• JUMBO PRIME 2B (JP-2B)

• ALT-A 3B

• NON-PRIME 2B

• NON-PRIME 3B

Eligibility Guidelines | August 1, 2019 |

Exclusive Property of ALTLOAN. Not for Use by or Distribution to the General Public.

Guidelines are for use by mortgage professionals only and subject to change without notice.

I. UNDERWRITING CONSIDERATIONS

ALTLOAN evaluates many aspects of the loan during its review. 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:

• 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

Ability to provide a larger down payment, typically 10% more than program requirements, on the subject property

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

BORROWER ELIGIBILITY The guidelines below describe a person’s eligibility to be a borrower in ALTLOAN’s Loan Programs. ALTLOAN will fund loans

made to individual, natural persons only. Loan applications from corporations, general partnerships and limited

partnerships, “Doing Business As” (DBAs), and religious/non-profit organizations are ineligible.

Eligible Borrowers:

• U.S. Citizens

• First-time Homebuyers

• Permanent Resident Aliens

• Inter Vivos Revocable (aka living) Trusts

• Non-Occupant Co-Borrowers

• Non-Permanent Resident Aliens

Ineligible Borrowers:

• Foreign Nationals

• Persons with Diplomatic immunity

• Corporations, general partnerships, limited liability companies and DBAs

For specific program requirements, refer to the ALTLOAN Loan Program Matrices and the Loan Program section of this

Guide.

TITLE VESTING • Individual

• Joint Tenants

• Tenants in Common

• Inter Vivos Revocable Trust

• Limited Liability Company (LLC)

o Vesting in an LLC is only allowed for investment (NOO) properties. The following requirements must be met:

▪ Business purpose and activities of the LLC are limited to ownership and management of real estate.

▪ The LLC is limited to a maximum of 4 owners.

▪ All owners must sign the note and mortgage as an individual. Personal guarantees are not

allowed.

▪ Each owner must complete a 1003. Each owner’s application, credit report, income and assets will be

reviewed for eligibility.

o Required documentation for LLC vesting:

▪ Articles of Organization and Operating Agreements (if applicable).

▪ Tax Identification Number.

▪ Certificate of Good Standing.

▪ Certificate of Authorization for the person executing all documents on behalf of the LLC.

In an LLC at application

Note/Mortgage Title/Vesting Eligible for ALTLOAN programs

Yes Both signed as LLC Held in LLC No

Yes Both signed as an individual Both signed as an individual Yes

Yes Both signed as an individual Held in LLC Yes

No Both signed as an individual Held in LLC Yes

The U.S. Citizenship and Immigration Services Classifications (USCIS) has defined specific residency classifications. ALTLOAN offers

programs to individual persons who are citizens and/or legal permanent or non-permanent residents of the United States.

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

USCIS Classification USCIS 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 ALTLOAN’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. The borrower must be a

holder of an alien registration card (green

card). The Seller is responsible to verify that

the borrower’s registration card is valid.

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-1B, L-1, E-1 or E-2 visa and they can provide

a copy of the visa with underwriting

documentation. All other visa types are

ineligible. Visa must be current and may not

expire prior to the closing date.

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 USCIS evidence as follows:

• Permanent Resident Card (USCIS Form I-551), referred to as a green card, without conditions

• Permanent Resident Card (USCIS Form I-551) with conditional right to reside, accompanied by a copy of the filed

Petition to Remove Conditions on Residence (USCIS Form I-751)

Note: Any Permanent Resident Card that is due to expire within six months must be accompanied by a copy of an

Application to Replace Permanent Resident Card (USCIS Form I-90) filing receipt.

BORROWER TYPES

The following are the types of borrowers allowed by ALTLOAN programs. ALTLOAN limits the number of borrowers per loan

to four. For eligibility and restriction details, refer to the ALTLOAN Loan Program Matrices.

Primary Borrower

The Primary Borrower is the individual who earns the most income. Non-occupant co-borrowers cannot be the Primary

Borrower on the subject property.

Co-Borrower

A co-borrower is an individual other than the Primary Borrower whose credit history, income, or assets are used for

qualifying for 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.

First Time Homebuyers

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 owned a home previously, but has not owned a home in the past three

years, will be considered an FTHB.

In the following instances, ALTLOAN 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 loan-to-value and combined loan-to-value (LTV/CLTV) restrictions, reserve requirements and other guidelines specific to FTHBs, refer to the ALTLOAN Loan Program Matrices.

Non-Borrowing Occupant

A non-borrowing occupant is the borrower’s legal spouse, domestic partner, or any person residing in the subject 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, ALTLOAN 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/Co-Signer

A non-occupant co-borrower (co-signer) is an individual who will not be living in the subject 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 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:

• Owner-occupied, one unit only must be occupied by family member.

• Full documentation.

• The Primary (occupant) Borrower’s credit profile will be used for grade determination, and the primary

borrower must have a debt-to-income ratio (DTI) of no more than 60%.

• A minimum of 5% of the down payment must come from the Primary (occupant) Borrower’s own funds.

• Secondary financing is not allowed on non-occupant co-borrower transactions.

• Reserve requirements must be met by the borrower’s own funds.

• A down payment of 100% from gift funds is allowed for LTVs of less than or equal to 80% or the program

maximum when no secondary financing exists. Closing costs may also be in the form of a gift. Reserve

requirements must be met with the borrower’s own funds.

• Non-occupant co-borrower must be vested on title for a minimum of six months for a rate/term refinance.

• Cash-out refinance transactions are not allowed.

• Up to two non-occupant co-borrowers are allowed.

For loan-to-value and combined loan-to-value (LTV/CLTV) restrictions, reserve requirements and other guidelines specific

to non-occupant co-borrowers, refer to the ALTLOAN Loan Program Matrices.

Title Held in an LLC on Behalf of the Borrower

Title in the name of a Limited Liability Company (LLC) at time of application is acceptable provided the borrower is a member

of the LLC and that the loan will be in the borrower’s name as an individual at closing. ALTLOAN’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. ALTLOAN requires that all trusts be revocable and contain specific language within

the document giving the grantor/trustor/settlor the power to revoke the trust. A single individual, multiple individuals, and/or

a trust may be co-borrowers on a loan. Power of Attorney (POA) may not be used to execute loan documents.

For a trust to be eligible, the following must be present:

• Created by an individual during their lifetime

• Becomes effective during its creator’s lifetime

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

• At least one individual establishing the trust must be on the loan

Note: Loans closed in irrevocable, blind, or fictitious name trusts are not eligible.

Trust Agreement Requirements

The Seller must obtain copies of the entire trust document and include them in the Loan File submitted for funding. 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 that it meets all of the following requirements:

• The trust is established by one or more natural persons, solely or jointly.

• 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

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. Sellers must review the certification to verify that

the above requirements are met.

Power of Attorney

The use of Power of Attorney specific to the transaction is acceptable for funding and rate term refinance transactions only.

The Seller must confirm the POA complies with all applicable state laws and the attorney-in-fact is not affiliated with any party

to the mortgage loan transaction other than the borrower.

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

Note: 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, the acknowledgement is not required.

MAXIMUM LOANS TO ONE BORROWER

In order to reduce the level of risk and ensure lien security, ALTLOAN limits the potential borrower’s number of open loans,

total number of properties owned, and number of subject properties owned in one area.

The occupancy of the property being financed will determine the limitations on how many other financed one to four- 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 that 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 (five or more units).

• Ownership in commercial property if the borrower is not personally liable.

• 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 ALTLOAN

The aggregate dollar amount of all loans made to one borrower sold or serviced by ALTLOAN may not exceed

$4 million.

Maximum Loans to One Borrower Sold to ALTLOAN

The maximum number of loans that can be submitted at one time for the same borrower (to be sold to ALTLOAN) is limited to 4

or by the aggregate dollar amount of the total loans sold to or serviced by ALTLOAN. If more than 4 loans need to be reviewed

at the same time (and the aggregate dollar amount is within guidelines) then the review will have to be coordinated and

approved by ALTLOAN.

Maximum Properties One Borrower May Own

A borrower may finance or own multiple properties. ALTLOAN offers two options for borrowers who own multiple properties.

They include:

• If the loan being sold to ALTLOAN is secured by the borrower’s principal residence, there are no limitations to

the number of properties that the borrower can own or currently financing

• If the loan being sold to ALTLOAN is secured by the borrower’s second home or an investment property:

The borrower may have up to 20 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 ALTLOAN

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 who have made multiple real estate acquisitions (more

than 50% of the properties purchased) in the past 12 months may require additional review and/or

documentation or be ineligible for funding.

Maximum Loans in One Market Area Sold to ALTLOAN

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

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 Uniform Residential Loan Application (FNMA Form 1003 or FHLMC

Form 65). Both the initial and final executed loan applications must be provided.

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 the basis of 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

CREDIT REPORT REQUIREMENTS

For each borrower whose income is 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 Note:

Joint merged credit reports are allowed without regard to marital status.

The credit report should include verification of all credit references provided on the loan application and must include the

results of public record searches for each city where the borrower has resided in the last two years. Accounts that are not

verified on the credit report must be verified with either a written direct verification or FNMA/FHLMC acceptable alternative

documentation.

All three national credit repositories have developed automated messages to help identify possible fraudulent activity on a

credit report. The 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. Acceptable documentation to evidence

resolution must be included in the file.

No borrower in a transaction may have frozen credit. 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.

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.

At least two qualifying credit scores must be provided for each borrower. Any borrower whose income is required for qualification must have a minimum credit score of 600. These credit scores will be used as a component in determining the credit grade of the loan. For grade determination, refer to the ALTLOAN Loan Program Matrices.

Multiple Credit Reports in a File/Expired Credit Reports:

ALTLOAN will use the credit report and corresponding credit scores that were pulled at the time the borrower made

application or the one used by the Seller for their underwriting approval of the loan. In the event that the initial credit report

expires, the updated credit report will be compared and reconciled to the initial credit 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 credit score will be used.

ALTLOAN does not allow the re-pulling of credit, including rapid rescoring, to enhance the borrower’s credit score. In all

cases, the credit report pulled at the time of application or the one used by the Seller for their underwriting approval will

be used to determine the borrower’s selected credit score and credit grade.

A rapid rescore is only permitted when there is an error on the borrower’s credit report. In this instance, the updated credit score(s) will be used to determine program eligibility.

SELECTING THE CREDIT SCORE

ALTLOAN will use the credit report and corresponding credit scores that were pulled at the time the borrower made

application or the one used by the Seller for their underwriting approval of the loan.

ALTLOAN 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:

• The Primary Borrower’s selected score is used with the Full Documentation loans and 24-month Bank

Statement Program loans

• In the case where both borrowers earn equal income, the borrower with the lower score will be used for grade

determination

• For the DU/DO Programs, default to Fannie Mae Seller Guide requirements

• The lowest selected score among all borrowers is used with the following:

12-month Bank Statement Program, Asset Qualifier and the 12-Month Verification Program loans

To ensure credit score validity, the Seller should review the credit scores, score codes, and the borrower’s overall credit

history. Credit score codes should be consistent with tradeline information and use. Credit scores that do not appear to

represent an accurate assessment of the borrower’s credit risk will not be considered valid and usable.

LIMITED, NO CREDIT HISTORY OR ALTERNATIVE CREDIT HISTORY

Borrowers with limited or no credit history, or who do not meet ALTLOAN’s minimum credit requirements are not eligible. Each borrower must have at least two valid and usable credit scores as defined by ALTLOAN. A borrower not using income to qualify (showing $0 earned) or who is not employed, does not need to meet the minimum tradeline requirements or generate a valid score.

MINIMUM CREDIT REQUIREMENTS/TRADELINES

A valid and usable score is one that is generated based upon credit history and credit patterns that accurately reflect the

borrower’s history. A borrower’s credit history must reflect one of the following to generate a valid credit score as defined by

ALTLOAN:

Three established open and active tradelines as follows:

• One reported for a minimum of 24 months.

• All active in the last 12 months. This is defined as last activity within 12 months of the credit report date.

• One must have a minimum of $2,500 high credit limit.

Minimum four years of established credit history as follows:

• Eight or more tradelines reported.

• At least one active in the last 12 months. This is defined as last activity within 12 months of the credit report date.

• At least one of these tradelines must be a mortgage tradeline (can be counted as the active tradeline).

Six 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 tradeline 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 or liens that currently impact or may impact title must be paid off prior to or at closing. Title must insure

ALTLOAN’s lien position without exception. The following are examples of major adverse credit that may have an impact on

title:

• Mechanics liens

• Delinquent property taxes

• Tax liens

• Tax payment plans

• Judgement liens

• Litigation liens

Charge-offs, collection accounts, or other major adverse credit items that do not impact title are not required to be paid

off.

