatment of the Construction-to-Permanent financing, refer to the Loan-to-Value Ratio section in this chapter.




LAND CONTRACT REFINANCE

A Land Contract is an installment contract for the sale of land and improved structures. The home seller has legal title until the installment is paid and the buyer has equitable title during the term of the contract. Land Contracts are treated as refinance transactions. Land Contract transactions are acceptable on owner occupied properties only.

Land Contract/Contract for Deed (Recorded or Unrecorded)

A Land Contract/Contract for Deed is subject to the following:

The home seller must be the current owner of the property as reflected on the Preliminary Title Report/Commitment.

A copy of the Land Contract/Contract for Deed is required.

Canceled checks (front and back) or bank statements are required to evidence the down payment.

Copies of canceled checks (front and back) to evidence the monthly payments covering all months of residency for the past 12 months are required.

The Borrower might be eligible for a cash-out transaction depending on when the Land Contract/Contract for Deed was executed:

Executed Less Than 12 Months. If the Land Contract/Contract for Deed has been executed for less than 12 months, then the transaction must be Rate/Term Refinance and it will be based on the Appraised Valueor contract price, whichever is less; OR

Executed at Least 12 Months. If the Land Contract/Contract for Deed has been executed for at least 12 months, the Borrower may be eligible for a Cash-Out Refinance, and the transaction may be based on the Appraised Value.

Note: Some states do not recognize the Borrower as having an equitable position in the property until they have made their last payment under the Contract for Deed. In this case, the state would consider the transaction to be a Purchase. However, pursuant to these underwriting guidelines, all loans that pay off a Contract for Deed will be considered as a refinance.

Since the tax rate will be reassessed for the new transaction, the newly established tax rate will be used for qualifying the borrower.

Multiple Transactions Executed by One Seller

Multiple applications for Land Contract/Contract for Deed transactions that are executed by the same Seller, company, and/or individual are unacceptable.

A Land Contract/Contract for Deed executed by a company or property owner whose primary business is investments in real estate or rehabilitation of deferred maintenance properties are not be eligible.

LEASE OPTION-TO-PURCHASE

A Lease Option-to-Purchase is an agreement to lease a property for a specified period of time at an agreed-upon monthly rent payment. Under this option, a portion of the payments in excess of the market rents will be applied toward the down payment. Once the potential buyer has satisfied the terms of the down payment, he or she may execute the Option-to-Purchase the property at the sale price agreed upon in the Lease Option-to-Purchase agreement. Lease Option-to-Purchase transactions are eligible on owner occupied properties only. Loan proceeds can only be used to pay off the contract.

Rent Credit

Rent credit towards down payment will be accepted only for the portion of rent paid over and above established market rents per the appraiser by a market rent analysis. The appraiser must determine the fair market rent on Form 1007 Single-Family Residence or Form 216 Multi-Family Residence. Any rents in excess of “fair market rent” may be applied to the down payment.

Refund of Excess Deposit

If the Borrower earned a large amount of rental credit during the term of the Lease Option-to-Purchase, the Borrower may receive a refund of excess deposits at close. For example:




Purchase price $100,000

Option credit earned - $36,000

Subtotal $64,000

Loan amount (85% LTV) $85,000

Balance due on lease - $64,000

Excess deposit = $21,000 (Refund of excess deposit)


The following requirements and guidelines apply to Lease Option-to-Purchase transactions:

A copy of the executed Lease Option-to-Purchase agreement is required.

Proof of the Borrower’s earnest money deposit, in the form of copies of canceled checks (front and back) must be provided.

Copies of canceled checks (front and back) to evidence the monthly payments covering all months of residency for the past 12 months.

A documented lease with a Lease Option-to-Purchase and less than 12 months of seasoning will be treated as a Purchase transaction. The lesser of the purchase price or the Appraised Value will be used to determine the LTV/CLTV.

A Lease Option-to-Purchase with at least 12 months of seasoning will be treated as a refinance transaction. The Appraised Value will be used to determine the LTV/CLTV. Lease Option-to-Purchase transactions are eligible for Rate/Term Refinances only to pay off the contract. They are ineligible for Cash-Out Refinance transactions.

Lease Option-to-Purchase transactions that do not involve an earnest money deposit and/or monthly rent in excess of proven market rents will not be considered a Lease Option-to-Purchase transaction and must comply with standard Purchase guidelines.

INHERITED PROPERTIES

If a Mortgaged Property was inherited within the past 12 months, the following limitations apply:

The Borrower must have clear title.

If the Borrower is paying only existing mortgages and heirs with cash-out, the maximum LTV/ CLTV is 80%, or the maximum allowed for the grade and program, whichever is less. This will be treated as a Rate-Term Refinance.

The maximum LTV/CLTV on Cash-Out Refinances where the proceeds for debt consolidation or cash-in-hand is 70% or the maximum allowed for the program, whichever is less.

Rate/Term Refinances only for non-owner occupied properties.

Buying out additional heirs identified in the related will is allowed. A copy of the will must be provided, along with the buyout agreement signed by all of the beneficiaries identified in the will.

For inherited properties, there is no restriction for occupancy.

If the property was inherited more than 12 months ago, standard refinance guidelines apply.

LEASE BACK PURCHASE TRANSACTION

A Lease Back Purchase Transaction, where the lease-back period is greater than 30 days is an ineligible.

SELLER GUIDE CH AP TE R 6. LO AN PROGR AMS



6. LOAN PROGRAMS

Asset Qualifier Program............................................................................................................101

Program Eligibility ..................................................................................................................101

Selecting The Credit Score....................................................................................................102

Income Verification ................................................................................................................102

Asset Documentation ............................................................................................................102

Examples For Qualifying assets ............................................................................................105

Other Real Estate Owned......................................................................................................106

Examples for Additional Required Assets for Other Real Estate Owned..............................107

Gift Funds and Gifts of Equity................................................................................................108

4506-T Requirement..............................................................................................................108

Borrower Affirmation Regarding Ability to Repay..................................................................108

Bank Statement Program (24-Month and 12-Month Verification Options)...........................109

Income Documentation Requirements ..................................................................................109

Bank Statement Requirements..............................................................................................110

Streamlined Second Lien Program ..........................................................................................114

Program Overlays..................................................................................................................114

Non-Warrantable Condominiums.............................................................................................126




ASSET QUALIFIER PROGRAM

Borrowers are qualified on verified liquid assets. In all cases, the Borrower must have the demonstrated ability to repay the Loan. This program offers the opportunity to utilize a qualifying calculation based on the verification of assets and accumulated wealth as an alternative method to income verification to document the Borrower’s ability to repay.

PROGRAM ELIGIBILITY

The Asset Qualifier Loan Program is eligible for Prime A+ credit grade.

Loan Amounts and LTV/CLTV and Cash Out Limitations

Prior Housing History

Borrowers must have a fully documented, recent, consecutive, twenty-four month (24) housing history. Borrowers without a history of mortgage or paying rent in the last twenty-four (24) months are not eligible. This includes situations where the Borrower may have received a “rent holiday”, payments lapsed due to divorce/separation, or other instances where the most recent twenty-four month housing history is not consecutive and complete. Borrowers who own property free and clear are considered to have a mortgage history. In these instances, the insurance and tax payments will need to be verified to complete the required twenty-four month housing history.

In addition:

Mortgage/housing payment history on any property, regardless of the occupancy or lien status, is considered mortgage/housing history for grading purposes. A copy of the title or credit report must document the free and clear status.

If there is a private mortgage holder or the landlord is a private party then 24 months cancelled checks or bank statements are required to verify a satisfactory housing history.

Any payments on a timeshare will be treated as installment debt, regardless of how it is reported on the credit report.

Each contractual delinquency must be considered separately (i.e. a first and second lien). If the first lien and the second lien on a property are delinquent, it would be considered two delinquencies in the credit grade determination of the Borrower.

Eligible Borrowers:

U.S. Citizens

Permanent Resident Aliens

First-time Home Buyers (FTHB)

Borrowers must have a twenty-four (24) month verified rental history




Maximum Loan amount of $1,500,000

Maximum 60% LTV/CLTV or program maximum, whichever is less

Non-occupant Co-Borrowers are not allowed

Inter Vivos Revocable Trust (in Borrower’s name(s) only)

Ineligible Borrowers:

Irrevocable Trust

Power of Attorney not allowed

Non-occupant Co-Borrowers

Foreign Nationals

Non-Permanent Resident Aliens

SELECTING THE CREDIT SCORE

Galton Funding will select the Borrower’s credit score using one of the following methods:

If all three scores are available, the middle score will be used.

If only two scores are available, the lower score will be used.

Once the score is selected for each Borrower, the lowest selected score among all Borrowers is used for the Asset Qualifier program.

INCOME VERIFICATION

This program utilizes a qualifying calculation based on the verification of assets as an alternative method to income verification to document a Borrower’s ability to repay. As such, tax returns, 4506T, and transcripts are neither requested nor required.

Employment and income are not required to be disclosed on the loan application (1003). Since income sources are not being used, the income section of the 1003 can be blank or “Not applicable to this Loan” may be inserted. Business phone number, if applicable and contact information must be reflected on the 1003. This will be used for contact and verification purposes only. A Debt-to-Income (DTI) is not calculated.

ASSET DOCUMENTATION

Full asset documentation is required for both funds to close and reserves. Assets can be cash, stocks, bonds, IRAs, 401Ks, mutual funds, or retirement accounts. Trust funds may be considered if they are in the Borrower(s) name only. Asset levels in the verified accounts are expected to be consistent and sustained over the twelve (12) month period. Assets must be in liquid or semi-liquid form.

Asset statements reflecting other individuals who are not applicants for the Loan are not eligible. However, if the Borrower’s spouse is on the account and not on the Loan, the funds may be considered if a 100% access letter is provided.

Assets must be verified sufficient to cover the Loan amount requested with sufficient additional reserves to cover all revolving, installment, alimony/child support, and other monthly debt for a period of no less than five (5) years, plus the separate program reserve requirement based on the Loan amount.

The program utilizes assets and accumulated wealth by the Borrower as an alternative to income verification. Twelve (12) months of consecutive statements are required for each asset account. Any large increases or decreases must be adequately sourced. Increases or decreases greater than 15% of the ending balance month over month, must be documented and explained by the Borrower. Additional supporting documentation may be required. Inheritance, lottery winnings or any other windfall deposits are ineligible.




Asset statements reflecting the occurrence (one time or isolated incident) of NSF checks, wire transfers, overdraft protection transfers, negative ending balances and transfers from other accounts must be satisfactorily explained and documented. Asset statements reflecting multiple NSF checks, overdraft protection transfers, negative ending balances, or lack a satisfactory explanation indicate cash flow problems and are not eligible.

Eligible Assets

Eligible assets must be comprised of the following asset types, be available to the Borrower, and are limited as follows:


Checking, Savings, Money Market Accounts 100%

Publicly traded Stocks and Bonds 70%

Mutual Funds 70%

Retirement Accounts (401 (K) IRA, SEP, KEOUGH):

- If the Borrower is < 59.5 years old 55%

- If the Borrower is > 59.5 years old 65%

The above amounts shown for retirement accounts can only be used if a distribution plan has not already been set up. If a distribution plan has begun, the asset is not eligible for this program.

For eligible asset types, any debt tied to that asset must be netted out. For example, if stocks were purchased on margin or a 401(K) Loan was taken against the 401(K) account.

For Trust assets, the qualifying amount will be applied based on how they are held within the Trust. For example, any stocks and bonds within the Trust would have a 70% qualifying amount applied.

Ineligible Assets

The following asset types are not eligible:

Stock options

Privately held stock

Restricted Stock Units

Foreign funds

Deferred compensation

Non-regulated financial companies

Non-liquid assets (automobiles, artwork, business net worth, etc.)

Business Funds

Business funds are not eligible to be included in the total available asset calculation or qualifying calculation.

Payment Shock

Payment shock cannot exceed 100% if the Borrower is currently renting or 250% if the Borrower has a mortgage history in the past twenty-four months.

The payment shock requirement will be waived for the following:

The LTV is less than 65% OR

The Borrower has owned the home free and clear for 2 or more years (must be documented)




Payment shock is calculated by dividing the difference between the new and existing housing payments by the existing housing payment. For example:

New Payment (PITIA) $1,500

Subtract Existing Payment (Rent or PITIA) $1,000

Equals Difference $500

Divided by the Existing Payment $1,000

Equals Payment Shock % 50%

Reserve Requirements

Reserve requirements are in addition to the residual assets needed to cover debts for the initial sixty (60) month period.

Loan Amount Reserves Required

<= $1,000,000 9 months

>$1,000,000 up to $2,000,000 18 months

>$2,000,000 up to $2,500,000 24 months

Borrowers with other investment properties must also meet the requirements in ‘Other Real Estate Owned’ section.

Borrowers with AMEX accounts due in full on a monthly basis must subtract the full balance of the AMEX reflected on the credit report from the allowable assets.




EXAMPLES FOR QUALIFYING ASSETS

Please Note: The examples below outline the assets needed for qualifying. In addition to the qualifying assets, the Borrower must have verified funds for down payment and cash to close.

Qualifying Assets Example #1 (Borrower has Sufficient Assets, Additional Reserves not required):

Loan amount: $300,000

PITIA for subject: $2,500

Verified Assets:

$200,000 Checking and Savings (100% usable) = $200,000

$300,000 Stocks and Bonds (70% usable) = $210,000

$400,000 401K (65% usable) = $260,000

$300,000 Mutual Funds (70% usable) = $210,000

Total Allowable Assets = $880,000

Allowable Assets: $880,000

minus (-) Loan amount $300,000

Total Residual Assets: $580,000

Total of monthly debt (including but not limited to revolving, installment, and alimony/child support on the subject property, etc.) excluding subject P&I $2,000

Times (x) 60 month s= $120,000

Required number of months of reserves for $300,000 loan amount 9

PITIA $2,500

Required months of reserves times (x) PITIA = $22,500

Total required funds ($120,000+$22,500) = $142,500

Since the residual assets are more than the required funds to cover all other debt for 60 months plus required reserves,the Loan DOES qualify for the Loan Program.




Qualifying Asset Example #2 (Borrower has Insufficient Assets, Additional Reserves required):

Loan amount: $300,000

PITIA for subject: $2,500

Verified Assets:

$10,000 Checking and Savings (100% usable) = $10,000

$200,000 Stocks and Bonds (70% usable) = $140,000

$300,000 Mutual Funds (70% usable) = $210,000

Total Allowable Assets = $360,000

Allowable Assets: $360,000

minus (-) Loan amount $300,000

Total Residual Assets: $60,000

Total of monthly debt (including but not limited to revolving, installment, and alimony/child support on the subject property, etc.) excluding subject P&I $800

Times (x) 60 months = $48,000

Required number of months of reserves for $300,000 loan amount 9

PITIA $2,500

Required months of reserves times (x) PITIA = $22,500

Total required funds ($48,000+$22,500) = $70,500

Since the residual assets are LESS than the required funds to cover all other debt for 60 months plus required reserves, the Loan DOES NOT qualify for the Loan Program. Additional assets of $10,500 must be verified for the Loan to qualify for the Loan Program.

OTHER REAL ESTATE OWNED

Ownership of investment properties by the Borrower may require additional reserves if the aggregate net cash flow is negative. Current, fully executed long-term (minimum twelve months at execution) lease agreements are required to document rental income. Short-term, vacation room and market rents are not allowed.

Calculating Net Cash Flow:

Document the monthly full PITIA for the rental property

Multiply the monthly gross rent on the lease by 75%; the remaining 25% is assumed to be absorbed by vacancies and expenses

Net rent (after discount) minus PITIA equals net cash flow

For multiple rentals, net cash flow is cumulative

If net cash flow is positive no further action is required.

If net cash flow is negative, Borrower must have additional reserves (60 months x negative cash flow)

Example:

Negative cash flow = $525 per month

Required Additional Reserves = $31,500 ($525 x 60 months)




EXAMPLES FOR ADDITIONAL REQUIRED ASSETS FOR OTHER REAL ESTATEOWNED

Example #1 (Positive Cash Flow no Additional Assets Required):

Gross Rent = $3,500

Vacancy/Expense Factor 25% of Gross Rent = $875

Net Rent = $2,625

PITIA = $2,000

Positive Cash Flow = $625

Additional reserves required =

$0

The monthly cash flow has been met, so no additional assets are required.

Example #2 (Negative Cash Flow Additional Assets Required):

Gross Rent = $2,500

Vacancy/Expense Factor 25% of Gross Rent = $625

Net Rent = $1,875

PITIA = $2,000

Negative Cash Flow = $125


60 x Additional monthly liability ($125 x 60 = $7,500) $7,500

The Cash Flow has not been met and the Borrower would need to have an additional $7,500 in assets to qualify for the Loan Program.

Example #3 (No Rental Income):

Gross Rent = $0

Vacancy/Expense Factor 25% of Gross Rent = N/A

Net Rent = $0

PITIA = $2,000

Negative Cash Flow = $2,000


60 x Additional monthly liability ($2,000 x 60 = $120,000) $120,000

The Cash Flow has not been met and the Borrower would need to have an additional $120,000 in assets to qualify for the Loan Program.




GIFT FUNDS AND GIFTS OF EQUITY

Gift funds and gifts of equity are not allowed.

4506-T REQUIREMENT

Not required.

BORROWER AFFIRMATION REGARDING ABILITY TO REPAY

Each Loan submitted to Galton Funding must contain a signed acknowledgement from the Borrower regarding their ability to repay the Loan under this program. The Seller may utilize their own form, if the language contained is similar and inclusive of the language on the Galton Funding Form.




BANK STATEMENT PROGRAM (24-MONTH AND 12-MONTH VERIFICATION OPTIONS)

Galton Funding permits the use of personal or business bank statements to support a self-employed Borrower’s income for qualification purposes. The documentation provided needs to document that the income is stable, likely to continue and sufficient to enable the Borrower to repay the debt. The income presented must be reasonable for the profession. In addition, when using business bank statements to support the Borrower’s income, the nature and structure of the business must be evaluated to determine if the applied expense assumptions per Galton Funding’s guidelines are reasonable. Galton Funding reserves the right to require additional documentation, up to and including full documentation (i.e. tax returns) to determine the Borrower’s qualifying income.

For Loan amount and LTV/CLTV limitations, and for income documentation type and eligibility, refer to the Galton Funding Loan Program Matrices.

Eligible Borrowers

To be eligible for this program, the Borrower must be self-employed or earn over 25% of their income from self-employment, rental income, commission, bonus, or tip sources. Self-employed borrowers are:

Borrowers who derive 25% or more of their primary income from a business in which they hold a controlling interest.

Borrower who derive their primary income from commissions, consultation fees, interest, gratuities, or real estate rents.

Borrowers who rely on investments for income such as interest, dividends, capital gains, or real estate rents.

If one of the Borrowers meets this eligibility requirement and the other does not, the Borrower that is not eligible must fully document their income. The net deposits used from the bank statements for the self-employed borrower must not reflect the income that is fully documented for the other applicant (i.e. deduct Social Security payments, W-2wages, etc.).

The Borrower’s business may be a sole proprietorship, a partnership (general or limited), or a corporation. They may also receive income documented by Form1099, or filed on a Schedule C.

The Borrower must have been in the same line of work or own the same business entity for two years. Self-employed Borrowers must be able to document by a neutral third-party that the business has been in operation for the last two years and that they have had ownership for that period of time. Third-party verification includes:

A letter from a certified public accountant (CPA)

A letter from a regulatory agency or professional organization

Copy of business license

Non-arm’s length transactions or Borrowers that receive foreign income are ineligible.

INCOME DOCUMENTATION REQUIREMENTS

The Borrower’s application must include all sources and amounts of income. The bank statements must support the income listed on the application. Deposits from income sources that are not reflected on the 1003 or those not needed to qualify will not be included in the qualifying income calculation. Income sources separate from self-employment must be verified. Examples of verification include social security letter, employment verification, or divorce decree. If tax returns or VOE are provided for the Borrower using bank statements to support their income, the Loan must be fully documented.

Given the difficulty tracking and validating that cash flows are not moving between business entities, Borrowers that own multiple businesses must use personal bank statements to support their income. Their personal bank statements should demonstrate the distributions they receive from their business interests to satisfy their personal obligations. Also, business bank statements may not be used when the Borrower’s business has a number of employees, significant overhead or operating expenses. These would suggest that the expense assumption used in this program would not be applicable. This program is designed for the use of business bank statements when the Borrower’s business is small in scope and has limited expenses.

Non-taxable income, such as child support payments, disability retirement plans, and worker’s compensation may be adjusted by 25% to determine the qualifying income. Verification must be made that the particular source of income is nontaxable and that both the income and its nontaxable status are likely to continue.




Bank statements reflecting the occurrence (one time or isolated incident) of NSF checks, wire transfers overdraft protection transfers, negative ending balances and transfers from other accounts must be satisfactorily explained and documented. Bank statements reflecting multiple NSF checks, overdraft protection transfers, negative ending balances, or lack a satisfactory explanation indicate cash flow problems and are not eligible.

BANK STATEMENT REQUIREMENTS

Income may be documented by either personal or business bank statements. The co-mingling of personal and business or multiple business accounts is not allowed. If one account is used to show income and another account used for reserves, documentation must be provided to show evidence that the funds are separate and distinct.

Please note: Only one set (twelve or twenty-four months) of bank statements will be used to determine qualifying income. If another account is used for reserves, only two month’s statements to establish seasoning are required.

If additional bank statements are provided by the Seller they will be reviewed and become part of the overall review of the Loan. Given the difficulty to reconcile funds between accounts, it may cause the Loan to become ineligible or require the Loan to be fully documented.

Borrowers who own multiple business entities must use personal bank statements to support their income. The most recent twenty-four (24) or twelve (12) months bank statements must be provided depending on the selected Loanprogram.

For Loan amount and LTV/CLTV limitations, and for income documentation type and eligibility, refer to the Galton Funding Loan Program Matrices.

Ineligible Bank Accounts

The following outlines the types of bank statements that are ineligible for the Galton Funding bank statement programs.

Co-mingling of accounts whether personal and business or multiple business accounts is not allowed.

Bank statements reflecting other individuals who are not applicants for the Loan are not eligible. However, if the Borrower’s spouse is on the personal bank account and not on the Loan, only 50% of the total deposits may be used for qualifying.

Borrowers with multiple businesses may not use business bank statements to support their income. Personal accounts are acceptable.

Business bank statements may not be used when the Borrower’s business exhibits a number of employees, overhead, and operating expenses. In this case, personal bank statements may be used.

Bank statements which exhibit recurring NSF, wire transfers, overdraft protection transfers, and negative ending balances are unacceptable.

A current twenty-four (24) or twelve (12) month history or the same bank account is required. Changing of accounts is not acceptable.

Eligible Bank Accounts

The following types of bank statements are eligible for the Galton Funding bank statement programs:

Personal or business account such as a checking or savings account.

Deposits must be consistent and typical whether personal or business accounts are used.

Deposits that are larger than typical for the account may be included with a satisfactory explanation. Supporting documentation may be required. Atypical deposits are defined as more than 50% of the gross monthly determined income.

If the Borrower’s spouse is on the personal bank account and not on the Loan, only 50% of the total deposits may be used towards qualifying income. Business accounts may only be used when the following applies:

Borrower (s) owns 100% of the business.