LAWSUITS AND PENDING LITIGATION

If the application, title, or credit documents indicate that the borrower is involved in a lawsuit or litigation, additional

documentation (e.g., attorney’s explanation, copy of the complaint, and/or other supporting documentation) is required. The

title company closing the loan must provide a letter stating affirmative coverage of subject lien position.

Generally, lawsuits and pending litigation are not eligible under the ALTLOAN 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.

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

If there is evidence that the borrower’s business has filed a Chapter 11 bankruptcy, the following is required:

Documentation to show the reason for the bankruptcy action

Evidence that the bankruptcy has been discharged

Third-party verification that the business is currently stable and a going concern

Note: Chapter 11 bankruptcy will not impact the borrower’s credit grade unless the borrower is personally liable

for the reorganized debt

• Chapter 13 covers contractual repayment by individuals

The aging of a Chapter 13 bankruptcy is measured from the discharge date. If the borrower enters into

bankruptcy and cancels, the seasoning is measured from the Cancellation Date.

The following requirements and guidelines apply to bankruptcies:

• Loans to Borrowers with multiple bankruptcies are ineligible for funding by ALTLOAN. 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.

• ALTLOAN 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.

• ALTLOAN credit depth and minimum tradeline requirements must be met post-bankruptcy. Credit prior to the

bankruptcy will not be considered for meeting minimum credit and tradeline requirements.

Refer to the ALTLOAN Credit Grade Matrix for bankruptcy seasoning information and Loan Program restrictions.

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

there is a delinquency 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 the 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.

Foreclosure history includes any of the following:

• Breach

• Lis Pendens

• Notice of Sale

• Sheriff’s Sale

• Short Payoff

• Bankruptcy Notice

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

Delinquencies Equal to or Greater Than 120 Days

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 unless documentation is

provided to show how the event finalized. For example, if a 120-day delinquency occurred but the loan went into a

modification, it would be considered a loss mitigation event for credit grade determination.

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.

Refer to the ALTLOAN Credit Grade Matrix for foreclosure seasoning information and Loan Program restrictions.

LOSS MITIGATION HISTORY

Modifications, Forbearances, Rearrangements, Extensions, or Workouts

An agreement to forebear, 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.

Loss mitigation history includes the following:

• Deed-in-Lieu

• Short Sale

• Notice of Default (NOD)

• Short Refinance

• Pre-Foreclosure Sale

• Loan Extension

• Loan Modification

• Forbearance

• Charge-off

The length of time elapsed since the occurrence or completion of the loss mitigation event is considered in the credit grade

determination.

Refer to the ALTLOAN Credit Grade Matrix for loss mitigation seasoning information and Loan Program restrictions.

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 subject property as well as the

primary residence and any other properties the borrower owns.

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 except in the instance where the delinquency was on the same

property (i.e., a first and second lien). If the first lien and second lien on a property are delinquent, it would be considered one

delinquency in the credit determination of the borrower.

Mortgage/Housing Payment History Requirements

One of the following scenarios must be met to satisfy the borrower’s mortgage/housing payment history for their

primary residence:

• A fully documented, recent, consecutive, 12- or 24-month housing history (must be within 30 days of closing) as

required by program guidelines. If there are multiple borrowers on the loan, only one of the borrowers must have a

primary housing history. A non-occupant co-borrower’s history may not be used to satisfy this requirement on a

primary residence.

• Evidence that the primary residence is owned free and clear (e.g., copy of title or credit report). The

mortgage/housing history will be treated as 0x30x24 for credit grade determination.

Borrowers who lack a primary mortgage/housing history or do not have a complete history as required by the program guidelines are eligible if one of the following is met:

• Borrower has a fully documented, recent, consecutive 12- or 24-month mortgage history, as required by

program guidelines, on an additional owned property.

The following apply:

Credit grades Jumbo Prime, Alt-A and Non Prime LTV/CLTV of 90% or the

program maximum, whichever is lower Full/Alternative Documentation

Primary residence

Mortgage history must be from an institutional lender

• Borrower lives rent-free or does not have a fully documented, recent, consecutive 12- or 24-month mortgage history

as required by program guidelines. This includes situations where the borrower may have received a rent holiday,

payments have lapsed due to divorce/separation, or other instances where the most recent 12- or 24-month housing

history is not consecutive or complete.

The following apply:

Credit grades Alt-A and Non Prime

LTV/CLTV of 80% or the program maximum, whichever is lower

Full/Alternative Documentation

Minimum credit score of 720 for an Alt-A credit grade and 700 for an Non Prime credit grade

Primary residence

Note: ALTLOAN will review, on a case by case basis, borrowers who do not meet the above requirements for primary

housing history. The following will be considered:

• Recent college or trade school graduates living with relatives

• Borrowers who are temporarily living with relatives while they are in the process of purchasing a new home

Verification of Mortgage

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 or private

party verifications of mortgage (e.g., Private Mortgage, Land Contract/Contract for Deed, or Lease Option to Purchase).

Verification of Rent

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

• An institutional Verification of Rent (VOR) 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).

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.

For specific program requirements, refer to the ALTLOAN Loan Program Matrices and the Loan Programs

section of this Guide. Individual Loan Programs may have different requirements.

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.

Each contractual delinquency must be considered separately, except in the instance where the delinquency was on the same

property (i.e., a first and second lien). If the first lien and second lien on a property are delinquent, it would be considered one

delinquency in the credit grade determination of the borrower. For example, if the borrower has a first and second mortgage

on their property and each one had one late payment (1x30) in the last 12 months, the borrower’s mortgage/housing history

is equal to one late payment (1x30).

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.

CREDIT GRADE DETERMINATION The borrower’s credit grade is based on the following factors:

• Housing (mortgage/rental) payment history

• Credit score

• Bankruptcy history

• Foreclosure history

• Loss mitigation history

• 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 ALTLOAN Loan Program Matrices.

QUALIFYING RATIOS Qualifying ratios are used to calculate the borrower’s debt versus collateral (LTV, CLTV) and debt versus income (DTI) in

order to qualify the borrower for a Loan Program. For specific details, refer to the ALTLOAN 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 subject property. The Combined Loan- to-Value

(CLTV) ratio is the sum of all liens on the subject property divided by the value of the property. Note that all Loan Programs

offered limit the maximum LTV/CLTV ratio allowed and may have seasoning requirements when underwriting the loan. Value

is determined as follows:

Determining the Value for LTV/CLTV

Purchase Transaction

For purchase transactions, the lesser of the purchase price or the appraised value will be used to calculate the LTV/CLTV

ratios. The purchase price can be documented using the original, fully executed purchase agreement or the Closing Disclosure.

Cash-Out Refinance Transaction

• 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 for calculating the LTV/CLTV ratios.

• Properties owned more than 12 months may use the appraised value for calculating the LTV/CLTV ratios. The

purchase price can be documented using the Closing Disclosure from the original financing.

Rate/Term Refinance Transaction

The appraised value can be used as the value amount for calculating the LTV/CLTV ratios.

Lease Option to Purchase Transaction

Lease Options must be treated as purchases as the borrower is not yet on the title. A documented lease with an option-to-

purchase is required. The lesser of the Lease Option price or the appraised value will be used to determine the LTV/CLTV.

Construction-to-Permanent Refinance Transaction

A construction-to-permanent transaction may be closed as a purchase, rate/term refinance, or a cash-out refinance. When a

refinance is used, the borrower must have held legal title to the lot before they applied for the construction financing and

must be named as the borrower for the construction loan. ALTLOAN will only purchase construction-to-permanent

transactions on primary and secondary homes. The only eligible property type is a detached single-family residence.

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. 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 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

These 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 the application, the transaction will be treated as follows

for establishing LTV/CLTV:

• Borrower(s) must have a clear title.

• Subject property must have cleared probate and is vested in the borrower’s name.

• There are no restrictions on occupancy.

• If the borrower is paying only existing mortgages and documented heirs through settlement with cash-out, the

maximum LTV/CLTV is 80% or the maximum allowed for the program, whichever is less. This will be treated as a

rate-term refinance.

• If the proceeds of the transaction are for debt consolidation or cash-in-hand, the maximum LTV/CLTV is 70% or

the maximum allowed for the program, whichever is less. Ownership and cash-out seasoning program

requirements apply.

• Current appraised value is used for LTV/CLTV determination.

• Buying out additional heirs identified in a related will is allowed. A copy of the will must be provided, along with

the buyout agreement signed by all the beneficiaries identified in the will.

If the subject property was inherited more than 12 months prior to the application, standard refinance guidelines apply.

HOUSING AND DEBT-TO-INCOME RATIOS (DTI)

The monthly housing ratio includes all housing-related expenses divided by the borrower’s stable monthly income. 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. Refer to the ALTLOAN Credit Grade Matrix and Loan Program section of this Guide for details.

The monthly housing expense ratio 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

The following qualifying rates will be used to calculate the monthly housing expense:

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

• Adjustable Rate Mortgage (ARM) Loans

5/1 ARM - qualified at the higher of the fully indexed rate or the initial note rate plus the periodic

adjustment (2%)

7/1 ARM – qualified at the higher of the fully indexed rate or the initial note rate10/1 ARM – qualified at

the higher of the fully indexed rate or the initial note rate using the fully amortizing principal and

interest payment during the principal repayment period

• Interest Only Loans qualified at the note rate based on the fully amortizing principal and interest payment during

the principal repayment period. Borrowers will not be qualified on the Interest Only payment amount.

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 account statement, or

• 1% of the maximum current available draw if the payment is not verified on the credit report or monthly

account statement

• If there is no balance, then no payment will be used for qualifying

Commercial Property Owned

Commercial property owned by a borrower must be analyzed to determine if the debt and payment history should be considered in the

qualifying ratios.

In order to exclude the debt in calculating the DTI, the borrower must not be personally liable for the debt. Documentation to

support this is required. Since the borrower is not personally liable, a mortgage payment history is not required. Additional

reserves would not be required in this instance as the property would not be considered as borrower-financed.

If a borrower is personally liable for the commercial loan, the payment must be included for qualification purposes. For

properties owned at least one year, the cash flow will be calculated as follows:

• Net Income from the Supplemental Loss (IRS Form 1040 Schedule E) analysis

If the borrower has owned the property for at least two years, a two-year average of the Schedule E income analysis

would be used.

For properties owned less than one year, the lower income from the following will be used for qualification purposes:

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

• Net Income from the Supplemental Income or Loss (IRS Form 1040 Schedule E) analysis

Negative income per the cash flow analysis would be added as a liability and positive cash flow would be added as income. A

mortgage rating would be required. In addition, the borrower must meet reserve requirements for this obligation as an

additional financed property.

Debt-to-Income Ratio

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

• Revolving charges.

If the payment is not reflected on the credit report, 5% of the outstanding balance will be used.

• Installment debts with 10 or more remaining payments.

• Real estate loans on other owned properties (e.g., second home, timeshare).

• Real estate net rental losses from all investment properties owned. Commercial properties are excluded when

the borrower is not personally liable.

• Automobile loans.

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

• 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 forbearance, or in repayment.

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

1% of the unpaid balance

• Monthly paid charge accounts

For charge accounts that require that the balance be paid in full each month, such as an American Express

account, payment will not be included but outstanding balance amount will be netted out of available assets.

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 their 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 paying promptly. Generally, payment shock >150%, may require further review unless there are compensating

factors cited in the loan file. 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 (e.g., a second mortgage, tax lien or 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

ALTLOAN.

Requirements and Guidelines

Seller must investigate whether the borrower has applied for any simultaneous loan or subordinate financing, including

one that will occur after consummation of the ALTLOAN 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 ALTLOAN is

purchasing a first mortgage with non-ALTLOAN secondary financing:

• The CLTV ratio of the first and secondary lien must not exceed the limit outlined in the applicable ALTLOAN

program matrix. Refer to the ALTLOAN 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 HELOC.

• 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 be used for qualifying.

For a simultaneous HELOC originated with a new first mortgage, use the full credit line amount for

qualification purposes. Evidence of the HELOC payment amount must be verified.

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, 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, 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 subject 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.

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. A payment is defined as substantial when it

equals or exceeds 5% of the borrower’s qualifying income. These substantial payments must be included in the borrower’s

DTI calculation.

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 borrower’s DTI calculation. All funds used to

pay off debt must be sourced.

Auto lease payments are included in the DTI ratio regardless of the remaining months indicated on the credit report. If the

auto lease is paid in full prior to or at closing, it may be excluded from the borrower’s DTI calculation.

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 account 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 prior to or at closing. All

funds used to pay off debt must be sourced.

If the credit report does not show a required minimum payment amount and there is no supplemental documentation to

document a monthly payment, 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.

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

borrower’s qualifying DTI.

DIVORCE DEBT

Debts opened jointly with a former spouse will be considered an obligation of the borrower unless a fully executed legal

separation agreement or divorce decree is provided to prove the former spouse is responsible for the 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

that the derogatory accounts belong solely to the ex-spouse

• Late payments have occurred after the date of the divorce or separation

• If the debt in question is a mortgage, evidence of title transfer prior to any delinquent debt must be provided and

evidence of the buyout must be included as part of court proceedings

NEGATIVE CASH FLOW FROM RENTAL PROPERTY/OTHER REAL ESTATE OWNED

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

CURRENT PRINCIPAL RESIDENCE – DEPARTURE RESIDENCE If the borrower's current principal residence is not listed, is not under contract or is pending sale but the transaction will not

close prior to the subject transaction closing, one of the following options must be met in order for the current principal

residence’s Principal, Interest, Taxes, Insurance, and Association dues (PITIA) to be excluded from the qualifying ratio:

Current Principal Residence – Options

Option 1: Departing Residence not Under Contract or

Listed for Sale

Option 2: Departing Residence under Contract

No contract required for the departure residence A copy of an executed sales contract for the property

pending sale and confirmation that all contingencies have

been cleared/satisfied

Signed letter of intent from the borrower indicating that they

intend to list the departure residence for sale within 90 days

of closing the subject transaction

The pending sale transaction must be arm’s length

Equity in the departure residence must be documented

with an Exterior-Only Inspection Residential Appraisal

Report (FNMA Form 2055)

No appraisal required for the departure residence

Departure residence must have a minimum of 20%

equity after deduction of outstanding liens

Note: If the equity position is less than 20%, the full

payment must be included in the borrower’s qualifying

DTI.

The borrower must be netting positive proceeds from the

sale of the property or assets must be accounted for to

cover any funds the borrower may have to bring to closing

on the sale of the departure residence

Additional reserves for the departure residence are based

on the marketing time indicated by the departure residence

appraisal:

• Marketing time of 6 months or less: 12 months of

PITIA reserves

No additional reserves need to be verified over program

requirements

• Marketing time of over 6 months: 24 months of

PITIA reserves

Maximum LTV/CLTV on the subject transaction is 90% or

the program maximum, whichever is less

No limit on LTV/CLTV. Refer to the program maximum.

If the above options are not met, ALTLOAN will include the borrower’s current residence PITIA in the qualifying ratio.

BUSINESS DEBTS

Business debts for which the borrower is personally liable must be included in the debt calculation for qualification. 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 six 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

for qualification.

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.

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 qualifying 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 (e.g., divorce) – Evidence of the transfer of ownership must

be provided.

• Mortgage assumed by third-party without a release of liability – A copy of the assumption agreement and

evidence of transfer of ownership must be provided.

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

If these requirements cannot be satisfied, then the liability must be considered as a monthly debt payment in the borrower’s

qualifying DTI. Co-signed debts must be paid satisfactorily (0x30) or they will be counted in the borrower’s credit grade and

program eligibility.

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. 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 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. ALTLOAN will default to the income calculation requirements in the Fannie Mae Seller

Guide currently in effect at the time of the loan application. Additional or alternate requirements may be cited below. Loans

submitted as qualified mortgages must also meet all requirements in Appendix Q.

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 (i.e., 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 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. Declining income is not eligible for Reduced Documentation programs.

JOB CHANGES / GAPS IN EMPLOYMENT

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. Frequent job changes without advancement or in different fields of work should be carefully reviewed

to ensure consistent or increasing income levels and the likelihood of continued employment.

Employment gaps that extend 30 days or more require a written explanation letter from the borrower. This

explanation will be reviewed for reasonableness.

For new employment, the following documentation is required:

• Employment contract specifying start date, position, rate of pay and no outstanding contingencies, or

• Written Verification of Employment and copy of first paycheck stub

EMPLOYED BY A RELATIVE

Income derived from a family-owned business or from a relative must be Full Income documentation only.

Documentation must also include the borrower’s prior two years of federal tax returns. Alternative and Reduced Income

documentation types are not allowed.

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 requirements, refer to the ALTLOAN

Loan Program Matrices.

FUTURE INCOME

ALTLOAN does not allow the use of future income.

FULL DOCUMENTATION 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 borrower. The borrower must provide

evidence of two years of stable income derived from employment or other acceptable and verifiable sources. Self-employed

borrowers must have been in business for at least two years and there must also be a reasonable expectation that the income

will continue in the foreseeable future and be sufficient for repaying the proposed monthly debts.

A borrower who finished college, trade school or military service and who does not meet the length of employment required

must provide a copy of their diploma or discharge papers.

Salary / Wage Earner

A salary/wage earner derives income through employment at a business where they have little or no ownership interest.

Compensation may be based on an hourly, weekly, bi-weekly, semi-monthly or monthly basis. In addition to the borrower’s

salary or hourly wage, bonus, commission, overtime, and gratuity income are considered compensation and there must be a

stable, two-year history to be used for qualification purposes.

One of the following must be supplied for salary/wage earners:

• Wage and Tax Statements (IRS Form W-2) for the past two years and paystubs for the most recent 30-day period

showing year-to-date earnings

• Written Verification of Employment (WVOE) showing earnings for the past two years and year-to-date

earnings and paystubs for the most recent 30-day period showing year-to-date earnings

• Two years of personal tax returns with all schedules, W2s, and paystubs for the most recent 30-day period showing

year-to-date earnings

If a borrower derives their primary income from commissions, consultation fees, or real estate rents they will be

required to provide two years of personal tax returns.

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.

For all salary/wage earners, a verbal verification of employment (VVOE) must be performed within 10 business days prior to

the Note Date or prior to delivery to ALTLOAN for funding.

• The Seller must independently obtain a phone number of the employer, and if possible, the employer’s

address.

• The Seller must confirm with the employer the borrower’s current employment status and title.

• Third-party verification sources may be used. If the selected third-party vendor typically updates their databases on

a monthly basis, the verification must evidence that the information in the vendor’s database was no more than 35

days old as of the Note Date.

• The written VVOE Form should include:

Date of the verification

Source used to obtain the phone number (e.g., 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 for the Seller

Self-Employed

Self-employed borrowers must be carefully evaluated. Their financial ability to repay debts is directly related to the success of

the company and the stability of business income and expenses.

Self-employed borrowers are identified as follows:

• A borrower with 25% or more ownership in a business

At least two consecutive years of self-employment with the same business entity and evidence of ongoing stable income are

required. Business income must be reported as a Sole Proprietorship (Schedule C), Partnership (1065), Limited Liability

Company (LLC), S-Corporation (1120S), or C-Corporation (1120). The following is required for all borrowers considered self-

employed:

• Two years of personal tax returns with all schedules

• Two years of K1s (if applicable)

• If the borrower has 25% or more ownership interest in a Partnership, S-Corporation, or Corporation,

business tax returns for the past two years including all schedules must be provided

• Signed and dated year-to-date Profit and Loss Statement (P&L), if more than 120 days have lapsed since filing the

last tax returns

Note: Income from the year-to-date P&L may be included in the income calculation if consistent with earnings

from previous years.

• Balance Sheet (only required for Qualified Mortgage loans)

In addition, evidence of self-employment in the same business for the past two years is required. 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 that the business is current and active and has been in existence for two full years

Alternate documentation may be used only if a license is not required for the particular type of business

Alternative options include any of the following:

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) For

rental income, copies of current leases

A verbal verification of employment must be completed within 30 Business Days prior to the Note Date or prior to delivery to

ALTLOAN for 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.

Fixed Income

ALTLOAN defines fixed income as income derived from sources such as social security and supplemental (dependent’s) social

security, 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, if applicable. Some forms of fixed

income can be nontaxable. Verified nontaxable income will be given special consideration if it is determined that such income

will continue for three years and will remain untaxed.

Acceptable forms of nontaxable income include:

• Certain military allowances

• Disability retirement payments

• Child support payments

• Social security distributions

• Nontaxable public assistance payments

• Workers’ compensation benefits

Nontaxable income that is not allowed to be grossed up includes:

• Foreign earned income

• Foster care income

• Housing allowance

• Tax exempt income (this does not include non-taxable income such as disability or social security income)

Fixed Income Calculation

Borrowers with non-taxable income may gross-up the income by 125%, provided that:

• Only the net income will be used for determining disposable/residual income

• For Social Security income, use gross income prior to Medicare and insurance payments

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

Temporary Leave and Short-Term Disability Income

Temporary leave from employment is generally short in duration and may encompass various circumstances such as maternity,

medical, short-term disability, or other temporary leaves with or without pay. The period of time that a borrower is on

temporary leave is determined by various factors such as applicable law, employer policies, and short term insurance and/or

benefit terms. When using temporary leave type income for qualifying, the maximum LTV/CLTV is 80% or the program

maximum, whichever is less.

Leave from work ceases being considered temporary when the borrower does not intend to return to the current

employer or does not have a commitment from the current employer to return to work. The following apply:

• If the borrower will return to work prior to the first mortgage payment, then the borrower’s regular employment

income that will be received upon their return to work may be used for qualifying. ALTLOAN will not fund the loan

until a copy of a paystub reflecting the regular employment income is received.

• If the borrower will return to work after the first mortgage payment, then the borrower’s temporary leave

income is used for qualifying

• Documentation evidencing amount, duration, and consistency for all temporary leave income sources must be

obtained when used for qualifying

Verify the borrower’s pre-leave income and employment, regardless of leave status Obtain documentation from

current employer confirming the borrower’s statutory right to return to work (or employer’s commitment to permit

the borrower to return to work), the confirmed date of return, and the borrower’s post-leave employment and

income

Obtain written statement signed by the borrower confirming that they will return to their current

employer and stating the confirmed date of return

• When a borrower is currently receiving short-term disability payments that will decrease to a lesser amount within

the next three (3) years because they are being converted to long-term benefits, the amount of the long-term

payments must be used in determining the borrower’s stable income

In addition to the above guidelines, the following applies for worker’s compensation:

• Benefits that have a defined expiration date must have a remaining term of at least three (3) years from the date of

the mortgage application in order to be used for qualifying the borrower

• A copy of the borrower’s disability policy or benefits statement must be obtained to verify the amount of the

disability payments and to determine whether there is a contractually established termination or modification date

• A statement from the benefits’ payer (insurance company, employer, or other qualified and disinterested party)

must be obtained to confirm the borrower’s current eligibility for the disability benefits

IRA Distributions

To document IRA distributions, evidence of the following is required:

• Two-year history showing on borrower’s tax returns and three years continuance, or

• Distribution letter, evidence at least one month’s receipt and three years continuance

Note: The borrower must have unrestricted access without penalty to the account(s). 70% of the value of the IRA must be

used to determine the number of remaining distributions.

Rental Income

Rental income may be used in qualifying income. 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 Documentation and Calculation for Subject Property

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

Reporting on tax

returns for the

Subject Property?

Transaction

Type

Documentation Requirements

Yes Refinance Appraisal, including Form 1007 or Form 1025 as applicable, and either:

• Borrower’s most recent two years of federal income tax returns, including Schedule E, or

• Copies of the current lease agreement(s) if the borrower provides an

acceptable explanation regarding use of lease(s) vs Schedule E

No Purchase Appraisal, including Form 1007 or Form 1025 as applicable, and either:

• Copies of the current lease agreement(s), or

• Form 1007 or Form 1025 may be used

No Refinance Appraisal, including Form 1007 or Form 1025 as applicable, and

• Copies of the current lease agreement(s) with an acceptable

explanation regarding no prior rental history.

Rental Income Documentation and Calculation for Property other than the Subject Property

Transaction Type Documentation Requirements

Purchase and

Refinance

Provide either:

• Borrower’s most recent two years of federal income tax returns, including Schedule E, or

• Copies of the current lease agreement(s) if the borrower provides an acceptable

explanation regarding use of lease(s) vs Schedule E (i.e., property owned less than

one year). Two years tax returns, including Schedule E, would still be required to

validate actual expenses and prior lease amounts.

If the property was rented:

• The rental income must be averaged over 24 months, or

• If the property was rented less than 24 months, the lesser of the most recent year’s tax returns or 75% of the current

lease, if provided, will be used to calculate rental income.