The business must be small in nature and have minimal overhead and operating expenses.




Low beginning and /or ending balances may require additional documentation up to and including full tax returns (1040’s, 1065’s 1120’s, etc.).

Determining Cash Flow from Bank Statements

Galton Funding takes a common sense approach to underwriting a Borrower’s creditworthiness to determine the willingness and ability to repay the Loan. This program provides for income calculation based on bank statements as an alternative method to tax returns to document the self-employed Borrower’s ability to repay. Each Borrower has a different situation and each Loan needs to be weighed on its own merit. If the Borrower is self-employed or in a unique business, a narrative must be provided by the Borrower that clearly outlines the nature of the business and the cash flows. The expense assumptions must be reasonable for the type of self-employment. Decreasing income trends must be explained and additional documentation may be required.

Any irregularity in the Borrower profile or the documentation provided may be cause for the Loan to become ineligible for purchase.

Calculating Income from the Bank Statements:

The following outlines how to calculate the income using the Borrower’s bank statements. The lesser of the income stated on the application or the calculated income using the cash flow from the bank statements will be used to qualify the Borrower. The allowances below may be used to establish qualifying income:

100% of the deposits from the Borrower’s personal accounts

70% of the deposits from the Borrower’s business accounts

If the business expenses appear to be greater than 30%, the use of business bank statements to support the Borrower’s income will not be accepted. Personal bank statements will need to be provided. Examples of businesses that would typically have expenses that exceed 30% include a construction company, restaurant, or retail firm.

The average deposits will be used to determine the Borrower’s income for qualification purposes. Deposits must be typical and consistent for the Borrower’s line of work. Transfers from a Borrower’s business account to a personal account are acceptable if they are consistent, i.e. the Borrower is paying himself regular distributions.

Atypical deposits may not be included unless supporting documentation is provided to show that the monies would be typical for the Borrower’s type of business or line of work. Credit back from returns and cash advances from credit cards are not acceptable to be included in the qualifying income.

For assistance with the calculation of income from bank statements, please refer to the Galton Funding Bank Statement Calculator. This tool is for reference and is not required at the time of submission to Galton Funding for review.

Bank Statements with Rental Income

Rental income may be used in qualifying a Borrower under the Bank Statement Program. All the rental income must be shown in the Borrower’s bank statements to be considered in qualifying income. The rental income shown on the bank statements must support the rental lease amounts.

Room rents are an ineligible source of income. If any of the units in a property are receiving room rents than none of the rental income received for the property may be used as qualifying income. If the Borrower is receiving room rents on any of their properties, the Loan must be fully documented and is not eligible for the Galton Funding Bank Statement Programs.

All owner- occupied two-to-four unit properties and all investment properties require a rental income analysis to determine positive or negative cash flow. Rental income on a second home is not allowed. The following is required to support the rental income shown on the application:

Rent Survey Form 1007 and Operating Income Statement (FNMA Form 216) – Subject property only

Complete Schedule of Real Estate Owned (1003)

Complete Rent Schedule outlining the property address, length of ownership, rent received, and payment details (PITIA).

Copies of the fully executed lease agreements

If the rental income is not shown on the bank account used to determine the Borrower’s qualifying income, one additional account may be used to support the rental income. The following applies:




Documentation must be provided to show the account is separate and distinct from the bank account being used to determine the Borrower’s qualifying income

The account must have been set up for the management of the rental income only. If other funds are co-mingled with the rental income the account is ineligible.

The bank statements must support the receipt of the income as outlined on the lease(s).

Six months bank statements will be required to show evidence of rental income receipt

Actual rents must be documented with copies of the signed leases. Room rents are an ineligible source of income. If any of the units in a property are receiving room rents than none of the rental income received for the property may be used as qualifying income. Rental income received from a family member may not be used as income without copies of a minimum of six months’ cancelled rent checks provided by the tenant family member.

If multiple accounts have to be used to support the receipt of the rental income, the Loan must be fully documented. If the bank statements presented do not support the rent schedule and the leases presented, the Loan must be fully documented.

Rental Income Calculation

Income received from rental properties will be calculated as follows:

75% of actual rents, as established by the fully executed lease(s)

If the lease is incomplete, expired, or not yet in effect, the entire payment will be included in qualifying ratios

A positive cash flow will be added to gross income; negative cash flow will be added to total liabilities and used to qualify the Borrower. If the Borrower owns multiple properties then rental income may be calculated on an aggregate basis.

A Loan for the refinance of an investment property generating a negative cash flow will be ineligible.

Verbal Verification of Employment

A verbal verification of employment within 10 days of the Loan closing must be performed.

4506T Requirement

Not Required.

Borrower Affirmation Regarding Ability to Repay

Each Loan submitted to Galton Funding must contain a signed acknowledgement from the Borrower regarding their ability to repay the Loan under this program. The Seller may utilize their own form, if the language contained is similar and inclusive of the language on the Galton Funding Form.

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NON-WARRANTABLE CONDOMINIUMS

Non-warrantable condos are acceptable under the following circumstances:

Category Non-Warrantable Allowances

Litigation Projects involved in litigation are ineligible.

HOA ReservesHOA Budget must include a dedicated line item allocation to replacement reserves of at least 8% of the budget. All projects must have a Homeowners Association.

Completion Status

The project, or the subject’s legal phase along with all prior phases, must be substantially complete (up to buyer preference items). All Common elements in the project or legal phase must be 100% completed. At least 50% must be sold or under bona-fide contract.

Investor ConcentrationMaximum investor concentration of 60%. Calculation based on total units in current and previous legal phases.

Single Entity OwnershipNo single entity (an individual, investor group, partnership or corporation) may own more than 20% of the total units in the project.

HOA in Builder’s NameThe developer may be in control of the condominium association provided the Master Agreement provides for the homeowners to take control upon either a predetermined percentage of unit sales or within a defined time period.

Delinquent HOA DuesNo more than 20% of total units in a project may be 60 days or more past due on the payment of condominium / association fees.

Property TypeLow-, mid- and high-rise condos are eligible. Complexes over four stories must be common to the area. Projects less than 10 units must be typical and common for the market area.

Commercial Space Maximum 30% of the total space is used for non-residential purposes.

Note: projects with a rental desk on site are not allowed.

Eligible Loan Programs

Non-Warrantable Condominiums are allowed, refer to Galton Funding Loan Program Matrices for additional information.

SELLER GUIDE CH AP TE R 7. COLL ATER AL



7. COLLATERAL

Eligible Property Types .............................................................................................................128

Single-Family Residence.......................................................................................................128

Row Home.............................................................................................................................128

Townhouse ............................................................................................................................128

Multi-Family ...........................................................................................................................128

Modular Homes (Panelized, Pre-Cut Homes) .......................................................................128

Planned Unit Development (PUDs) .......................................................................................128

Condominiums.......................................................................................................................131

Non-Warrantable Condominiums.............................................................................................137

Rural Properties .........................................................................................................................137

Ineligible Property Types ..........................................................................................................137

Occupancy..................................................................................................................................139

Owner Occupied Primary Residence ....................................................................................139

Second Home or Vacation Homes ........................................................................................139

Non-Owner Occupied Investment Properties........................................................................139

Property Underwriting ...............................................................................................................140

Seller Considerations: ...........................................................................................................140

Appraiser Qualifications.........................................................................................................141

Appraisal Requirements ........................................................................................................141

Appraisal Evaluation..............................................................................................................143




ELIGIBLE PROPERTY TYPES

The property types eligible for purchase by Galton Funding programs are listed below. For property type eligibility, refer to the Galton Funding Loan Program Matrices.

SINGLE-FAMILY RESIDENCE

A site-built dwelling designed for single-family use only. The dwelling may share one wall with a residence owned by another. The units may be either detached or attached in groupings of two (“twin home”).

ROW HOME

A site built attached housing unit that is designed for the use of one family and is built on land owned by the Borrower. A row home is not classified as a Planned Unit Development (PUD) or condo, does not share any common areas, does not pay Homeowners’ Association fees or have covenants, conditions, and restrictions like other attached dwellings. These homes are usually two or more stories with a front and rear entrance only. Row homes are typically located in communities of row homes with similar construction type and appearance and typically fill an entire block.

TOWNHOUSE

A site built attached dwelling unit generally having two or more floors, and attached to other similar units via party walls. Townhomes are often used in Planned Unit Developments and condominium developments, which provide for clustered or attached housing and common open space.

May be considered single-family, or a PUD depending on the above descriptions.

MULTI-FAMILY

Multi-family homes are a type of residential structure with more than one dwelling unit. Properties with more than four units are ineligible.

Two-family. A site built dwelling designed for 2 families owned by the same party(s)

Three-family. A site built dwelling designed for 3 families owned by the same party(s)

Four-family. A site built dwelling designed for 4 families owned by the same party(s)

Additional scrutiny will be used in situations where a Borrower currently owns a residence and plans to rent it out while purchasing a 3-4 unit property as an owner-occupied property.

The appraiser must provide three rental and three sale comps with legible photos. The income approach must be completed.

MODULAR HOMES (PANELIZED, PRE-CUT HOMES)

Modular homes are factory-built homes constructed to the state, local, or regional building codes where the home will be located. Modular homes are multi-sectioned units that are transported to the site and installed. Modular homes are treated the same as single-family residences. One comparable must be a modular/prefabricated home. Manufactured homes are not acceptable as comparables.

PLANNED UNIT DEVELOPMENT (PUDS)

Project Requirements for PUDs

The Seller must ensure that all PUD properties comply with the requirements and warranties described in this section. A PUD must comply with PUD warranties. Galton Funding reserves the right to:

Determine whether a particular Mortgaged Property is a PUD.

Require the Seller to submit, at the Seller’s expense, an opinion of legal counsel, in form and substance, satisfactory to Galton Funding, and all supporting data that supports the Seller’s PUD warranties.

Fulfillment of these project requirements does not release the Seller from the responsibility of ensuring that the project complies with additional requirements set forth in this Guide.




Planned Unit Development (PUD)

A Planned Unit Development (PUD) is a development that has all of the following characteristics:

The individual unit owners own a parcel of land improved with a dwelling. This ownership is not in common with other unit owners.

The development is administered by a Homeowners’ Association (HOA) that owns and is obligated to maintain property and improvements within the development for the common use and benefit of the unit owners.

The unit owners have an automatic, non-severable interest in the HOA and pay mandatory assessments.

Classifications of a PUD are not based on its zoning. While there are many styles of homes that can be within a PUD (townhouse, single-family, detached, quads, etc.), this is not the basis of determination. The development must meet the above definitions, and the Seller must make all warranties required for this type of ownership.

Planned Unit Development (PUD) Classifications

There are two classifications for PUD projects; 1) Type E are established PUD projects and 2) Type F are new PUD projects. If the Mortgaged Property is a detached PUD, no additional analysis is required.

If the subject is an attached PUD, the following review is required:

Type E Warranty:

Type E warranty applies to established PUD projects in which the HOA has been turned over to the unit purchasers.

This is the sole eligibility criterion for qualifying as a Type E project.

Manufactured homes are not allowed.

Type F Warranty:

Type F warranty applies to new PUD projects that are still under control of the developer. The project must meet the following eligibility criteria:

The project cannot have been created by the conversion of existing buildings into a PUD.

The project may not include any multi-dwelling units that represent the security for a single mortgage.

A sufficient number of the total units in the project (or legal phase) must have been conveyed or be under contract to be sold to the purchasers in order for the lender to determine whether the presales will support the responsibilities of the HOA for at least two years.

The units must be owned in fee simple or leasehold and the unit purchasers must the sole ownership interest in, and right to the use or, the projects’ facilities once control of the owners’ association has been turned over to them.

Manufactured homes are not allowed.