If the appraisal, including Form 1007 or Form 1025, or current leases are being used for rental income:

• Rental income is calculated by multiplying the gross monthly rent(s) by 75%. This is referred to as “Monthly Market

Rent” on Form 1007 or Form 1025. If leases are provided, the lower of the market rents or leases will be used for

qualifying.

• For rental income calculation, refer to the Fannie Mae Seller Guide.

• Ineligible rental income includes:

Boarder income

Room rent

Note: If any of the units in a property are receiving room rent, none of the rental income received for the

property may be used as qualifying income.

Income from accessory units

Income from properties currently listed for sale

Short-Term Rental Income

Rental income from short term leases, Airbnb, VRBO, Homestay or other vacation rentals (i.e., short-term rentals) will be

allowed with a two-year history of receipt as reported on the borrower’s income tax returns. Evidence that the property is

currently being offered for rent in the same manner is required. Market rents cannot be used for short-term rental income; a

two-year history is required.

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, rental income may be calculated on an aggregate basis.

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 of

cancelled rent checks provided by the tenant family member.

Rental Income from Departing Residence

If the borrower’s departing 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.

If a fully executed lease is not available:

• Rent survey from the appraiser

• 75% of the rental amount will be used

If a fully executed lease is available (must be arm’s length):

• 75% of the rental amount will be used

• Copy of cancelled check for the first month’s rent

• Copy of cancelled check for the security deposit

Ineligible Rental Income:

• Boarder income

• Room rent

Note: if any of the units in a property are receiving room rent, none of the rental income received for the

property may be used as qualifying income.

• Income from accessory units

• Income from properties currently listed for sale

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 Capital Gains and Losses

(IRS Schedule D).

• 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 ongoing basis.

Restricted Stock Units

Restricted stock units (RSUs) are issued to an employee through a vesting plan and distribution schedule after achieving

required performance milestones or upon remaining with their employer for a particular length of time. RSUs give an employee

interest in company stock but have no tangible value until vesting is complete. The restricted stock units are assigned a fair

market value when they vest. Upon vesting, they are considered income, and a portion of the shares are withheld to pay

income taxes. The employee receives the remaining shares and can sell them at their discretion.

The following restrictions apply:

• May only be used as qualifying income if the income has been consistently received for the prior two years, is

continuing, and is identified on the borrower’s tax returns as income.

• Restricted stock income will be treated and calculated like bonus income using a prior two-year average as reported

on W-2s and tax returns.

If the restricted stock income is declining, proof of stability must be provided, and the most

conservative average will be used for qualifying.

• Borrower must be employed at the same company that issued the RSU.

• Income verification obtained through a third-party verification service provider is not allowed when using RSUs

as income.

• Non-vested restricted stock is not an acceptable source of income or reserves.

• Employer must be a publicly traded entity (e.g., a Fortune 500 company). It cannot be a privately held

company.

• RSU income must be likely to continue for two years.

• Non-Qualified Mortgage Loans only.

Required Documentation for RSU Income:

• Evidence that stock is publicly traded

• Most recent vesting schedule or issuance agreement showing continuance of RSU income for a minimum of two

years.

To prove two-year continuance, take the available RSUs from the application date multiplied by the 52-

week average stock price or current stock price, whichever is lower, divided by 24 months. The monthly

amount must be greater than or equal to the monthly qualifying amount.

• Evidence of the previous two year’s payouts of RSUs. Acceptable verification includes: Two

years tax returns reflecting RSU income,

Year-end paystubs that include RSU payout, or

Employer-provided statement paired with a brokerage or bank statement showing transfer of shares or

funds that must, at a minimum, include

Date of the payout(s)

The number of vested shares and their cash equivalent distributed to the borrower Vested RSUs

cannot be used for down-payment, cash to close, or reserves, if they are being used for income. Farm Income

Net farm income reported on the borrower’s income tax return Profit and Loss from Farming (IRS Schedule F) is eligible. Depreciation, pension, amortization, and depletion can be added back to income.

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. Basic Housing Allowance (BAH) and Basic Allowance for Subsistence (BAS) allowances may be

grossed up due to the nontaxable status. Other allowances may be grossed up if documentation is provided evidencing that it is

nontaxable.

Employed by a Relative

Income derived from a family-owned business or from a relative must be Full or Alternative 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 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.

The following must be supplied to include trust income for qualification.

• A complete copy of the trust agreement or certification letter from a bank trust administrator that includes all

of the following:

o Total income paid to the borrower

o Evidence of receipt by the borrower

o Method of payment

o Duration of trust

o Any nontaxable portion must be outlined

o Additionally, personal tax returns with all schedules, K-1s, 1041s and/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 showing one month’s receipt and proof of continuance for a minimum

of three years is required.

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 12 months. Payments on a note executed

within the past 12 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

may 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.

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 (used to offset the auto payment only)

• Per diem income

• Retained earnings

• Unverified sources

• Income from a business that is state or federally illegal

• Mortgage credit certificates

• Mortgage differential payments

REDUCED DOCUMENTATION

ALTLOAN will accept the following types of reduced documentation (Reduced Doc) with a verified, 12-month 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 Doc loans are

only allowed with Alt-A and Non Prime credit grade loans.

Reduced Documentation – Bank Statements (12-Month)

Refer to Chapter 5, Loan Programs Bank Statement Program for specifics regarding this income documentation type and program requirements.

Reduced Documentation – 12-Month Verification Self-Employed Only Requirements

• Personal tax returns for the past one year, including all schedules in addition to the following: If the borrower has

25% or more ownership interest in a Corporation, S-Corp, or Partnership, business tax returns for the past one year

including all schedules must be provided.

• A signed and dated Profit and Loss (P&L) statement is required if more than 120 days has lapsed since the filing of

their most recent tax return.

• Proof of the existence of the business for two years. Acceptable documentation includes a copy of the business

license, business credit report, or a letter from a certified public accountant (CPA).

ALLOWABLE AGE OF FEDERAL INCOME TAX RETURNS

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

If Today’s Date is: The Most Recent Year’s Tax Return is:

February 15, 2019 2017

April 15, 2019 2017

October 15, 2019 2018

December 15, 2019 2018

ALTLOAN will allow tax extensions until October 15th. If the borrower has not filed tax returns by April 15th, then the following is required on or prior to June 30th:

• Evidence of tax extension (IRS Form 4868) or evidence of extension filing.

• Proof tax liability payment has been made (if applicable) or the amount of the tax liability due can be subtracted from the borrower’s liquid assets (if proof of payment is not supplied). The borrower will need to meet the required assets for down payment, closing costs and reserves after the taxes due are subtracted from the borrower’s liquid assets. After October 15th proof of tax payment is required.

After June 30th, in addition to the requirements above, an IRS Form 4506-T transcript confirming “No Record Found” for the

tax returns on extension must be supplied.

Under the Reduced Documentation – 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 during 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 the 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

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 funding by ALTLOAN.

4506-T AND TAX TRANSCRIPTS

A Request for Transcript of Tax Return (IRS Form 4506-T) must be completed and signed by all borrowers. The form must

request the appropriate documentation type (W-2s, full tax transcripts, etc.) and be executed by the Seller.

Transcripts are not required for business returns unless the borrower owns greater than 25% of the company and the income

does not flow through to the borrower’s personal tax returns.

If tax transcripts for the income used to qualify are not available, the income may be verified by one of the following:

• Officially stamped returns by the IRS.

• Evidence that the return was electronically received. It must reflect the refund or amount owed to the IRS. In all

cases, evidence of a refund check or payment made must be supplied.

Documentation received from executing the 4506-T must be reviewed and compared to the qualifying income to confirm

consistency. Results from processing the 4506-T should generally be equal to or greater than the income used to qualify the

loan. Any inconsistencies between the 4506-T results and qualifying income should be addressed by the Seller.

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 for any required cash reserves. For details on a specific

program’s asset verification requirements, refer to ALTLOAN 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.

ALTLOAN 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 must be deposited in U.S. financial institutions

• If the borrower is not of retirement age, the borrower must document that they have unrestricted access to all

retirement-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 as follows:

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 subject 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.

• The statements can be obtained from the borrower or the Seller may use an asset verification service approved by

FNMA’s Day One Certainty program such as Blend Generated Asset Statement or Account Check Asset Report (Form

Free). If using an asset verification service, a copy of the backup documentation used to generate the report must be

provided with the file submission.

• Two months of 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

ALTLOAN 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. In all instances, the borrower must meet reserve

requirements with their own funds.

With an LTV 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.

A borrower may not use real estate commission from the subject property to meet the minimum down payment

requirement. Gift funds are not allowed on second homes and Non-Owner-Occupied (NOO) transactions. Note: The Asset

Qualifier Program does 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:

• A copy of the borrower’s cancelled check and two months of 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 as of the Note Date.

RESERVE REQUIREMENTS

When reserves are required by a ALTLOAN program and documentation type, the number of months required will be indicated

in the ALTLOAN Loan Program Matrices. To calculate the dollar amount of the required reserves, multiply the borrower’s

qualifying 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 includes:

• 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 subject property

INELIGIBLE ASSETS AND SOURCES OF FUNDS • Stocks held by privately held corporations

• Stock options

• Non-vested restricted stock units

• 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

• Assets pledged as collateral on another loan

• Below investment grade corporate and municipal bonds

• Health Savings Accounts

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. Bank

statements can be obtained directly from the borrower or the lender may use an asset verification service approved by

FNMA’s Day One Certainty program such as Blend Generated Asset Statement or Account Check Asset Report (Form Free). If

using an asset verification service, a copy of the backup documentation used to generate the report must be provided with

the file submission.

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. The following requirements are applicable for self-employed borrowers using business

funds:

• The borrower(s) must be the sole proprietor or 100% owner of the business. If the borrower(s) do not own the

business entirely, a letter from a CPA or other third-party verification is required to evidence that they have access

to the funds and that the funds are not an advancement on future earnings or cash distributions.

• Business funds must be verified using standard documentation requirements.

• All funds must be seasoned for 60 days. Any atypical or large deposits must be sourced and fully

documented along with an explanation letter.

• One of the following is required to determine that the withdrawal of the funds will not have a negative impact on the

business:

A letter from the CPA (or similar third party).

A cash-flow analysis (FNMA Form 1084 or similar form).

Three months business bank statements evidencing ending balances for each month that are greater than the

funds being used for the transaction. The borrower (s) must be 100% owner of the business.

Retirement Accounts

Vested funds from individual retirement accounts (e.g., IRA, Keogh account) 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, the amount remaining after deducting the assets needed for a three-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, KEOGH):

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 are 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

For government bond proceeds, a copy of the bond redemption tables for value verification and proof of liquidation is

required.

Asset Type Qualifying Amount

Publicly Traded Stocks and Bonds 70%

Mutual Funds 70%

Foreign Assets

Assets held in a foreign account may be used as a source of funds to close and to meet applicable reserve requirements.

These funds must be transferred to a United States domiciled account in the borrower’s name. The transfer should occur

within 30 days of closing, but in all cases 10 days prior to closing.

• Documenting Assets Held in Foreign Accounts:

Assets must be verified in U.S. dollar equivalency at the current exchange rate via either www.xe.com or the

Wall Street Journal conversion table

A copy of the two most recent statements of the foreign account to verify that funds are seasoned a

minimum of 60 days

Cash Value of Life Insurance

Net proceeds from a loan against the cash value or surrender of a life insurance policy are acceptable sources of funds for

down payment, closing costs and reserves. If the funds are being used for reserves, the amount must be verified but does not

need to be liquidated.

Required documentation includes:

• Computer-generated or physical letter from the insurance company

• Identify the insurance company and the policy holder

• Show current cash value

The Seller must assess repayment or additional obligation considerations and the impact on borrower qualification. If penalties

for failure to repay the loan are limited to the surrender of the policy, payments on a loan secured by the cash value of a

borrower’s life insurance policy do not have to be considered in the total debt-to-income ratio. If additional obligations are

indicated, the obligation amount must be factored into the total debt-to-income ratio or subtracted from the borrower’s

financial reserves. To document borrower receipt of the funds from the insurance company, Seller must obtain a copy of the

check from the insurer or a copy of the payout statement issued by the insurer.

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 the conditions under which 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 subject 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 Closing Disclosure along with the receipt of the proceeds by the borrower.

Gift Funds

A borrower may receive a gift to be used toward the down payment, prepaid items, closing, and/or financing costs. Gift

funds are not allowed on second homes and Non-Owner-Occupied (NOO) transactions.

A down payment of 100% from gift funds is allowed for LTVs of less than or equal to 80% or the program maximum when no

secondary financing exists. Closing costs may also be in the form of a gift. Reserve requirements must be met by the

borrower’s own funds. If the borrower is receiving a gift for more than the amount to close, the excess cannot be used as

reserves. Eligible donors include a close relative of the borrower, a close friend with a clearly- defined and documented

interest in the borrower, or a fiancé.