The HOA should complete a Limited Project Review Questionnaire (see Forms chapter) for a determination that the Type F warranty requirements have been met. The Full Project Review Questionnaire (see Forms chapter) will be required for all New Associations (less than 1 year) and all Non Fannie/Freddie Approved Projects.

Galton Funding reserves the right to limit the number and/or aggregate dollar amount of loans purchased in any one subdivision or PUD project or to declare loans in any project ineligible for purchase.

PUD Warranties

The Seller must make the following warranties for each mortgage secured by a PUD unit:

The property meets the definition of a PUD as described above.

All property insurance requirements, as outlined in this Guide, have been met.

One entity does not own more than 10% of the subject project (applies to attached PUDs only).




Eligible PUD Project Types

If the Mortgaged Property is a detached PUD, additional restrictions are not required.

Attached PUD projects with the following characteristics are eligible:

At least 90% of the total units in the project have been conveyed to the unit purchasers

The project is 100% complete, including all units and common elements

The project is not subject to additional phasing or annexation

Ineligible PUD Project Types

Attached PUD projects with any of the following characteristics are ineligible:

Properties less than 400 square feet. In all cases, the property must be typical and common for the market area and supported by two comparables.

Projects in current or threatened litigation are typically ineligible. Litigation may be acceptable if it is determined to be minor and immaterial. Any project for which the developer, project sponsor, or HOA is named as a party to litigation or pending litigation that relates to the safety, structural soundness, habitability, or functional use.

If the master liability policy does not cover a lawsuit or judgment, or special assessments need to be imposed to cover the lawsuit or judgment

Projects managed and operated as a hotel/motel or contain the word hotel/motel in the name. They may have the following characteristics, however, this list is not inclusive:

Daily, monthly or seasonal rentals

Centralized phone and/or key systems

Food or beverage service (room service) is available to the individual units

Lack of a full kitchen within the unit

Housekeeping services on a daily or weekly basis

Advertising of rental rates

Registration service (check-in desk, off-site desk)

Restrictions on interior decorating or furnishings, or the units are sold fully furnished

Franchise agreements

Low owner occupancy density with limited or no owner-occupants

Affiliation with and/or managed by an entity such as a hotel or hospitality chain

Impose black-out dates or do not have year-round access

Shares facilities, common elements or amenities with a hotel or resort that is owned and managed by the developer or another third-party entity

Projects with mandatory rental pooling agreements that require unit owners to either rent their units or give a management firm control over unit occupancy

Project management and marketing practices such as:

The developer or a third-party entity expects to retain ownership or control of the project

The developer or a third-party entity retains ownership or control of any common elements or amenities

Unit owners have no control over any third-party entity that succeeds the developer

Commercial space over which the unit owners have no control

The PUD documents and any amendments are silent on the presence of common elements and/or amenities, their use and/or ownership, or they state that common elements and/or amenities may be added to, expanded, or deleted as determined by the developer or another third-party entity without the consent of the unit owners or the HOA.

Manufactured housing projects




Projects with revenue sharing by either the HOA or unit owner

Projects with non-incidental business operations (such as restaurants, health club, spa, etc.) owned and operated by the HOA.

Time-share or segmented ownership projects

Common interest apartments

The developer, third-party entity, or the HOA operates commercial facilities within the project or master association, such as retail stores, restaurants, golf course, common areas, recreational facilities, and amenities usually associated with luxury hotels and resorts.

Assisted living or senior care facilities that have a minimum age requirement and/or provide meal or healthcare services

Continuing care retirement community (CCRC) or life-care facilities. These are residential projects that are designed to meet the health and housing needs of seniors as their needs change over time.

Multi-unit PUDs that permit an owner to hold title to more than one unit, with ownership of all of the owned unites evidenced by a single deed and financed by a single mortgage

Any project owned by several owners as tenants-in-common or by a HOA in which the individuals have an undivided interest in a residential apartment building and land, and have the right of exclusive occupancy of a specific unit in the building.

Live-work type PUDs such as artist’s studio, workshops, factories and galleries.

Own your own property situations where the legal description gives the Borrower the right to occupy a given unit rather than the actual ownership of the unit.

Projects with commercial space used for non-residential purposes that exceeds 20% of the total space

Projects in which a single entity (individual, investor group, partnership, or corporation) other than the developer, owns more than 10% of the units.

New projects in which the property seller offers sales/financing structures in excess of the maximum allowable contributions for individual loans.

Any project that represents a legal, but non-conforming uses of the land, if zoning regulations prohibit re-building improvement to current density in the event of their full or partial destruction

Projects with mandatory club memberships or leased amenities.

CONDOMINIUMS

A condominium unit is a single-family dwelling located in a Condominium Project. Each unit owner has title to a single unit in the building plus an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas. A condominium is real estate that is generally defined as separate ownership in a residential unit with an undivided interest in the real estate designated for common ownership solely by unit owners. Building types may be low-rise (less than four stories), mid-rise (five to eight stories) or high-rise (greater than eight stories), attached, detached, and/or site condominiums.

Condominiums create additional risk because the Homeowners’ Association (HOA) has legal rights that could adversely impact the mortgagee’s rights. Depending on the financial management of the HOA, the value of the project (unit) can be adversely affected.

Galton Funding will purchase loans secured by units in Condominium Projects, relying primarily on the Seller’s warranties. The sustainability, marketability, and financial stability of the project must be supported by the appraisal, market information, and county records. The project must be located in an area where condominium ownership is common and acceptable.

A Warrantable Condominium is a Condominium Project that meets Agency-eligibility standards and insurance requirements.




Condominium Project Review

A project review is required for all Condominium Projects. If the project has not been approved by Fannie Mae, the Originator must initiate the appropriate review, secure the approval, and deliver the approval documentation to Galton Funding as part of our project review. For projects that are already Fannie Mae-approved, approval-related documentation must be included in the Loan File submitted for project review.

The following documentation must be supplied for project reviews:

The Seller’s Loan Approval (Fannie Mae Form 1008) with the type/class indicated on the form

Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073/465 or Form 1075/466). Site condominiums can be completed on either the Individual Condominium Unit Appraisal Report or Single Family Residential Appraisal Report. Common areas and amenities must be inspected by the appraiser and documented.

A completed copy of the Warranty of Condominium Project Legal Documents (Fannie Mae Form 1054). Sellers may use their own form provided that it includes all the required information.

HOA certification

Insurance declaration page

Flood determination certificate

Current project budget – at least 10% of the budget provides funding for replacement reserves for capital expenditures and deferred maintenance

CPM/PERS project approval documentation (CPM project acceptance certificate). The expiration date must not be prior to the Closing Date.

Attorney opinion letter, if applicable

An environmental hazard assessment is required for Condominium Projects if an environmental problem is identified by the Seller or Galton Funding through performance of its project underwriting or Due Diligence.The solution to the problem must be deemed acceptable by Galton Funding.

The following Fannie Mae project types are acceptable:

S-CPM Expedited Review or Lender Full Review – established projects

Fannie Mae Full Review - Projects that received a final project approval (PERS)

Sellers must provide all documentation referenced above that supports the warranty of the project. Loans may be suspended for purchase pending receipt of this information. While the Seller may need to obtain additional documents as CC&Rs and bylaws, articles of incorporation, project legal documents, etc. to determine project eligibility, it is not necessary to provide them in the Loan File. Condominium projects are divided into the following categories:

New projects: A project in which:

Project or legal phase is not fully complete or subject to additional phasing or annexation, proposed construction, or new construction, or

Less than 90% of the total units in the project have been conveyed (sold) to unit purchasers, or

The control of the HOA has not been turned over to the individual unit owners.

Established projects: A project which:

The project is 100% complete, and is not subject to additional phasing or annexation

90% or more of the total units have been conveyed (sold) to the unit purchasers (other than the developer), and

The control of the HOA has been turned over to the individual unit owners.

Site (Detached) Condominium: A detached dwelling unit located in a Condominium Project comprised entirely of site (detached) condominiums that are not manufactured housing.




Two- to Four-Unit Projects: A project that is comprised of at least two but no more than four one-unit dwellings that are each separately owned with separate legal descriptions.

Project Concentration Limits

Galton Funding limits each Seller and Borrower to no more than the greater of five units or 10% of the total units in a specific project within a 12-month period. This restriction applies across all product lines. No single entity other than the developer may own more than one unit in a two-to-four unit project.

Galton Funding reserves the right to limit the number and/or aggregate dollar amount of loans purchased in any one subdivision or Condominium Project, or declare loans in any project ineligible for purchase.

Eligible Project Types

Condominium projects with the following characteristics are eligible:

At least 90% of the total units in the project have been conveyed to the unit purchasers.

The project is 100% complete, including all units and common elements

The project is not subject to additional phasing or annexation and;

Control of the HOA has been turned over to the unit owners

Note: Non-Warrantable Condominiums are eligible with restrictions. Please refer to the Non-Warrantable Condominium section for program and guideline criteria.

Ineligible Project Types

Condominium projects with any of the following characteristics are ineligible:

Condominium conversions

Properties less than 400 square feet. In all cases, the property must be typical and common for the market area and supported by two comparables.

Projects in current or threatened litigation are typically ineligible. Litigation may be acceptable if it is determined to be minor and immaterial. Details of the litigation must be submitted to Galton Funding to determine acceptability.

Any project for which the developer, project sponsor, or HOA is named as a party to litigation or pending litigation that relates to the safety, structural soundness, habitability, or functional use.

If the master liability policy does not cover a lawsuit or judgment, or special assessments need to be imposed to cover the lawsuit or judgment

Projects managed and operated as a hotel/motel or contain the word hotel/motel in the name. They may have the following characteristics, however, this list is not inclusive:

Daily, monthly or seasonal rentals

Centralized phone and/or key systems

Food or beverage service (room service) is available to the individual units

Lack of a full kitchen within the unit

Housekeeping services on a daily or weekly basis

Advertising of rental rates

Registration service (check-in desk, off-site desk)

Restrictions on interior decorating or furnishings, or the units are sold fully furnished

Franchise agreements

Low owner occupancy density with limited or no owner-occupants

Affiliation with and/or managed by an entity such as a hotel or hospitality chain

Impose black-out dates or do not have year-round access

Shares facilities, common elements or amenities with a hotel or resort that is owned and managed by the developer or another third-party entity




Projects with mandatory rental pooling agreements that require unit owners to either rent their units or give a management firm control over unit occupancy

Project management and marketing practices such as:

The developer or a third-party entity expects to retain ownership or control of the project

The developer or a third-party entity retains ownership or control of any common elements or amenities

Unit owners have no control over any third-party entity that succeeds the developer

Commercial space over which the unit owners have no control

The condominium documents and any amendments are silent on the presence of common elements and/or amenities, their use and/or ownership, or they state that common elements and/or amenities may be added to, expanded, or deleted as determined by the developer or another third-party entity without the consent of the unit owners or the HOA.

Manufactured housing projects

Projects with revenue sharing by either the HOA or unit owner

Projects with non-incidental business operations (such as restaurants, health club, spa, etc.) owned and operated by the HOA.

Time-share or segmented ownership projects

Common interest apartments

The developer, third-party entity, or the HOA operates commercial facilities within the project or master association, such as retail stores, restaurants, golf course, common areas, recreational facilities, and amenities usually associated with luxury hotels and resorts.

Assisted living or senior care facilities that have a minimum age requirement and provide meal or healthcare services

Continuing care retirement community (CCRC) or life-care facilities. These are residential projects that are designed to meet the health and housing needs of seniors as their needs change over time.

Multi-unit condominiums that permit an owner to hold title to more than one unit, with ownership of all of the owned unites evidenced by a single deed and financed by a single mortgage

Any project owned by several owners as tenants-in-common or by a HOA in which the individuals have an undivided interest in a residential apartment building and land, and have the right of exclusive occupancy of a specific unit in the building.

Live-work type condominiums such as artist’s studio, workshops, factories and galleries.

Own your own property situations where the legal description gives the Borrower the right to occupy a given unit rather than the actual ownership of the unit.

Projects with commercial space used for non-residential purposes that exceeds 20% of the total space

Projects in which a single entity (individual, investor group, partnership, or corporation) other than the developer, owns more than 10% of the units.

New projects in which the property seller offers sales/financing structures in excess of the maximum allowable contributions for individual loans.

Any project that represents a legal, but non-conforming uses of the land, if zoning regulations prohibit re-building improvement to current density in the event of their full or partial destruction

Projects with mandatory club memberships or leased amenities.

Multiple property types within the project (e.g., townhomes and condominium units within the same HOA)

Site Condominiums

Condominium projects composed of detached, one-unit dwellings that meet the following conditions will be treated the same as single-family residences:




The Condominium Project consists solely of detached one-unit dwellings. (Manufactured homes are not permitted.)

The Mortgage Property is owner occupied.

These transactions must comply with all general condominium requirements outlined in this section.

Warranties for Site Condominiums

If the Mortgaged Property is a site condominium unit, the Seller warrants the following to Galton Funding as of the Purchase Date:

The mortgage on the subject property is covered by a title insurance policy that includes ALTA Form A, Condominium endorsement.

The property is covered by hazard, flood, liability, and fidelity insurances as required under the Insurance Requirements section of this chapter.

Insurance Requirements

The Seller must confirm the HOA has a legal obligation to maintain adequate insurance and the budget is sufficient to cover insurance expenses.

Hazard Insurance. Blanket all risk policy with 100% of insurable replacement cost, the deductible may not to exceed 5% of policy face amount per building. A hazard declaration page must be included with the Loan File as evidence of insurance. The declaration page must also contain a reference to the subject property. The policy should include a “severability of interest” clause or a specific endorsement to preclude the Insurer’s denial of a unit owner’s claim because of negligent acts of the HOA or other unit owners. The policy should also provide for 10 days’ notice of cancellation.

Flood Insurance. The policy must be less of 100% of insurable value or the maximum coverage allowed per NFIP. Coverage of each unit should be the lesser of $250,000 or the amount of its replacement cost. Deductible may not exceed $25,000 per building located in the flood zone.

Liability Insurance. General liability of $1,000,000 per occurrence is required for all condominiums.

Fidelity Bond. Insurance equal to the greater of 1) three months of assessments/maintenance fees of all units in the project, or 2) the maximum funds that will be in the custody of the HOA or its agent at any time while the policy is in force is required or the following reviews:

Type R with 21 units or more in the project

Type S with 21 units or more in the project

Type T

Type U

HO6- (Walls-In) Coverage: that is no less than 20% of the condo unit’s Appraised Value(5% deductible limit).

Legal Review

Compliance with Laws. The Condominium Project must be created and exist in full compliance with state law requirements of the jurisdiction where the project is located an all other applicable laws and regulations.

Right of First Refusal. Any right of first refusal in the Condominium Project documents will not adversely impact the rights of a mortgagee or its assignee to:

Foreclose or take title to a condominium unit pursuant to the remedies in the mortgage.

Accept a deed or assignment in lieu of foreclosure in the event of default by a Borrower

Sell or lease a unit acquired by the mortgagee or its assignee.

Amendments to Documents. The project documents must provide that amendments of a material adverse nature to mortgagees by agreed to by mortgagees that represent at least 51% of the votes of unit estates that are subject to mortgages. The project documents must provide for any action to terminate the legal status of the project after substantial destruction or condemnation occurs or for other reasons to be agreed to by mortgagees that represent at least 51% of the votes of the units that are subject to mortgages. Finally




the project documents may provide for implied approval to be assumed when a mortgagee fails to submit a response to any written proposal for an amendment within 60 days after it received proper notice of the proposal, provided the notice was delivered by certified or registered mail with a return receipt requested.

Unpaid Dues. Any first mortgagee who obtains title to a condominium unit pursuant to the remedies in the mortgage or through foreclosure will not be liable for more than six months of the unit’s unpaid regularlybudgeted dues or charges accrued before acquisition of the title to the unit by the mortgagee.

Rights of Condominium Mortgagees and Guarantors. The project documents must give the mortgagee and guarantor of the mortgage on any unit of a project the right to timely written notice of:

Any condemnation or casualty loss that affects either a material portion of the project or the unit securing the mortgage.

Any 60-day delinquency in the payment of assessments or charges owed by the owner of any unit on which it holds the mortgage.

A lapse, cancellation, or materials modification of any insurance policy maintained by the HOA

Any proposed action that required consent of a specified percentage of mortgagees

First Mortgagee’s Rights Confirmed. No provision of the Condominium Project documents gives a condominium unit owner or any other party priority over any rights of the first mortgagee of the condominium unit pursuant to its mortgage in the case of payment to the unit owner of insurance proceeds or condemnation awards for losses to or a taking of condominium units and/or common elements.




NON-WARRANTABLE CONDOMINIUMS

Non-Warrantable Condominiums are allowed under the Prime Jumbo loan programs. Refer to Chapter 6 Loan Programs and Galton Funding Loan Program Matrices for additional information.

RURAL PROPERTIES

In addition to one of the above property types, a property may be classified as a rural property if any of the following conditions exits:

The property is classified as rural by the appraiser.

The property is located on a gravel road.

Two of the three comparable properties used by the appraiser are more than five miles from the Mortgaged Property.

Less than 25% of the surrounding market area is developed.

Galton Funding does not allow rural properties in their programs.

INELIGIBLE PROPERTY TYPES

The following property types are not acceptable for any Galton Funding Loan Program:

Mixed Use properties; including, but not limited to:

Properties that have been modified to accommodate home businesses, such as catering, in-home day care, animal boarding facilities, or auto repair.

Unimproved land

Rural zoned.

Agricultural and agriculturally zoned including properties such as working farms or ranches.

Properties with more than 20 acres.

Properties located on Indian/Native American Tribal land.

Bed and breakfast properties.

Properties not suitable for year-round occupancy regardless of location.

Boarding houses & Group homes.

Properties not readily accessible by roads that meet local standards.

Factory-built housing: includes Mobile, Manufactured, and Modular homes.

Condo-hotels.

Condo conversion less than 3 years from completion.

Co-operatives.

Time share units/projects.

Motel conversions.

Properties located in a retirement or senior community with age restrictions.

Properties with any type litigation.

Properties zoned commercial, industrial, or business (where highest and best use is commercial, industrial, or business)

Property that do not have full utilities installed to meet all local health and safety standards including, but not limited to:

A continuing supply of potable water.

A public sewer or certified septic system.

Public electricity.

Natural or LP gas.

Properties appraised "subject to" without a Completion Certificate (Form 1004D).




Properties with square footage < 700 feet (eligible with 2 acceptable comparables that are within 100 square feet of subject).

Unique housing types: includes Earth, Geodesic, and Log homes.

Property condition ratings of C5 and C6.

Any property with health & safety, habitability or structural issues.

Properties in Hawaiian lava zones 1, 2, and 3 as determined by the U.S. Geological Survey Hawaiian Volcano Observatory.

Properties located in declining markets (as determined by the appraisal, CDA, Enhanced BPO, ClearVal, or other third-party valuation performed on the subject property)

Properties that are currently listed for sale, or that have been listed for sale in the past six months are ineligible for refinance transactions.




OCCUPANCY

The following sections outline the occupancy categories and the requirements and guidelines associated with them. Occupancy types are:

Owner occupied primary residences

Second/vacation homes

Non-owner occupied investment properties

OWNER OCCUPIED PRIMARY RESIDENCE

An owner occupied primary residence is a 1-4 unit dwelling that is occupied by the Borrower as his or her principal residence. A property will not be considered a primary residence unless at least one of the Borrowers occupies all or part of the Mortgaged Property as a primary residence within 30 days of the note date. The following define primary residency:

The Borrower occupies the property for a major part of the year.

The property location is convenient to the Borrower’s place of employment.

The property must possess the physical characteristics to accommodate the Borrower’s immediate dependent family. Physical characteristics are considered those typical to both the owner and the neighborhood.

The property’s address is on record for federal income tax reporting, voter registration, driver’s license, and occupational licensing.

In the case of a purchase money transaction, the Borrower must state his or her intention to occupy the Mortgaged Property as his or her principal residence.

SECOND HOME OR VACATION HOMES

A second home or vacation home is a one-unit dwelling owned and occupied by the Borrower for his or her exclusive use and enjoyment. The property should be located at a sufficient distance and time of travel from the primary residence. The following define a second/vacation home:

The property is suitable for year-round occupancy.

The property is not subject to timesharing, rental agreement ownership, rental pools, or agreements that stipulate the rental of the property.

A management firm must not control occupancy.

The property may not be remote or inaccessible and may be used only for residential purposes.

Income from a second/vacation home is not acceptable.

Galton Funding limits the number of loans a Borrower may have for second/vacation homes to one. Two to four unit properties are ineligible as second/vacation homes. Second homes are listed in the Owner Occupied section of the Galton Funding Loan Program Matrices.

NON-OWNER OCCUPIED INVESTMENT PROPERTIES

An investment property is a 1-4 unit residential property that is neither the Borrower’s primary residence nor his or her second/vacation home. Investment property is defined as property owned for the purpose of generating a positive net cash flow.

A loan for investment property that generates a negative cash flow may be eligible for purchase by Galton Funding as long as the Borrower’s credit and debt ratios strictly adhere to the Loan Program requirements. The overall transaction will be closely scrutinized and must make sense for the Borrower’s circumstance.




PROPERTY UNDERWRITING

The property used as collateral for the loan must provide sufficient value to recover the investment should the loan default. The appraisal provides the basis for evaluating the value of the collateral. The appraiser must present a concise picture of the neighborhood, the site, and the improvements to support an indicated value that adequately supports the estimate of market value. The Seller must perform an audit of the appraisal for the following:

Consistency, logic, and accuracy of the appraisal

Reasonable support for the value of the property

Current and future marketability of the property

Appraiser qualifications

Timeliness and applicability of the data used to determine marketability

Completeness and accuracy of the appraisal forms and exhibits

Galton Funding may elect to require additional appraisal diligence based on the improvements and condition of the property or data within the appraisal report. This increased diligence may include additional comparables, an AVM, a field review, or a second full appraisal on a property.

SELLER CONSIDERATIONS:

The Seller should consider the following when reviewing collateral for the loan transaction:

The accuracy and completeness of the appraisal and its assessment of the marketability of the property;

Underwriting the completed appraisal report to determine whether the Mortgaged Property presents adequate collateral for the mortgage;

Continually evaluating the quality of the appraiser’s work through normal underwriting review of all appraisal reports and spot-check field review of appraisals as part of its quality control program;

Ensuring that the appraiser uses sound reasoning and provides evidence to support the methodology used for developing the value opinion;

Ensuring that the appraiser provides an accurate opinion, an adequately supported value, and an accurate description of the property;

Ensuring that the appraiser provides his or her license or certification on the appraisal report;

Complying with the appraiser independence requirements outlined in Section 1026.42 of Regulation Z under the Truth in Lending Act;

Disclosing to the appraiser any information about the Mortgaged Property of which it is aware of that could impact the marketability of the property;

Providing the appraiser with the ratified sales contract and other financing or sales concessions that are associated with the transaction;

Ordering and receiving the appraisal report for each mortgage transaction; and

Ensuring the appraiser does not use unsupported assumptions or use race, color, religion, sex, handicap, familial status or national origin for any party in the transaction as the basis for market value.




APPRAISER QUALIFICATIONS

The Seller should ensure that each appraiser meets the following qualifications:

Has a certified residential appraiser license or a certified general appraiser license in good standing. All licenses must be issued in the state where the Mortgaged Property is located.