If the borrower receives a gift from a relative, domestic partner, or fiancé who has lived with the borrower for the last 12

months, the gift is considered the borrower’s own funds and may be used to satisfy the minimum borrower contribution

requirement if all individuals currently occupy or intend to occupy the subject property.

Ineligible donors include:

• Borrower’s employer or labor union.

• Federal/state/local government agencies providing home ownership assistance without repayment or

established lien requirements.

• Corporations established for humanitarian, welfare, or charitable purposes.

• Individuals with an interest in the sale of the property (e.g., builder or seller, real estate broker, marketing agent, or

any person/corporation/organization associated with them). Gifts of credits from these sources are considered

inducements to purchase and must be subtracted from the contract sale price.

• Nonprofit entities that provide gifts to homebuyers for the purpose of paying off installment loans, credit cards,

collections, judgements, and similar debts.

• Down Payment Assistance (DPA) programs.

Gift Fund Letters

Gift funds must be verified by a signed gift letter that contains the following:

• 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

Gift Fund Receipt Documentation

The following documentation is required to document the receipt of the gift funds. If the gift funds transfer prior to the loan

closing, the following documentation is required:

• Copy of the donor’s bank statement and canceled check or other withdrawal document showing that the

withdrawal is from the donor’s account

• Borrower’s deposit receipt and bank statement showing the deposit

If the gift funds are transferred at loan closing, the Seller is responsible for obtaining the following verifications:

• Closing agent’s receipt of the gift funds from the donor for the amount of the gift

• Donor’s copy of the bank statement to evidence that those funds came from an acceptable source

If the donor borrowed the gift funds and cannot provide the documentation from their bank or other savings account, the

donor must provide evidence that those funds were borrowed from an acceptable source (i.e., not from a party to the

transaction, including the mortgage lender). Donors may borrow gift funds from any other acceptable source provided that the

borrowers are not obligors to any note to secure money borrowed to give the gift.

“Cash on hand” or “mattress money” is not an acceptable source of the donor’s gift funds. The source of funds must be

verifiable.

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 Closing Disclosure. 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 that have a 10% variance from the fair market value established by the appraisal

are subject to further review and documentation.

Tax Deferred Exchange Proceeds

The 1031 tax deferred exchange provides the borrower with an additional means for providing down payment funds. In a

1031 tax deferred exchange, proceeds from the sale of the borrower’s previously sold property (relinquished property) is

transferred to an intermediary and held by the intermediary until the borrower finds a replacement property (the subject

property). The relinquished property sale must close before or simultaneously with the replacement (subject) property

acquired. These transactions must be in compliance with Internal Revenue Code Section 1031.

A 1031 tax deferred exchange is an acceptable source of down payment for an investment property purchase transaction only. Reverse exchanges are not allowed. This occurs when the borrower acquires the subject property through an exchange accommodator titleholder prior to transferring the property to be relinquished.

Documentation Requirements

The following documentation is required in the Loan File for both properties in a 1031 tax deferred exchange transaction

when the relinquished property is transferred prior to the purchase of the subject (acquired) property:

• 1031 exchange agreement and title transfer or evidence of title transfer

The exchange agreement should identify the holder of funds, buyer and seller, expiration date, agreed

upon value, Closing Date, closing costs and condition of transfer, and repairs, if required

• Verification of the receipt of funds from the qualified intermediary / accommodator

The following documentation is required for both properties of a 1031 tax deferred exchange transaction that are closing simultaneously:

• Copy of the sales contract

• Fully executed Closing Disclosure

• Fully executed deed transferring title or evidence of title transfer

• The 1031 exchange agreement

Note: The exchange agreement should identify the holder of funds, buyer and home seller, expiration date, agreed

upon value, Closing Date, closing costs and conditions of transfer and repairs, if required.

• Statement of borrower’s equity for the property to be relinquished, calculated as the lesser of the appraised value or

the trade-in value (sales price) from the sales contract minus any outstanding liens and transfer costs.

The loan closing must be handled by a qualified intermediary, typically an escrow company or licensed exchange company,

who enters into a written agreement with the borrower. The qualified intermediary cannot be an agent, investment banker,

broker, employee of the borrower, or related family member.

TRANSACTION TYPES This section describes the types of transactions for which ALTLOAN will fund 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 Transactions

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, builder, mortgage lender, or broker. A Gift of Equity or Inherited property are eligible

transactions.

A borrower may be represented by a relative in the transaction (realtor or loan officer) if it is an open market transaction

and there are no fees credited to the borrower. A relative cannot be both realtor and loan officer for the borrower.

Ineligible Non-Arm’s Length Transactions

Non-Arm’s length transactions are not eligible for funding. Examples of non-arm’s length transactions include but are not

limited to the following:

• Relatives

o Relatives are individuals related by blood, marriage, adoption, or legal guardianship. The definition also

includes domestic partners and fiancés. Transactions between an individual and their relatives are

considered non-arm’s length.

- Parents purchasing and financing a property for a child in cases where the child then wants to

refinance to pay off their parents

- A financing transaction between relatives

• Employer / Employee

A purchase and sale transaction between an employer and an employee A

financing transaction between the borrower and their employer

• Landlord / Tenant

A purchase and sale transaction between a landlord and tenant that does not meet lease option funding

guidelines

A financing transaction between a landlord and tenant

• 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

• 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.

• ALTLOAN Seller Employees

A borrower who is employed by the Seller of the loan (i.e. no employee loans). This includes a loan

originated by the Seller for the Seller’s employee, broker, contractor, or principal

• Owner Financed

The payoff of a loan currently financed by the owner/seller of the subject property

Interfamily Transfers

• The Closing Disclosure 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 ALTLOAN on a

case-by-case basis)

Interfamily transfers are considered purchase transactions. For an interfamily transfer to be eligible for funding by ALTLOAN, the appraisal must support the value, and meet all the following:

• Existing liens on the property must be current

• Full documentation loans only

• The Closing Disclosure 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 subject property for up to 30 days from the closing sale date. In some cases, such as

relocations, ALTLOAN, at its 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 subject 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 seasoned at least 12 months

• Payoff of HELOCs 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 subject 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.

Principal Reduction/Curtailment

A principal curtailment to the new refinance loan at closing is allowed up to the lesser of 2% of the new loan amount or

$2,000 and must be clearly reflected on the Closing Disclosure. Principal curtailments cannot be used to cure tolerance

violations. Principal curtailment/reductions are not allowed in any other circumstance.

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 HELOCs 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

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 Closing Disclosure or otherwise documented.

In all cases, a six-month property seasoning is required for cash-out/cash-in-hand transactions.

Multiple Refinances in Less Than 12 Months

If the borrower has refinanced the subject property twice in the past 12 months, the borrower is ineligible for another

refinance (rate/term or cash-out) under ALTLOAN 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.

CONSOLIDATION, EXTENSION, AND MODIFICATION AGREEMENTS

For refinance transactions, properties located in the state of New York may be structured as a Consolidation, Extension

and Modification Agreement (CEMA) transaction.

The following documentation is required for all CEMA transactions:

• NY Consolidation, Extension and Modification agreement (most recent Form 3172).

• Original Notes(s) signed by the borrower.

• Gap Note and Gap Mortgage, if applicable.

• Consolidated Note signed by the borrower.

• Exhibit A – Listing of all Notes and Mortgages being consolidated, extended and modified.

• Exhibit B – Legal description of the subject property.

• Exhibit C – Copy of the consolidated Note.

• Exhibit D – Copy of the consolidated Mortgage.

Lost Note Affidavits are not allowed for any of the required documents. If original documentation cannot be provided as

noted above then the CEMA would be ineligible. ALTLOAN may have outside legal counsel review the documentation above

which may cause delays in the review of the loan file and additional fees.

CONTINUITY OF OBLIGATION

For refinance transactions, there must be a continuity of obligation. If additional borrowers are added who are not

currently on the title, the transaction is limited to a rate/term refinance. Cash-out is not allowed when additional borrower

who are not on title are added to the transaction.

Continuity of obligation is met when any one of the following exists:

For properties with an existing lien:

• At least one borrower is obligated on the new loan who was also a borrower obligated on the existing loan being

refinanced.

• At least one borrower has been on the title for at least 12 months.

• There is a relationship with the current borrower – spouse, domestic partner, or fiancé only.

• The loan being refinanced and the title to the property are in the name of a Limited Liability Company (LLC) or

acceptable trust. The borrower must have been (prior to the transfer) or is currently a member of the LLC or trust.

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 through divorce, separation or

dissolution of a domestic partnership.

For properties that are owned free and clear:

• All borrowers have been on title for a minimum of 6 months.

• Property purchased by borrower:

If the borrower’s purchase date is within 6 to 12 months prior to application date and there is no lien, the

LTV/CLTV must be based on the lesser of the original sales price or the current appraised value.

If the borrower’s purchase date is more than 12 months prior to application date and there is no lien, the

LTV/CLTV may be based on the current appraised value.

• Property was not purchased by borrower (e.g. borrower was granted the property):

o If the borrower has been on title for at least 6 months the appraised value can be used to calculate LTV/CLTV and the LTV/CLTV maximum is 50% or the program maximum whichever is less.

Borrower must meet all other program guidelines including the mortgage housing history.

DELAYED FINANCING

Borrowers who purchased the subject property within the past 180 days (seasoning calculated from the acquisition date to the application date of the new loan) are eligible when all of the following requirements are met:

• No financing was obtained for the initial purchase of the property

• The source of funds to acquire the property are documented

• CD or other settlement statement must be provided to document the original purchase price and date of

acquisition

• Maximum LTV/CLTV of 80% will be calculated based on the lower of the current appraised valued or the original

purchase price

• Cash back is limited to the original purchase price or current appraised value, whichever is less

• Inherited properties are not eligible

• The original transaction must have been Arm’s Length

• No existing liens can be in place against the subject property

• Must be treated as a cash-out refinance

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 will be based on the appraised value or 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 Single-Family

Comparable Rent Schedule (FNMA Form 1007) 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)

Requirements and Guidelines

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.

LEASE BACK PURCHASE TRANSACTION

A Lease Back Purchase Transaction, where the lease-back period is greater than 30 days is ineligible.

2. LOAN PROGRAMS

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 only eligible for the Prime Alt-A credit grade.

LOAN AMOUNTS, LOAN-TO-VALUE, COMBINED LOAN-TO-VALUE, AND CASH-OUT

LIMITATIONS

BORROWER ELIGIBILITY

Eligible Borrowers:

• U.S. Citizens

• Permanent Resident Aliens

• First Time Home Buyers (FTHB)

o Maximum 60% LTV/CLTV

Ineligible Borrowers:

• Irrevocable Trust

• Power of Attorney not allowed

• Non-occupant Co-borrowers

• Foreign Nationals

• Non-permanent Resident Aliens

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, a Request for Transcript of Tax Return (IRS Form

4506-T), and transcripts are neither requested nor required.

Employment and income are not required to be disclosed on the Uniform Residential Loan Application (FNMA Form 1003).

Since income sources are not being used, the income section of Form 1003 can be blank or the phrase “Not applicable to this

loan” may be inserted. Business phone number, if applicable, and contact information must be reflected on the Form 1003.

This will be used for contact and verification purposes only. A debt-to-income ratio (DTI) is not calculated.

PRIOR HOUSING HISTORY

Borrowers must have a fully documented, recent, consecutive, 24-month housing history. Borrowers without a history of mortgage or rent payments in the last 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 24-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 must be verified to complete the required 24-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, 24 months of 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.

ASSET DOCUMENTATION

Full asset documentation is required for both funds to close, and for 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(s) only.

Asset levels in the verified accounts are expected to be consistent and sustained over the 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 as 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 three 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 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 non-sufficient funds (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 of 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:

Asset Type Qualifying Amount

Checking, Savings, Money Market Accounts 100%

Publicly Traded Stocks and Bonds 70%

Mutual Funds 70%

Retirement Accounts (401(k) IRA, SEP, KEOGH):

• 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. Examples include stocks purchased on margin or a

401(k) loan 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

• Non-vested restricted stock units

• Foreign funds

• Deferred compensation

• Non-regulated financial companies

• Non-liquid assets (automobiles, artwork, business net worth, etc.)

• Health Savings Accounts

• 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/surrender value of Life Insurance

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 24 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 two 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 36-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 detailed in the Other Real Estate Owned

section.

Borrowers with American Express accounts due in full on a monthly basis must subtract the full balance due as reflected

on the credit report from the allowable assets.