Meets the independent appraiser requirements for staff appraisers or, as appropriate, fee appraisers specified by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the FDIC, and the Office of Thrift Supervision with their respective real estate appraisal regulations adopted in accordance with Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (regardless of whether the Seller is subject to those regulations).

Is actively engaged in appraisal work and experienced in the appraisal of properties similar to the Mortgaged Property.

Galton Funding may at any time notify the Seller that Galton Funding will no longer approve loans secured by a Mortgaged Property that was appraised by a particular appraiser.

APPRAISAL REQUIREMENTS

The mortgage underwriting and approval process depends upon the real estate appraisal report. All appraisals must be in writing. The appraisal report must include sufficient and accurate information to assist in the review of the proposed loans. An appraisal that meets all of the Galton Funding guideline requirements is required for all Loan Programs. Each appraisal must satisfy the requirements of Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (regardless of whether the Seller is subject to those regulations).

All appraisers must be state licensed and a copy of the license must be submitted with the appraisal

Appraisals must be dated within 120 days of the Note date.

All appraisals obtained during the loan origination and underwriting processes must be included in the Loan File

Recertifications of value are not allowed.

Transferred appraisals are not allowed.

FHA/VA appraisals are not allowed.

Each Loan must include a third-party valuation review product. Please refer to the Galton Funding AppraisalValuation Summary for complete requirements.

A complete original summary appraisal report is required on each property. The appraisal report must support the appraiser’s estimate of the Mortgaged Property market value. It must present a good visual representation of the neighborhood, site, and improvements. The appraiser should use the comments section of the report to achieve this goal and attach any additional documentation if needed.

The Seller must ensure that all appraisals are performed in strict accordance with all applicable local, state, and federal laws, regulations, and orders.

All appraisals must conform to the Uniform Standards of Professional Appraisal Practice (USPAP) guidelines adopted by the Appraisal Standards Board of Appraisal Foundation.

The appraisal report must include the following:

The correct loan transaction type

Occupancy status of the property

Information about property taxes and any special assessments

Property rights appraised

The identity of the Borrower and the identity of the current owner

Address and legal description of the property

Tax Assessor’s Parcel Number (APN) for the Mortgaged Property




Any sales concessions and/or loan charges to be paid by the Seller, or any other party that has a financial interest in the financing or sale of the Mortgaged Property

Identity and address of the appraiser

Required Appraisal Forms

All appraisals must be in writing. The appraisal report must be submitted on the current version of the appropriate appraisal forms listed below.

Single-Family Properties and Detached PUD Units

Uniform Residential Appraisal Report (Fannie Mae Form 1004/Freddie Mac Form 70)

Statement of Limiting Conditions and Appraiser’s Certification (Fannie Mae Form 1004B/Freddie Mac Form 439)

For single-family investment properties, if the income is necessary for qualifying, the following forms are required:

Single-Family Comparable Rent Schedule (Fannie Mae Form 1007)

Operating Income Statement (Fannie Mae Form 216)

Condominium Units

Individual Condominium or PUD Unit (Fannie Mae Form 1073/Freddie Mac Form 465) with Statement of Limiting Conditions

Appraiser’s Certification (Fannie Mae Form 1004B/Freddie Mac Form 439)

Two-to-Four Unit Properties

Small Residential Income Property Appraisal Reports (Fannie Mae Form 1025)

Statement of Limiting Conditions

Appraiser’s Certification (Fannie Mae Form 1004B/Freddie Mac Form 430)

Operating Income Statement (Fannie Mae Form 216)

Field Reviews

Galton Funding may, at its discretion, require a field review appraisal to be performed. The Residential Appraisal Field Review Report (Fannie Mae Form 2000/Freddie Mac Form 1032) must be used for all field review appraisals. When a field review is requested, the lower value of the original appraisal or field review will be used to determine LTV/CLTV.

Properties with “Subject to” Repairs or Completion

All properties where the value is defined as “subject to repairs, alterations, or conditions” or “subject to completion per plans and specifications,” require the original Satisfactory Completion Certificate (Freddie Mac Form 442) along with a photo of the completed property. Escrows for items to be completed or repaired are not acceptable.

Required Appraisal Attachments

The following attachments must accompany each appraisal:

A location map showing the Mortgaged Property and comparables.

Three clear descriptive photographs (front, rear, and street scene) of the Mortgaged Property.

One original photograph (may be electronic) of each comparable in the Residential Appraisal Report. The appraisal must also include photographs of the comparable listings and comparable rentals in multi-family reports.

A diagram of the Mortgaged Property floor plan, detailing room layout, location of all rooms, and exterior doors.




The appraiser’s cover letter explaining unusual items not adequately addressed in the appraisal.

Disasters Areas

If the Mortgaged Property is located in an area that is declared a federal disaster area, the Seller must ensure that the property meets all Galton Funding pre- or post-disaster collateral requirements. The list of disaster areas can be found on FEMA’s website at: http://www.fema.gov/disasters.

Property Appraised Prior to Disaster

For loans secured by properties appraised before the presidential/state disaster declaration, an interior and exterior inspection of the Mortgaged Property is required and the following pre-disaster guidelines apply:

The original appraiser should perform the inspection and provide a certificate stating:

Mortgaged Property is free from damaged and is in the same condition as previously apprised

Marketability and value remain the same

If the original appraiser is not available:

The inspection maybe be completed by any of the following:

o Property / building inspection company

o Licensed general contractor

o Building or safety inspector for local municipality

o Licensed structural engineer

The inspector must be given a copy of the original appraisal report

The inspector must provide certification, on their letterhead, stating:

o Original appraisal has been reviewed

o Interior inspection has been completed

o To their best of their knowledge

Subject is free from significant damage

All repairs, if needed, have been completed

Property Appraised After Disaster

For loans secured by properties appraised after the presidential/state disaster declaration, an interior and exterior inspection of the Mortgaged Property is required and the following post-disaster guidelines apply:

Appraiser must note any damage and its effect on marketability and value

Electronic evaluations are not acceptable

Galton Funding may at its sole discretion require an interior and exterior inspection of the property by the original appraiser.

APPRAISAL EVALUATION

The appraisal is an opinion of the value that is objective, unbiased, and supported by research and data. The following sections are used to evaluate the adequacy of the appraisal:

Neighborhood Analysis

The neighborhood in which a property is located is a critical determinant of its marketability and value. All factors presented in the neighborhood analysis section of the appraisal report must be analyzed. This section must provide an accurate description of the neighborhood along with any favorable or unfavorable factors and any changes that influence the market value and marketability of the properties in the neighborhood. The neighborhood analysis should take into consideration all elements of the property’s neighborhood including:




Neighborhood Property Values

The appraisal must indicate whether property values in the subject neighborhood are increasing, stable, or declining. The appraiser must substantiate this by showing comparable sales within six months of the appraisal date. Property values should be stable or increasing. Declining values are a concern due to the potential for equity erosion. If the neighborhood property values are declining, the appraiser must explain the reasons for the decline and its effect on the value of the Mortgaged Property.

Neighborhood Composition

The degree to which a neighborhood is built up and its location within a metropolitan area or rural area is used to assess the reasonableness of the comparable sales. An “urban” location generally relates to a city, a “suburban” location relates to the areas adjacent to a city, and “rural” location relates to those areas beyond the urban and suburban areas.

Rural Properties

Rural properties are generally more difficult to assess. Marketing times may be affected by their remote location. There is greater emphasis placed on the proximity of the comparable sales in determining the rural property’s marketability.

If any one of the following criteria exists, the property may be classified as rural:

The property is classified as rural by the appraiser.

The property is located on a gravel road.

Two of the three comparable properties used by the appraiser are more than 5 miles from the Mortgaged Property.

Less than 25% of the surrounding market area is developed.

Marketing Time

Properties in the subject’s neighborhood should have a marketing time of less than six months.

Present Land Use of the Neighborhood

A likely change in the neighborhood’s land use would be of concern if the change negatively affects the property’s future value.

Predominant Value and Price Range

A comparison of the predominant value for the neighborhood should favorably reflect the Mortgaged Property’s value. If the Mortgaged Property sets the top value for the neighborhood, it may be an indication that the property represents an over-improvement. Likewise, a property at the low end of the market’s value may also be a concern. The Seller should consider whether the property in its current form is likely to continue to be its highest and best use.

Site Analysis

It is important that the site of the Mortgaged Property is of a size, shape, and topography that is generally acceptable in its market area in order to have a strong market appeal. The site should have street improvements, utilities, and other amenities normally expected in the area.

Maximum Acceptable Acreage

The maximum acreage allowance by Galton Funding is 20 acres. Generally, value should only be given to 5 acres unless it can be shown with comparable sales that higher acreage is typical for the area. Acreage exceeding 20 acres will be reviewed on a case-by-case basis. Comparable market activity of like-sized parcels must align with the acreage of the Mortgaged Property. Ranches, working farms, orchards, and/or commercial operations of any type are not permitted.

Land Values

Land value and the land-to-value ratio must be reviewed. For areas that are built up at more than 25%, the Mortgaged Property’s land-to-value ratio should be consistent with other properties in the area. For areas that are less than 25% built up, the property’s land-to-value ratio should not be more than 40% and must be consistent with other properties in the area.




Lots with More Than One Contiguous Lot

Only the value for the lot upon which the Mortgaged Property is located will be recognized.

Zoning

The zoning of the Mortgaged Property should be residential in nature.

Recent or pending zone changes that would have a negative impact on residential market values are not acceptable.

Agriculturally zoned properties may be acceptable when their use is primarily residential. Value given to outbuildings will not be allowed unless supported by comparables with similar amenities.

For legal non-conforming property, if the appraisal indicates that the property is of a legal non-conforming use, then one of the following must be occur:

The appraiser must address the issue within the body of the appraisal or present a Letter of Addendum that states the property can be rebuilt “as is” in the event of a loss. The source of the information must also be indicated; OR

A letter from the county stating the property may be rebuilt “as-is” in the event of a loss must be obtained.

Flood Zones

Properties that are uninsurable because they are located in a flood hazard area that is ineligible for the National Flood Insurance Program are not acceptable.

Highest and Best Use

Properties should represent the “highest and best use” for the site. If the current improvements do not represent the “highest and best use” for the Mortgaged Property, the property is not acceptable.

Subject Property Analysis

The Mortgaged Property should conform to the neighborhood in terms of age, design, and materials used for construction. The appraiser should describe any unacceptable or unusual items that affect marketability. Where appropriate, adjustments should be made for these items in the estimate of market value.

Acceptable marketability is supported by at least average ratings for quality, construction, condition, and appeal of the property. Poor or fair ratings should be rare. If there are exceptions, the appraiser must provide sufficient explanation.

Living Area

Living areas of the Mortgaged Property should be typical of the marketing area. The appraisal should use comparables of similar size to demonstrate the marketability of the property.

Galton Funding will critically analyze condominiums or attached properties with less than 700 square feet and detached dwellings with less than 800 square feet of living area to determine if their size is typical and readily marketable in the subject area. Properties with less than 700 square feet may be accepted for purchase by Galton Funding at Galton Funding’s sole discretion on a case-by-case basis.

Design

The appraiser should assess the design and overall appeal of the Mortgaged Property and evaluate whether similarly designed properties exist and are readily marketable in the subject area.

Outbuildings

Small outbuildings such as barns, stables, workshops, or guesthouses must be described on the appraisal report. Outbuildings must be typical for the subject area and be supported by comparable sales of properties with similar outbuildings.

Building Permits for Additions and Alterations

Building permits are generally not required if the conversion or addition to the living area was completed in a workman-like manner, confirmed by the appraiser, and supported by photographs of the addition. The addition or improvements must be of good quality and any possible health or safety violations must be noted




by the appraiser. Room additions or additional units must be permitted to ensure the dwelling was built to code.

Properties on Stilts, Posts or Piers

Post and pier foundations are acceptable if it can be shown they are common to the area and the property meets FEMA standards (FEMA Technical bulletin 9-99).

Condition of Property

All properties are expected to have an “average” or “good” rating. The Seller must consider all factors negatively affecting the property’s condition when assessing the overall risk of the loan. These factors may include:

Deferred Maintenance. Appraisals on properties showing evidence of deferred maintenance or “subject to” items must be described in detail. The appraiser must determine the nature of the repairs and include the cost to cure. Deferred maintenance that exceeds 2.5% of the property value or that affects its basic habitability will require a Satisfactory Completion Certificate (Form 442).

Debris, Graffiti, or Trash. Properties showing an excessive amount of debris, graffiti, or trash may require cleanup. If necessary, a Satisfactory Completion Certificate (Freddie Mac Form 442) and photos will be required.

Infestation. If there is any indication of termites or any other infestation, the Seller ensures that the infestation issue has been investigated, treated, and remedied.

Roof Damage. The Seller must address properties with visible evidence of roof leaks and/or interior water damage (ceiling stains) even if the appraisal does not list them. If any of these conditions exist, the Seller must obtain a roof certification, indicating a remaining useful and physical life of at least three years.

Other Unacceptable Property Conditions:

Boarded-up properties

Properties that pose an imminent threat to the health and safety of the occupant

Inadequate foundations that do not meet current code requirements for the local municipality

Inadequate heating (must be permanently affixed legal heating systems)

Properties that lack city or county maintenance services

Properties without water or public electricity

Cantilevered properties on stilts, posts, or piers

Shared services for well, septic or utilities that are private agreements

Cantilevered properties on stilts, posts, or piers

Properties showing evidence of mold

Environmental hazards or nuisances

Any nuisances or environmental hazards the Seller knows or suspects may exist that could adversely affect the value of the Mortgaged Property must be disclosed. The appraiser must note these in the appraisal and document any other nuisances or environmental hazards.

If Galton Funding suspects a nuisance or environmental hazard, it may require an environmental study be completed prior to considering the loan for purchase. In this case, the Seller must hire a nationally recognized and reputable environmental engineering firm to provide a written report. The report must include an analysis and a detailed list of cleanup costs.

Galton Funding must be convinced that any known or suspected hazards will not have an adverse effect upon the Appraised Value of the Mortgaged Property.




Cost Approach

The cost approach is used to determine a property’s market value based on the current cost of constructing a home from materials that are as similar as possible to those used for the property being appraised. The cost approach is important when appraising newer or substantially rehabilitated properties as a check for the market data approach. If the appraiser believes that the cost approach is not applicable (turn-of-the-century homes) and if sufficient sales of comparable properties are available in the market, the cost approach may be omitted with comments explaining this belief.

Whether or not the cost approach is used, the Seller must show an estimated land value. The Seller should base this figure on the value of the land as though it were developed to its highest and best use consistent with its present zoning classification.

External Obsolescence

External obsolescence is a devaluation of property value due to an undesirable or unnecessary condition outside the property. The appraiser should address the impact on marketability that external obsolescence has upon the Mortgaged Property. In addition, the appraiser must provide evidence of comparable market sales that are similarly affected.

Functional Obsolescence

Functional obsolescence is defined as features of a property that has become unfashionable or unnecessary in the eyes of potential purchasers. The appraiser should describe the functional obsolescence, and provide similar comparables to demonstrate its marketability or provide the cost to cure, if applicable.

Market Data Approach

The greatest weight and reliance is placed on the market data approach. The value indicated by this approach must be supported by an analysis of at least three recently closed comparables located near the Mortgaged Property.

Galton Funding considers the following key items in its review and analysis of the market data approach:

Proximity of Comparables to the Mortgaged Property

Comparable properties should be located in the same neighborhood and/or school district. Comparable sales should be located within one mile of the Mortgaged Property in urban and suburban areas. If two of three comparable properties used by the appraiser exceed a distance of five miles from the Mortgaged Property, the property will be considered rural. The appraiser must explain the necessity of using any comparable property located outside the neighborhood.

Comparables Inside and Outside New Projects

The appraiser must demonstrate the marketability of homes built within new subdivisions or Condominium Projects through the use of at least one comparable from inside the subdivision or project and one comparable from a competing subdivision or project.

Age of Comparable Sales

Comparables must have a recent date of sale, preferably within six months of Mortgaged Property’s sale date. If any of the comparables are over six months old, the appraiser should comment on the market conditions. If it is necessary to use older comparables, the appraiser should supplement them with pending sales and/or current listings in the neighborhood.

Similarity of Comparables to Subject

The comparables used by the appraiser must represent the best market data available to support the property’s estimated value. Comparable sales should be as similar as possible to the Mortgaged Property in physical attributes, rights of ownership, zoning, and other amenities.

Adjustments to Comparables

The following are acceptable adjustments to comparables:

Number of Adjustments

The need for numerous adjustments indicates that the comparable is not similar to the Mortgaged Property.




Dollar Amount of Adjustments

The dollar amount of adjustments should reflect the market reaction to the difference between the Mortgaged Property and the comparables, not the cost of a particular difference. The amount should be realistic and consistent among the comparables.

Adjusted Property Characteristics

Adjustments to certain items such as quality and age are more difficult to justify with direct market evidence than other items such as garages and finished basements. If a comparable contains a significant number of adjustments for difficult items, its accuracy as a value indicator decreases.

Time Adjustments

The appraiser should keep to a minimum those adjustments made due to the difference in time at which the comparable sold compared to the Mortgaged Property. If used, these comparables should be supported by documents showing that they are warranted.

Square Footage Adjustments

Adjustments for differences in square footage should be realistic for the marketplace.

Total Net Adjustments

Total net adjustments should be minimal if the comparable is truly similar. As a guideline, net adjustments should not exceed 15% of the sales price of the comparable.

Bracketing

The appraiser should use a bracketing technique during the selection of comparables. This involves choosing one comparable that is superior to the subject, one that is inferior and one that is most similar. Through the adjustment process, the superior comparable adjusts downward to the subject, the inferior one adjusts upward, and the most similar comparable requires few, if any, adjustments.

Descriptive Language

The appraiser should describe property characteristics using specific, factual, and detailed language. The appraiser should use numerals whenever applicable (for lot size, age of improvements, etc.). Clear descriptions (such as, good, average, fair, or poor) should be used to provide consistency between the property and the comparables.

Sales or Financing Concessions

The subject and all comparables must show the form of financing (financing addenda are helpful). Adjustments should be considered for different types of financing or special marketing concessions, such as buy downs, apportionment of rent payments toward down payments, or decorating and other miscellaneous credits.

The Seller should carefully review the appraisal to determine if the appraiser has adequately demonstrated the effects of such financing or sales concessions on the property’s value.

Sales History

Galton Funding will review the sales history of the subject and comparables to determine if any substantial appreciation or property churning has occurred. Large increases in value must be supported by market data or documented improvements to the property.

Income Approach

The value indicated by the income approach, if considered applicable by the appraiser, must be derived by the gross rent multiplier technique using economic market rent. The income approach is required for all two-to–four unit properties and non-owner occupied, single-family properties. In general, due to the value dependence on rental income for investment on two-to-four unit properties, Galton Funding may require additional substantiation if the value for such properties exceeds a reasonable multiple gross annual economic market rent.




Reconciliation of Valuation Analysis

The value indicated by each of the applicable approaches, together with the final reconciliation, must support the appraiser’s estimate of market value. This reconciliation is not an averaging technique; rather, it is a process by which the appraiser explains the reasonableness of each approach and its applicability to the final estimate of value.

Additional Review Considerations

Attached housing and multiple units add another level of complexity when analyzing the collateral security of the loan. In addition to the neighborhood, site, and market analysis already discussed above, the Seller should note these additional components when appraising two-to-four unit properties, condominiums, and PUDs.

Two-to-Four Unit Properties

Two-to-four unit properties present an additional level of property risk. Their marketability is tied to the level of rent commanded by the property and its compatibility with the neighborhood.

Neighborhood. The extent to which other small residential income properties are located in the area will influence the marketability of the property. Market rents should be stable or increasing. The appraiser’s statement of market rents will be assessed by the comparable rental properties used for comparison.

Comparable Rental Data. Market rent is an estimate of the property’s potential to generate income from its units. Rental data should be supplied from other small, income-producing properties that are similar in number of units, room count, and living area. Rental comparables should be readily available and in close proximity to the subject. Going out of the immediate neighborhood to obtain rental comparables might suggest a lack of rental activity and therefore, lack of marketability.

Comparable Market Data. Galton Funding will analyze the adequacy of the comparable sales by the date of sale, proximity to the subject, and number and amount of adjustments. As in the rental comparables, the appraiser should assess the similarity of the sales comparables to the subject in terms of gross building area, unit count, and room count.

Condominiums

Neighborhood. The presence of other Condominium Projects in the property’s market area indicates the appeal and marketability of the condominium under review. Marketability of a single Condominium Project will be difficult to demonstrate if the neighborhood lacks competing projects.

Project Improvements. Condominium units are affected by the improvements and amenities of the overall project. As amenities increase, required maintenance and related association fees increase.

Number of Stories. The selection of comparable sales should be from projects that are similar in height to the subject’s building.

Condominium Conversions. Projects that were not originally built for use as a condominium are considered conversions (a project originally built for use as an apartment or hotel). As a result, their market appeal may be impaired. Condominium conversions will be reviewed on a case-by-case basis.

Age of the Project. A project’s age, construction status, and amount of time the Homeowners’ Association has been in control will determine the warranties that the Seller makes when selling the loan to Galton Funding.

Stage of Completion. The Seller should consider whether the amenities are complete. Under-funded budgets may affect the developer’s ability to complete all expected improvements, which may in turn affect the project’s future marketability.

Number of Units Sold or Rented. The appraiser should provide information on the number of units sold and rented. The Seller should analyze the percentage of units sold and rented to determine whether the project meets the warranties published in this Guide.




Project Analysis

A review of the appraisal’s project analysis section will indicate the adequacy of the project’s budget and of the management practices of the Homeowners’ Association.

Sales Comparison

Galton Funding will analyze the market sales information in a similar manner to a single-family dwelling. Recent sales comparables, similarity of living area, and number of adjustments are all considered in analyzing the appropriateness of the comparables.

The Seller must provide comparables from competing projects that have similar amenities, association fees, and number of stories. For high-rise condos, the appraiser should select sales comparables with a similar floor location. For existing projects, re-sales from within the project are desirable along with at least one competing project. When older sales indicate a higher price than more recent sales, project devaluation may be taking place.

Leasehold Properties

In addition to meeting leasehold loan eligibility requirements, at least one comparable must be leasehold.

Third-Party Property Review Requirements

Galton Funding will require varied third-party appraisal review products, based on loan program, product and characteristics. Please refer to the Galton Funding Appraisal Valuation Summary (attached) for appraisal review requirements by product.

SELLER GUIDE CH AP TE R 11. FORMS



11. FORMS

Galton Funding Seller Application............................................................................................ 173

Certificate of Corporate Resolution (Form 102) ..................................................................... 183

Annual Seller Re-Certification Form (Form 200) .................................................................... 186

Seller Commitment Form (Form 205) ...................................................................................... 202

New Wire Account Set-Up Form (Form 250)........................................................................... 202

Project Review Questionnaire (Form 450) .............................................................................. 204

Delivery File Checklist (Form 500) ........................................................................................... 208

Borrower Affirmation – Asset Qualifier Loan Program ......................................................... 210

Borrower Affirmation – Asset Qualifier and Bank Statement Programs ........................... 212



PROJECT REVIEW QUESTIONNAIRE (FORM 450)

Project Name:

Association Name:

Project Address:

Project City & State:

Questionnaire

Year: ________ In what year was the project built?

Units: ________ What is the total number of units in the entire project?