EXAMPLES FOR QUALIFYING ASSETS

Note: The examples that follow 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) 36 months = $72,000

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 ($72,000+$22,500) = $94,500

Since the residual assets are more than the required funds to cover all other debt for 36 months plus required reserves, this 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

$150,000 Stocks and Bonds (70% usable) = $105,000

$300,000 Mutual Funds (70% usable) = $210,000

Total Allowable Assets = $325,000

Allowable Assets: $325,000

minus (-) Loan Amount: $300,000

Total Residual Assets = $25,000

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) 36 months = $28,800

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 ($28,800+$22,500) = $51,300

Since the residual assets are LESS than the required funds to cover all other debt for 36 months plus required reserves, this loan DOES NOT qualify for the Loan Program. Additional assets of $26,300 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 12 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 (36 months x negative cash flow).

Example:

Negative cash flow = $525 per month

Required additional reserves = $18,900 ($525 x 36 months)

EXAMPLES FOR ADDITIONAL REQUIRED ASSETS FOR OTHER REAL ESTATE OWNED

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

Additional Reserves Required =

36 x additional monthly liability ($125 x 36 = $4,500)

$4,500

The cash flow has not been met and the borrower would need an additional $4,500 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

Additional Reserves Required =

36 x additional monthly liability ($2,000 x 36 = $72,000) $72,000

The cash flow has not been met and the borrower would need an additional $72,000 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 ALTLOAN 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 ALTLOAN Borrower Affirmation Form.

PERSONAL BANK STATEMENT PROGRAM

(24-MONTH AND 12-MONTH VERIFICATION OPTIONS)

ALTLOAN permits the use of personal 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 is sufficient to

enable the borrower to repay the debt. The income presented must be reasonable for the profession. ALTLOAN reserves the

right to require additional documentation, up to and including full documentation (e.g., tax returns) to determine the

borrower’s qualifying income.

PROGRAM ELIGIBILITY The Personal Bank Statement Programs are eligible for ALTLOAN Alt-A and Non Prime credit grades only. For loan amount and

LTV/CLTV limitations and for income documentation type and eligibility, refer to the ALTLOAN Loan Program Matrices.

ELIGIBLE BORROWERS

To be eligible for this program, the borrower must be self-employed. A borrower is considered self-employed with 25% or

more ownership in a business. The borrower’s business may be a partnership (general or limited), a sole proprietor or a

corporation. They may also receive income documented on Miscellaneous Income (IRS Form 1099- MISC). 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 borrower must have owned 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

• A copy of business license

INELIGIBLE BORROWERS • Borrowers who do not have a documented business entity for their self-employment

• Borrowers who receive foreign income

• Non-occupant co-borrowers

INCOME DOCUMENTATION REQUIREMENTS

The borrower’s signed application must include all sources and amounts of income. The personal bank statements must

support the income listed on the application. Deposits from income sources that are not reflected on the Uniform Residential

Loan Application (FNMA Form 1003) or that are not needed to qualify will not be included in the qualifying income calculation.

Income documented using personal bank statements may be combined with other income sources that are fully documented

but not associated with self-employment, such as a spouse employed as a wage earner. 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-2 wages, etc.). When wage income is combined with the use of bank statement income, tax

returns are not required for the full income documentation. Any other full documentation income must be verified (e.g. most

recent 30 day paystubs and W-2) for 24 or 12 months as applicable. IRS Form 4506T is still required for W-2 earnings.

Nontaxable income, such as child support payments, disability retirement plans, and workers’ 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 for at least three years.

If tax returns, transcripts, or income verification is provided for the borrower using bank statements to support their income, the loan must be fully documented.

PERSONAL BANK STATEMENT REQUIREMENTS

Qualifying income must be documented by 24 or 12 months of personal bank statements. The only exception to this is for rental income. For details and eligibility, see the Personal Bank Statement with Rental Income section below.

If one account is used to show income and another account is used for reserves, down payment or cash to close,

documentation must be provided to show evidence that the funds are separate and distinct. The account being used for

assets (reserves, down payment or cash to close) only requires two months of statements to establish seasoning of funds.

Only one set (24 or 12 months) of personal bank statements will be used to determine qualifying income. A current 24- or 12-

month history of the same personal bank account is required. An exception to this is when the borrower has changed banking

relationships. Documentation must be provided to show the following:

• Letter of explanation from the borrower outlining the reason for the change

• Bank statements to show the closing of one account and the opening of the new account (beginning and ending

balances must be consistent/reasonable)

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 of reconciling funds between accounts, this may cause the loan to become ineligible or require the

loan to be fully documented.

ELIGIBLE BANK ACCOUNTS

The following outlines the eligible types of personal bank statements and requirements for the ALTLOAN Personal Bank

Statement program:

• Personal account such as a checking or savings account.

• Deposits must be consistent and typical.

• Atypical deposits may be included with a satisfactory explanation. Atypical deposits are defined as more than

150% of the gross monthly determined income. Supporting documentation may be required.

• If the borrower’s spouse is on the personal bank account and not on the loan, any income or deposits associated

with the spouse will be removed. An executed letter from the borrower and spouse indicating remaining deposits

on the bank statements are the borrower’s income is required.

Low or negative beginning and/or ending balances may require additional documentation up to and including that the loan is

fully documented.

INELIGIBLE BANK ACCOUNTS

The following outlines the ineligible types of personal bank statements and requirements for the ALTLOAN Personal Bank Statement program:

• A 24- or 12-month set of personal bank account statements from different institutions. The only exception is for the

change of banking relationship and must meet the guidelines outlined above.

• A 24- or 12-month set of personal bank account statements where the statements are not consecutive.

• 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, and the above requirements are met, then

the statements are allowed.

• Bank statements that exhibit recurring non-sufficient funds (NSF), wire transfers and overdraft protection

transfers that do not meet the exclusion policy detailed below are not acceptable.

• A co-mingled account that is used for both personal and business purposes is not acceptable under the Personal

Bank Statement program. Co-mingled accounts may be eligible for our Business Bank Statement program. See

Business Bank Statement requirements below.

o An account is considered co-mingled when there is evidence of personal and business activity and when there is not a separate business bank account.

BANK STATEMENTS WITH NON-SUFFICIENT FUNDS AND OVERDRAFT PROTECTION FEES/TRANSFERS

Bank statements reflecting NSF checks and overdraft protection transfers may indicate cash flow problems and each event or

occurrence must be considered. In all cases, the financial strength of the self-employed borrower’s business must be satisfactory.

The following tolerance for NSFs and overdrafts is allowed:

• For the 24-Month Personal Bank Statement Program:

Up to five occurrences in the most recent 24-month time period are acceptable if there are zero

occurrences in the most recent three-month time period.

• For the 12-Month Personal Bank Statement Program:

Up to three occurrences are allowed in the most recent 12-month time period are acceptable if there are

zero occurrences in the most recent three-month period.

• Each NSF is considered an occurrence.

The NSF occurrences may be excluded from the tolerances above if one of the following is met:

• Overdraft protection from another personal depository account when the statements for the linked account confirm all the following:

The account balance at the time of the transfer exceeded the amount of the overdraft transfer.

The account’s balance did not report as zero or negative at any point during the statement period of the

transfer.

The account did not itself receive overdraft protection proceeds during the statement period of the transfer.

• Overdraft protection from a personal line of credit when the statements for the linked account confirm that the

line’s credit limit was not exceeded during the statement period of the transfer.

PERSONAL BANK STATEMENT DOCUMENTATION

The following outlines the income documentation requirements for the 24- and 12-Month Personal Bank Statement

Programs:

• Personal Bank Statements

Most recent and consecutive 24- or 12-month complete personal bank statements from the same

account. Transaction history printouts are not acceptable.

Most recent consecutive two months business bank statements. These will be used to verify that expenses

are handled through a separate business account and to validate that transfers/deposits are income to the

borrower.

- If the borrower receives income from a source other than the business bank

statements, then an acceptable signed letter of explanation from the borrower is

required.

The statements can be obtained from the borrower, or the Seller may use an asset verification service

approved by FNMA’s Day One Certainty program such as Blend Generated Asset Statement or Account Check

Asset Report (Form Free). If using an asset verification service, a copy of the backup documentation used to

generate the report must be provided with the file submission.

For rental income, see the Personal Bank Statement with Rental Income section below.

• ALTLOAN Personal Bank Statement Calculation Worksheet

Must be included with initial submission and completed in its entirety, or

A similar form may be used.

The following documentation limits apply:

• A maximum of one personal account can be used for qualifying.

• Separate personal accounts can be used for cash to close, down payment and reserves. Only two months of the most recent statements are required for seasoning. For additional details and requirements, see the Assets section of the guide.

• If rental income exists outside the personal account used for qualifying, then we will allow up to one separate

personal account to be used to determine rental income. See the Personal Bank Statements with Separate

Rental Income section below.

DETERMINING CASH FLOW FROM PERSONAL BANK STATEMENTS

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 business purpose is not clear, additional documentation may be requested to

help outline the nature of the business and cash flows. Decreasing income trends must be explained, additional documentation may be

required, or in some cases, the loan may be required to be fully documented.

Any irregularity in the borrower profile or the documentation provided may be cause for the loan to become ineligible for

funding.

CALCULATING INCOME FROM THE PERSONAL BANK STATEMENTS

The following outlines how to calculate the income using the borrower’s personal 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.

• 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 (e.g., the borrower is paying themselves regular distributions or salary).

• Atypical deposits may not be included unless supporting documentation is provided to show that the monies are

typical for the borrower’s type of business or line of work. Atypical deposits are defined as more than 150% of the

gross monthly determined income.

• Credit back from returns and cash advances from credit cards may not be included in the qualifying income.

For assistance with the calculation of income from bank statements, refer to the ALTLOAN Bank Statement Income

Calculator. This tool, or one that is similar, is required to be included with the loan file at the time of submission to

ALTLOAN.

PERSONAL BANK STATEMENTS WITH RENTAL INCOME

Rental income may be used in qualifying a borrower under the Personal 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. If the rental income is the borrower’s source of self-employment and is not set up as a business entity, the loan must be fully documented and would not be eligible for the Personal Bank Statement Programs.

Eligible Rental Income Types

• Long-term leases (12 months or greater). A 12-month that has converted to a month-to-month is acceptable.

• Rental income from short-term leases, Airbnb, VRBO, Homestay or other vacation rentals with a 24-month documented history of receipt. Market rents cannot be used for short-term rental income.

• Rental income received from a family member with copies of cancelled rent checks provided by the tenant family

member (24 or 12 months as applicable).

Ineligible Rental Income Types

• Room or boarder rents. If any of the units in the property are receiving room rents, none of the rental income

received for the property may be used as qualifying income.

• Rental income on a second home.

• Rental income from short-term leases, Airbnb, VRBO, Homestay or other vacation rentals with less than 24- month

documented history of receipt.

• Rental income received from a family member without copies of cancelled rent checks provided by the tenant

family member.

Rental Income Documentation

All owner-occupied two-to-four unit properties and all investment properties require a rental income analysis to

determine positive or negative cash flow. The following is required to support the rental income shown on the application:

• Single Family Comparable Rent Schedule (FNMA Form 1007) for the subject property only

• Complete Schedule of Real Estate Owned (FNMA Form 1003)

• Complete Rent Schedule outlining the property address, length of ownership, rent received and payment details

(PITIA)

• Copies of the fully executed lease agreements

• Rental income received from a family member must be supported with copies of cancelled rent checks

provided by the tenant family member (24 or 12 months as applicable)

• Evidence receipt (24 or 12 months as applicable) of lease income being deposited into borrower’s bank account.

An additional account may be used to verify receipt of rental income.

If the rental income is not included in the personal bank account used to determine the borrower’s self-employed qualifying

income, one additional personal account may be used to support the rental income. The following applies:

• Documentation must be provided to show that the rental income account is separate and distinct from the bank

account being used to determine the borrower’s self-employment 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 rental account personal bank statements must support the receipt of the income as outlined on the

lease(s).

• 24 or 12 month’s personal bank statements will be required to show evidence of rental income receipt.

If multiple accounts are needed 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:

• The lower of actual rental income per the bank statements or 75% of lease amounts, 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 and negative cash flow will be added to total liabilities to qualify the

borrower. If the borrower owns multiple properties, rental income may be calculated on an aggregate basis.

A loan for the cash-out refinance of an investment property generating a negative cash flow will be ineligible.

VERBAL VERIFICATION OF EMPLOYMENT

A verbal verification of self-employment within 30 days of the loan closing must be performed.

REQUEST FOR TRANSCRIPT OF TAX RETURN (IRS FORM 4506T) REQUIREMENT

Not Required.

BORROWER AFFIRMATION REGARDING ABILITY TO REPAY

Each loan submitted to ALTLOAN 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 ALTLOAN Form.

BUSINESS BANK STATEMENT PROGRAM

(24-MONTH AND 12-MONTH VERIFICATION OPTIONS)

ALTLOAN permits the use of business bank statements to support a self-employed borrower’s income for qualification

purposes. The Business Bank Statement Program allows the use of 24 or 12 months of business bank statements to document

income for qualifying purposes. The documentation provided needs to demonstrate that the income is stable, likely to continue

and is sufficient to enable the borrower to repay the debt. ALTLOAN reserves the right to require additional documentation, up

to and including full documentation (i.e., tax returns) to determine the borrower’s qualifying income.

PROGRAM ELIGIBILITY

The Business Bank Statement Program is eligible for ALTLOAN Alt-A and Non Prime credit grades only. For loan amount and LTV/CLTV limitations and for income documentation type and eligibility, refer to the ALTLOAN Loan Program Matrices.

ELIGIBLE BORROWERS

To be eligible for this program, the borrower must be self-employed. A borrower is considered self-employed with 25% or

more ownership in a business. For the Business Bank Statement Program the borrower must own at least 25% of the business.

Split ownership between spouses is permitted as long as both are on the note. The borrower’s business may be a partnership

(general or limited), a sole proprietor or a corporation. The borrower may also receive income documented on Miscellaneous

Income (IRS Form 1099-MISC). 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 borrower must have owned 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). If the borrower owns less than 100% of the business then a CPA

letter must be provided to document their percentage of earnings.

• A letter from a regulatory agency or professional organization.

• A copy of the business license.

NOTE: If there are transfers between the business accounts the loan would be ineligible.

INELIGIBLE BORROWERS • Borrowers who own less than 25% of the business. Split ownership between spouses is permitted only if both are

on the note.

• Borrowers who do not have a documented business entity for their self-employment.

• Borrowers that receive foreign income.

• Non-occupant co-borrowers.

INCOME DOCUMENTATION REQUIREMENTS

The borrower’s signed application must include all sources and amounts of income. The business bank statements must support

the income listed on the application. Deposits from income sources that are not reflected on the Uniform Residential Loan

Application (FNMA Form 1003) or those not needed to qualify will not be included in the qualifying income calculation.

Income documented using business bank statements may be combined with other income sources that are fully documented

but not associated with self-employment, such as a spouse employed as a wage earner. 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-2 wages, etc.). When wage income is combined with the use of bank statement income,

tax returns are not required for the full income documentation. Any other full documentation income must be verified (e.g.

most recent 30-day paystubs and W-2) for 24 or 12 months as applicable. IRS Form 4506T is still required for W-2 or other non-

self-employment earnings.

Nontaxable income, such as child support payments, disability retirement plans and workers’ 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 for at least 3 years.

If tax returns, transcripts, or income verification is provided for the borrower using business bank statements to support their income, the loan must be fully documented.

BUSINESS BANK STATEMENT REQUIREMENTS

Qualifying income will be documented by 24 or 12 months of business bank statements per business, with a maximum of two

businesses allowed. If an account that is separate from the accounts used for qualifying income is used for cash to close, down

payment or reserves, documentation must be provided to show evidence that the funds are separate and distinct.

If another account is used for reserves, only two months of statements to establish seasoning are required. An exception to

this is when the borrower has changed banking relationships. Documentation must be provided to show the following:

• Letter of explanation from the borrower outlining the reason for the change

• Bank statements to show the closing of one account and the opening of the new account (beginning and ending

balances must be consistent and reasonable)

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 of reconciling funds between accounts, this may cause the loan to become ineligible or require the

loan to be fully documented.

ELIGIBLE BANK ACCOUNTS

The following outlines the types of bank statements that are eligible for the ALTLOAN Business Bank Statement program:

• Business account such as a checking or savings account.

• Expenses must be reasonable for the type of business.

• Patterns of deposits and payments must be consistent.

• Deposits that are larger than typical for the account or appear atypical for the business may be included with a

satisfactory explanation. Supporting documentation may be required.

• A Co-mingled account such as a checking account that is used as both a business and personal account. A co-mingled

account must meet all Business Bank Statement program requirements.

Low beginning and/or ending balances may require additional documentation up to and including full tax returns (Form 1040, 1065, 1120, etc.).

INELIGIBLE BANK ACCOUNTS

The following outlines the types of bank statements that are ineligible:

• A 24- or 12-month set of business bank account statements from different institutions. The only exception is for the

change of banking relationship and must meet the guidelines outlined above.

• A 24- or 12-month set of business bank account statements where the statements are not consecutive.

• Bank statements reflecting other individuals who are not applicants for the loan.

• Bank statements that exhibit recurring non-sufficient funds (NSF), wire transfers, overdraft protection

fees/transfers and negative ending balances that do not meet the exclusion policy detailed below.

BANK STATEMENTS WITH NON-SUFFICIENT FUNDS AND OVERDRAFT PROTECTION FEES/TRANSFERS

Bank statements reflecting NSF checks and overdraft protection transfers may indicate cash flow problems and each event or

occurrence must be considered. In all cases, the financial strength of the self-employed borrower’s business must be satisfactory.

The following tolerance for NSFs and overdrafts is allowed:

• For the 24-Month Business Bank Statement Program:

Up to five occurrences in the most recent 24-month time period are acceptable if there are zero

occurrences in the most recent three-month time period.

• For the 12-Month Business Bank Statement Program:

Up to three occurrences are allowed in the most recent 12-month time period are acceptable if there are

zero occurrences in the most recent three-month period.

• Each NSF is considered an occurrence

The NSF occurrences may be excluded from the tolerances above if one of the following is met:

• Overdraft protection from another business depository account (a personal account cannot be used for overdraft protection) when the statements for the linked account confirm all the following:

The account balance at the time of the transfer exceeded the amount of the overdraft transfer.

The account’s balance did not report as zero or negative at any point during the statement period of the

transfer.

The account did not itself receive overdraft protection proceeds during the statement period of the transfer.

• Overdraft protection from a business line of credit (a personal line of credit cannot be used for overdraft

protection) when the statements for the linked account confirm that the line’s credit limit was not exceeded during

the statement period of the transfer.

BUSINESS BANK STATEMENT DOCUMENTATION

The following outlines the income documentation requirements for the 24- and 12-Month Business Bank Statement

Programs. The following documents are required for each business entity used for qualifying income:

• If the borrower owns less than 100% of the business a CPA letter, an operating agreement or the equivalent must be

provided to document their percentage of earnings.

The percentage verified by the CPA will be used to calculate the borrower’s income percentage on the bank

statement calculation worksheet.

• Business Bank Statements

Most recent and consecutive 24- or 12-month complete business bank statements from the same account,

and in line with the dates of the Profit and Loss (P&L). Transaction history printouts are not acceptable.

The statements can be obtained from the borrower, or the seller may use an asset verification service

approved by FNMA’s Day One Certainty program such as Blend Generated Asset Statement or Account Check

Asset Report (Form Free). If using an asset verification service, a copy of the backup documentation used to

generate the report must be provided with the file submission.

• ALTLOAN Business Bank Statement Calculation Worksheet

Must be included with initial submission and completed in its entirety, or

A similar form may be used.

• One of the following:

Profit & Loss Statement

Signed and dated P&L prepared by the borrower, CPA or tax preparer covering no less than 24 or 12

months and must be in line with the same time period covered by the bank statements.

Must show expenses broken out in detail.

Expense Statement

Signed and dated by the CPA or tax preparer covering no less than 24 or 12 months and must be in line

with the same time period covered by the bank statements.

Statement must specify business expenses as a percentage of the gross annual sales/revenue.

The following documentation limits apply:

• Maximum of two business entities can be used for qualifying.

• Only one set of business bank statements allowed per business entity.

• Separate personal accounts can be used for cash to close, down payment and reserves. Only two months of the most recent statements are required for seasoning. For additional details and requirements, see the Assets section of the guide.

• If rental income exists outside the business entities, then we will allow up to one separate personal account that can be used to determine rental income. See the Business Bank Statements with Separate Rental Income section below.

If the above requirements are exceeded, then the loan must be fully documented.

DETERMINING CASH FLOW FROM BUSINESS BANK STATEMENTS

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. Decreasing income trends must be explained and additional

documentation may be required.

Any irregularity in the borrower profile or the documentation provided may cause the loan to become ineligible for

funding.

CALCULATING INCOME FROM THE BUSINESS BANK STATEMENT AND P&L STATEMENT

The following outlines how to calculate the income using the borrower’s business bank statements. The lesser of the income

stated on the application or the calculated income using the cash flow and P&L from the business bank statements will be used

to qualify the borrower.

The methodology below will be used to calculate qualifying income.

Profit and Loss Analysis

The business bank statements provided will be used to validate that total qualifying deposits are in line with the gross income

found on the corresponding P&L Statement. The following will apply:

• Total deposits per the bank statements (less any one-time or excluded deposits) must be no more than 10% below

the revenue reflected on the P&L.

• The bank statements and the P&L must cover the same time period.

• Expenses found on the P&L should be in line with the business type.

• Declining net income and/or receipts greater than 10% may cause the loan to be ineligible for the program.

• The borrower’s percentage of ownership in the business will be applied to the borrower’s net income.

Expense Statement Analysis

• The bank statements will be used to validate that total qualifying deposits less total expenses are in line with the

expense factor provided by the CPA or tax preparer.

• Net income is determined by total deposits per the bank statements less total expenses.

• Total expenses are calculated by multiplying total deposits by the expense factor provided by the CPA or tax preparer.

For assistance with the calculation of income from business bank statements, please refer to the ALTLOAN Bank Statement Income Calculator. This tool, or one that is similar, is required to be included with the loan file at the time of submission to ALTLOAN.

ELIGIBLE RENTAL INCOME TYPES • Long-term leases (12 months or greater). A 12-month that has converted to a month-to-month is acceptable.

• Rental income from short-term leases, Airbnb, VRBO, Homestay or other vacation rentals with a 24-month documented history of receipt. Market rents cannot be used for short-term rental income.

• Rental income received from a family member with copies of cancelled rent checks provided by the tenant family

member (24 or 12 months as applicable).

INELIGIBLE RENTAL INCOME TYPES • Room or boarder rents. If any of the units in the property are receiving room rents, none of the rental income

received for the property may be used as qualifying income.

• Rental income on a second home.

• Rental income from short-term leases, Airbnb, VRBO, Homestay or other vacation rentals with less than 24- month

documented history of receipt.

• Rental income received from a family member without copies of cancelled rent checks provided by the tenant

family member.

RENTAL INCOME DOCUMENTATION

All owner-occupied two-to-four unit properties and all investment properties require a rental income analysis to

determine positive or negative cash flow. The following is required to support the rental income shown on the application:

• Single Family Comparable Rent Schedule (FNMA Form 1007) for the subject property only.

• Complete Schedule of Real Estate Owned (FNMA Form 1003).

• Complete Rent Schedule outlining the property address, length of ownership, rent received and payment details

(PITIA).

• Copies of the fully executed lease agreements.

• Rental income received from a family member must be supported with copies of cancelled rent checks

provided by the tenant family member (24 or 12 months as applicable).

• Evidence receipt (24 or 12 months as applicable) of lease income being deposited into borrower’s bank account.

An additional account may be used to verify receipt of rental income.

RENTAL INCOME CALCULATION

Income received from rental properties will be calculated as follows:

• The lower of actual rental income per the bank statements or 75% of lease amounts, 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, rental income may be calculated on an aggregate basis.

A loan for the cash-out refinance of an investment property generating a negative cash flow will be ineligible.

VERBAL VERIFICATION OF EMPLOYMENT

A verbal verification of self-employment within 30 days of the loan closing must be performed.

REQUEST FOR TRANSCRIPT OF TAX RETURN (IRS FORM 4506T) REQUIREMENT

Not Required.

BORROWER AFFIRMATION REGARDING ABILITY TO REPAY

Each loan submitted to ALTLOAN 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 ALTLOAN Form.