YES NO Is the project 100% complete, including all units, common elements and amenities, and not subject to additional phasing?

Units: ________ What is the total number of units that have been sold and conveyed to unit purchasers in the project?

Units: ________ What is the total number of units retained by the developer in the project?

Units: ________ What is the total number of units currently for sale in the project, including units owned by the developer / builder and unit owners?

Units: ________ What is the total number of units that are owner-occupied?

Units: ________ What is the total number of units that are second homes in the project?

Units: ________ What is the total number of units (including those owned by the developer / builder) that are rented /leased (investment properties) in the project?

YES NO Is the project a condominium hotel or motel?

YES NO Is the project a timeshare or a segmented ownership project?

YES NO Is the project a houseboat project?

YES NO Is the project a multi-dwelling unit condominium (in which ownership of multiple units is evidenced by a single deed and mortgage)?

YES NO Is the project an investment security?

YES NO Is the project a common interest apartment or community apartment project?

YES NO Is the project a cooperative?

YES NO Is the project a Planned Unit Development?

YES NO Are there any manufactured housing units within the project?

YES NO Is the Homeowners’ Association (HOA) named as a party to a pending litigation? If yes, provide letter from the HOA on HOA letterhead disclosing the nature and status of the litigation. Please take note that a letter from the attorney representing HOA may be required if further clarification is required.

YES NO Is the developer named as a party to pending litigation involving this project? If yes, provide letter from developer’s attorney disclosing the nature and status of the litigation.

YES NO Is any part of the project used for nonresidential (commercial) purposes?



%: __________ If part of the project is used for nonresidential purposes, what percentage of the square footage is used for nonresidential purposes?

_____________ If part of the project is used for nonresidential purposes, what is the nonresidential space used for?

YES NO Does any single entity (the same individual, investor group, partnership, corporation etc.) own more than 10% of the total units in the project?

YES NO Have at least 90% of the total units in the entire project been conveyed to unit purchasers?

YES NO Has control of the Homeowners’ Association (HOA) been turned over to the unit purchasers?

Date: ________ If control of the HOA has been turned over to the unit purchasers, provide the date that the transfer occurred.

YES NO Are there any monthly assessments delinquent more than 30 days?

Units: ________ Please provide the number of units that are delinquent and the dollar amount outstanding.

$ ____________ What are the monthly Homeowners’ Association (HOA) fees for the project? Provide range if amounts vary.

YES NO Does the Homeowners’ Association (HOA) budget provide adequate funding for the proper management and operation of the project?

YES NO Does the Homeowners’ Association (HOA) budget provide funding for replacement reserves of at least 10% of the budget for capital expenditures and deferred maintenance?

$ ____________ What is the amount currently held in reserves for future repair and/or replacement of major components of the project?

$ ____________ What was the Homeowners’ Association (HOA) reserve account balance at the end of the year?

$ ____________ What was the Homeowners’ Association (HOA) reserve account balance at the end of the prior year?

YES NO Does the Homeowners’ Association (HOA) budget provide adequate funding for insurance deductible amounts?

YES NO Is hazard insurance in place to cover 100% of the insurance replacement cost of the project improvements, including the individual units?

YES NO Is liability insurance in place providing at least $1 million of coverage for bodily injury and propertydamage per occurrence?

YES NO Is flood insurance in (if required) in place providing coverage of at least equal to the lesser of 100% of the insurable value of the facilities or the maximum coverage available under NFIP?

YES NO Is fidelity insurance in place covering the maximum amount of funds that will be in the custody of the Homeowners’ Association (HOA) or management company at any time (required if the project is 20 or more units)?

YES NO Does the project have attached units?

YES NO Is the project managed and operated as a hotel or motel, even though the units are individually owned?

YES NO Does the project restrict owner’s ability to occupy their unit?

YES NO Does the project have a mandatory rental pooling agreement that requires unit owners to either rent their units or give a management firm control over the occupancy of the units?

YES NO Does the project include registration services and offer rentals on a daily basis?

YES NO Does the project have any non-incidental business operation owned or operated by the Homeowners’ Association (HOA)?

YES NO Is the project a hotel or motel conversion?

YES NO Are the units in the project owned in fee simple or leasehold?



YES NO Does the Homeowners’ Association (HOA) require automatic, non-severable membership for each individual unit owner, and provide for mandatory dues / assessments?

YES NO Are all of the facilities related to the project owned by the unit owners or the HOA?

YES NO Has the developer retained any ownership interest in any of the facilities related to the project?

YES NO Are the amenities and facilities, including parking and recreational facilities, subject to a lease between the unit owners or HOA and another party?

YES NO Does the project contain one or more units with less than 400 square feet of space?

YES NO Do the units have separate metering?

YES NO If the units have separate metering, is it common and customary in the local market where the project is located?

YES NO If the units do not have separate metering, does the project budget include adequate funding for utility payments?

YES NO Do the unit owners in the project have the sole ownership interest in, and rights to the use of the project’s facilities, common elements, and limited common elements?

YES NO Does the project include registration services and offer rentals on a daily basis?

YES NO Is the project managed by an independent management company?

_____________ If the project is managed by an independent management company, what is the company’s name?

YES NO If the project is managed by an independent management company, are the contract terms between the HOA and the management company reasonable and equitable?

YES NO If the project is managed by an independent professional management company; does the contract have a termination provision that requires a penalty payment or advance notice of termination of more than 90 days?

YES NO Besides being divided by a public street, is the project located on one contiguous parcel of land?

YES NO Are the structures within the project within reasonable distance from each other?

YES NO Are the common areas and facilities consistent with the nature of the project and competitive in the marketplace?

YES NO Are there any circumstances or conditions that would adversely affect the value, condition or marketability of units contained within the project? If yes, attach an explanation.

2-4 Unit Projects

If project is has 2-4 units, the following questions must also be answered:

Units: ________ How many units are in the project?

YES NO Does any one person or entity own more than one unit within the project?

YES NO Are all units, common elements, and facilities within the project, including those that are owned by any master association a 100% complete?

YES NO Are the unit owners the sole owners of, and have rights to the use of, the project’s facilities, common elements and limited common elements?

Units: ________ How many units in the project are owned as principal residences or second homes?

This questionnaire must be completed, signed and dated by an HOA representative.

Acknowledgement: I, the undersigned, certify that to the best of my knowledge and belief the information and statements contained on this form are true and correct.



HOA Representative:

Date HOA Representative Name (Printed)

HOA Name HOA Representative Signature

Contact Number Contact Email



DELIVERY FILE CHECKLIST (FORM 500)

Credit Package (Initial Eligibility Review):

FNMA 1008 Transmittal Summary

Conditions of loan approval

Underwriter submission / approval status

QM / ATR worksheets

Final 1003 signed, dated by all parties and completed HMDA

Initial 1003 signed and dated by all parties

LDP/GSA printout search of all parties to the transaction

Credit report

Bankruptcy papers / discharge

Credit letters of explanation

Divorce decree or separation agreement

Child support verification

Verification of mortgage/rents

Executed 4506-T

Tax transcripts for the previous two years

Verbal VOE and employer validation documentation

Written VOE

Paystubs, W-2s

YTD profit and loss statements signed and dated

Personal tax returns with all schedules for the last two years or per program guidelines, signed and dated

Business tax returns with all schedules for the last two years signed and dated

Rental / lease agreements if applicable

Verification of deposit

Two months’ consecutive bank statements

Letters of explanation / source / paper trail of assets

Gift letter, verification of gift funds, and transfer of gift funds

Purchase contract / agreement of sale with all addenda

Preliminary title report

Appraisal review

Condo / PUD warranty / co-op approval

Appraisal invoice

Property appraisal

Appraiser license / E&O insurance

Good faith estimate

Preliminary truth-in-lending

Change of circumstance

Anti-steering disclosure

Compliance attestation and certification

Lender Servicing disclosure

Notice to applicants

Notification of possible transfer



ARM disclosure (include balloon if offered)

Credit score disclosure / notice to home loan applicant

ECOA, fair lending, Patriot Act, lender affiliation

Applicable state disclosures

Funding / Legal Package (Closed Loan Eligibility Review):

Commitment confirmation

Certified true copy of note / applicable addenda / allonge

Certified true copy of power of attorney specific to transaction

MERS registration / assignment to MERS

Buydown agreement

Loan modification agreements / applicable exhibits, Addenda – CEMA, construction-to-permanent

Certified true copy of security instrument / applicable riders / legal description

Intervening assignments

Notice of assignment, sale or transfer – goodbye letter

Monthly payment letter / first payment letter

Initial escrow account disclosure statement

Escrow waiver

Final HUD-1

Funding worksheet

Closing instructions

Tax information sheet

Tax authorization (NJ, NY, PA, IL)

Homeowner’s insurance or declaration page with paid premium

Flood policy with paid premium

Flood certification – life of loan coverage

Name affidavit

W-9 form

Final truth-In-lending

Itemization

Right of rescission notice

Payment history, if applicable



BORROWER AFFIRMATION – ASSET QUALIFIER LOAN PROGRAM

Date:

Loan No:

Borrower Name:

1. I understand that the [ LENDER ] will determine my Ability to Repay this mortgage loan, as it is required to do

under existing law, solely on the basis of existing assets that I currently maintain.

2. I have eligible assets in the amount of $ _______ which are sufficient to cover my monthly expenses

over the next five (5) years.

3. I understand that my monthly payment on this loan will be as follows:

4. For _________ years

My monthly payment is $ __________

If this period is less than 30 years, then I understand my payment may adjust (more than once)after the first ______ years.

5. I understand that my property taxes, insurance and mortgage insurance (if applicable) on this

property will be approximately this amount per month $ (________)

These _(may, may not)_______ be impounded. If not, I am responsible to pay them directly.

6. I believe I can afford to make the monthly payment on the loan.

7. I am not aware of anything in the future that will affect my ability to make this loan payment.

8. My loan program did not require that I submit my prior tax returns. I understand that if I had provided

verifiable documentation of my income, such as my tax returns or W-2 wage statements or other

documentation deemed necessary to support my income, I may have been able to qualify for a different

loan program with different loan terms or conditions such as a lower interest rate.

NOTE: If there is a discrepancy between the terms in this document and the actual loan documents, theterms of the loan documents prevail.

I certify that the above information and the information on the final Uniform Residential Loan Application (Form1003) is true and correct as of this day and that it represents an accurate picture of my financial status.



Borrower name Borrower name (signed)

Borrower name Borrower name (signed)



BORROWER AFFIRMATION – ASSET QUALIFIER AND BANK STATEMENT PROGRAMS

Borrower Name: ___________________________

Loan Number: ________________________

Borrower Name: ___________________________

1. In accordance with the disclosures I received from [[LENDER]], I understand that my monthly payment of principal and interest on this loan will be $_______________ for ________________ years.

2. That monthly payment amount of principal and interest MAY or WILL NOT adjust. If that amount may adjust, it may do so after the first ______years, and then every _______ years thereafter.

3. I understand that my property taxes and insurance on the secured property will be approximately $_________________ per month. Those amounts WILL or WILL NOT be impounded andcollected through monthly payments, in addition to your monthly payments for principal and interest as described above. If those amounts are not impounded, I understand that I am responsibile for paying those amounts directly.

4. My average monthly income is $________________.

5. I believe I can afford to make the monthly payment on the loan. YES or NO

6. I am not aware of anything that will affect my ability to make these loan payments in the future. YES or NO

The above information and the information on the final Loan Application (Form 1003) is true and correct to the best of my knowledge as of this day, it represents an accurate picture of my financial status, and I have not withheld any information regarding my income or obligations that would materially affect my ability to make the payments on my loan.

______________________________ ______________________________

Borrower Signature: Date

______________________________ ______________________________

Borrower Signature: Date:

Date post:	03-May-2018
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