DU/DO FIRST LIEN PROGRAM

DU/DO FIRST LIEN PROGRAM CREDIT MATRIX

DU/DO Credit Overlay

Primary Residence

Purchase and Rate/Term Refinance Cash-out Refinance

ALTLOAN Document Type Full Full

Credit Score LTV/CLTV LTV/CLTV

760+ 95¹/90 95¹/90²/85

720 95¹/90 95¹/90²/85

680 95¹/90 85

640 85 75

600 80 70

NOO Second Homes 2-4 Units

Credit Grade Purchase and Rate/Term Refinance Cash-out Refinance

Credit Score LTV/CLTV LTV/CLTV

680+ 85 80

640 85 75

600 80 70

Other LTV/CLTV Caps

Maximum CLTV -- SAME AS LTV --

Maximum Loan Balance Credit Score ≥ 720: $3M, Credit Score < 720: $2.0M

Minimum Loan Balance $100K

195% Purchase / Rate/Term Refinance / Cash-out Refinance LTV/CLTV Guideline Overlays

• Below overlays only apply when LTV/CLTV is 90.01-95%.

• Minimum credit score of 680 required for purchase and rate/term refinance transactions.

• Minimum credit score of 720 required for cash-out refinance transactions.

• Maximum 35% DTI.

• Maximum combined loan balance $1,500,000.

• Non-occupant co-borrowers not allowed.

• Primary residence only. Single-family, PUDs, and warrantable Condominiums only.

290% Cash-out Refinance LTV/CLTV Guideline Overlays

• Below overlays only apply when LTV/CLTV is 85.01-90%.

• Minimum credit score of 720 required.

• Maximum 35% DTI.

• Maximum combined loan balance $1,500,000.

• Non-occupant co-borrowers not allowed.

• Primary residence only. Single-family, PUDs, and warrantable Condominiums only.

First Time Homebuyer Guideline Overlays

• Primary residence only. Single-family, PUDs, and warrantable Condominiums only.

Non-Owner and Investment Properties

• Condominiums not allowed.

Ineligible

• Texas Equity Loans, Co-ops

Page 110 / 183

PROGRAM OVERLAYS

Seller Eligibility

The ALTLOAN DU/DO First LienProgram (SL First Lien Program) is a negotiated program.

The Seller must obtain approval by ALTLOAN prior to submitting loans under this

program.

Underwriting

Eligibility

The SL First Lien Program requires the Seller to utilize Fannie Mae Desktop Underwriter (DU).

Manual underwriting is not allowed. The Seller must underwrite the loan to the most restrictive of

the SL Eligibility Matrix, the DU Findings, and the overlays noted in this SL First Lien program

document.

Note: Any mention of Agency refers to Fannie Mae only.

QM Status Non-QM

Underwriting

Fannie Mae DU (DU) required

Freddie Mac LP (LP) not allowed

Manual underwrite not allowed

For underwriting guidelines not addressed, refer to the Fannie Mae Seller Guide

currently in effect as of the loan application date

Occupancy Types

Eligible:

Primary residence (owner occupied - OO)

Second home (OO)

Investment Properties (NOO)

Transaction Types

Eligible:

Purchase

Rate/Term Refinance

Cash-out Refinance

Land Contracts Lease

Option to Buy Contract

for Deed

Ineligible:

Construction Financing

Note: Permanent end financing on construction loans is allowed.

Page 111 / 183

Loan Purpose

Purchase

Rate/term Refinance

Cash-out Refinance

Principal

Curtailments

A principal curtailment to the new refinance loan at closing is allowed up to the lesser

of 2% of the new loan amount or $2,000 and must be clearly reflected on the Closing

Disclosure

Unless noted above, principal curtailment/reductions are not allowed

Principal curtailments cannot be used to cure tolerance violations

Cash-out Refinances

- Ownership Seasoning

and Establishing

LTV/CLTV

Per Fannie Mae

Minimum six months ownership seasoning required for cash-out refinance

transactions

Maximum

Cash-out

No limit

Page 112 / 183

Product Description

Fixed Rate Full Amortization:

15 and 30-year fixed rate terms available

Adjustable Rate Full Amortization:

5, 7, and 10-year adjustable rate terms available

Interest Only Full Amortization:

30 and 40-year Fixed Interest Only

Adjustable Rate Interest Only Full Amortization:

5/1 ARM 30-year Interest Only: Fully amortizing hybrid mortgage loan that requires

interest only payment during the first 10 years. The rate will first adjust in year 5 and

adjust every year thereafter for the life of the loan and fully amortizing down over the

remaining 20 years.

5/1 ARM 40-year Interest Only: Fully amortizing hybrid mortgage loan that requires

interest only payment during the first 10 years. The rate will first adjust in year 5 and

adjust every year thereafter for the life of the loan and fully amortizing down over the

remaining 30 years.

7/1 ARM 30-year Interest Only: Fully amortizing hybrid mortgage loan that requires

interest only payment during the first 10 years. The rate will first adjust in year 7 and

adjust every year thereafter for the life of the loan and fully amortizing down over the

remaining 20 years.

7/1 ARM 40-year Interest Only: Fully amortizing hybrid mortgage loan that requires

interest only payment during the first 10 years. The rate will first adjust in year 7 and

adjust every year thereafter for the life of the loan and fully amortizing down over the

remaining 30 years.

10/1 ARM 30-year Interest Only: Fully amortizing hybrid mortgage loan that pays interest

only during the first 10 years then changes to an ARM with the rate changing every year

for the rest of the term of the loan and amortizes down over the remaining 20 years.

10/1 ARM 40-year Interest Only: Fully amortizing hybrid mortgage loan that pays interest

only during the first 10 years then changes to an ARM with the rate changing every year

for the rest of the term of the loan and amortizes down over the remaining 30 years. No

temporary buy downs.

Lien Type

First liens only

Page 113 / 183

Qualifying Payment

Fixed Rate Full Amortization:

Qualify using the fully amortized fixed payment.

ARM Full Amortization:

For ARMs with an initial fixed-rate period of five years or less, qualify at the

greater of the note rate plus 2% or the fully indexed rate.

For ARMs with an initial fixed-rate period of greater than five years, qualify at the

greater of the note rate or the fully indexed rate.

Interest Only Full Amortization:

Borrowers qualify at the note rate based on fully amortizing Principal and Interest

payment during the principal repayment period. Borrowers will not qualify on the

Interest Only payment amount.

30-year Interest Only – Fully amortizing mortgage loan that pays Interest Only during the

first 10 years and amortizes down over the remaining 20 years.

40-years Interest Only – Fully amortizing mortgage loan that pays Interest Only during the

first 10 years and amortizes down over the remaining 30 years.

ARM Interest Only Full Amortization:

Borrowers qualify at the higher of the fully indexed rate or the initial note rate using

the fully amortizing Principal and Interest payment during the principal repayment

period. Borrowers will not be qualified on the Interest Only payment amount.

Fannie Mae

DU AUS

Requirements

Approve/Eligible

Approve/Ineligible (for loan structure such as LTV limits, loan purpose, and loan amount.

It cannot be ineligible for a credit event.)

30-year Interest Only program should be run as a 20-year fixed loan 40-

year Interest Only program should be run as a 30-year fixed loan

5/1 ARM 30-Year Interest Only program should be run as a 20-year fixed loan 5/1

ARM 40-Year Interest Only program should be run as a 30-year fixed loan 7/1 ARM

30-Year Interest Only program should be run as a 20-year fixed loan 7/1 ARM 40-Year

Interest Only program should be run as a 30-year fixed loan 10/1 ARM 30-Year

Interest Only program should be run as a 20-year fixed loan 10/1 ARM 40-Year

Interest Only program should be run as a 30-year fixed loan

Fannie Mae DU Findings Report used by the Seller for their underwriting

decision must be included in the file submission

o Fannie Mae DU Findings Report must match the loan characteristics and

be within allowable Fannie Mae tolerance at the time of submission and

at the time of loan closing

The first lien must be Agency eligible on simultaneous transactions

Page 114 / 183

Agency Program

Restrictions

Seller-negotiated criteria/variances with Fannie Mae are not eligible

Fannie Mae unique eligibility and underwriting consideration programs are not

allowed, including but not limited to: HomeStyle, HARP, DU Refi Plus, and Home Ready

Agency Extenuating

Circumstances

Extenuating Circumstance guidelines for derogatory credit and flexibility are not eligible (i.e.,

cannot instruct DU to disregard information on credit report to receive an Approve/Eligible)

Borrower Eligibility

Eligible Borrowers:

o U.S. Citizens

o First Time Homebuyers

o Permanent Resident Aliens

o Inter Vivos Revocable (aka living) Trusts

Ineligible Borrowers:

o Foreign Nationals

o Non-Permanent Resident Aliens

Seller is responsible for verifying that the borrower has a valid registration card and

document in the file

ALTLOAN limits the number of borrowers per loan to four

Ineligible Income

Illegal income or assets

Income from a business that is state or federally illegal

Restricted Stock Units (RSUs)

Minimum Credit

Score

600

Application Date used

for Credit Grade

Criteria

The borrower’s initial application date will be used to determine the seasoning for prior

bankruptcy, loss mitigation, foreclosure events, etc.

Page 115 / 183

Minimum

Tradeline

Requirements

A borrower without an established credit history is ineligible.

A valid and usable score is one that is generated based on credit history and credit

patterns that accurately reflect the borrower’s history. It should contain at least three

established open and active tradelines reported on the credit report:

o One reported for a minimum of 24 months

o All active in the last 12 months (defined as last activity within 12 months of

credit report date)

o One with a minimum $2,500 high credit balance

or

Minimum four years of established credit history as follows: o

Eight or more tradelines reported

o At least one active in the last 12 months. This is defined as last activity within

12 months of the credit report date.

o At least one of these tradelines must be a mortgage tradeline (can be

counted as the active tradeline)

Borrower Credit

Eligibility

Borrower eligibility requirements apply to all properties currently or previously owned by

the borrower. Examples include mortgage housing histories, loss mitigation, foreclosure,

etc.

Inclusive of all liens regardless of lien position.

Mortgage/ Housing

History

0X30 in the past 12 months. Mortgage history for all properties must be verified ‘paid

as agreed’ within 30 days of the note date.

Borrowers without a primary mortgage or rent history in the last 12 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 12-month housing history is not consecutive and complete.

At least one of the borrower(s) must have a fully documented, recent,

consecutive, 12-month primary housing history.

Evidence that the primary residence is owned free and clear (e.g., copy of title or credit

report). The mortgage/housing history will be treated as 0x30x12 for credit grade

determination.

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.

Page 116 / 183

Bankruptcy History

Chapter 7: Four years from discharge date to application date

Chapter 13 and Chapter 11 personal: Two years from discharge date to application

date

Bankruptcy dismissal dates are treated the same as discharge dates

If a foreclosure is included in the bankruptcy, each event is treated separately for credit

grade determination

Multiple

Bankruptcies

Per Fannie Mae

Loss Mitigation

Four years prior to the application date

Prior loss mitigation includes Deed-in-lieu, Pre-Foreclosure, Short Sale, NOD, Short

Refinance, Charge-off and Modification

Foreclosure History

Four years from completion date to application date

If a foreclosure is included in the bankruptcy, each event is treated separately for credit

grade determination

Adverse Credit

All delinquent credit that will impact title, including delinquent taxes, judgments, charge-off

accounts, tax liens, and mechanic's liens must be paid off prior to or at closing

Tax Payment Plans Tax repayment plans must be paid off prior to or at closing

Maximum DTI 45%

Full Income

Documentation Income documented per DU Findings

4506-T and Tax

Transcripts

Required for all loans.

o Per DU income type used for qualifying. Ex. If DU requires 1 year W-2 then 1 year

W-2 tax transcripts are required.

If tax transcripts are not available for the current year then the prior year’s

tax transcripts must be obtained in order to validate the 1 year W-2 wages.

If most recent year’s tax transcript for the income used to qualify is not available for a

borrower who has filed taxes, the income may be verified by one of the following:

Officially stamped return by the IRS

Evidence that the return was electronically received (must reflect refund or

amount owed to IRS)

In all cases, evidence of a refund check or payment made must be supplied.

Page 117 / 183

Tax Extensions

ALTLOAN will allow tax extensions until October 15th. If the borrower has not filed tax returns by

April 15th, then the following is required on or prior to June 30th:

• Evidence of tax extension (IRS Form 4868) or evidence of extension filing.

• Proof tax liability payment has been made (if applicable) or the amount of the tax

liability due can be subtracted from the borrower’s liquid assets (if proof of payment is

not supplied). The borrower will need to meet the required assets for down payment,

closing costs and reserves after the taxes due are subtracted from the borrower’s liquid

assets. After October 15th proof of tax payment is required.

After June 30th, in addition to the requirements above, an IRS Form 4506-T transcript

confirming “No Record Found” for the tax returns on extension must be supplied.

Foreign Income Not allowed

Foreign Assets Allowed per Fannie Mae requirements

Borrower Required

Funds

A minimum down payment of 5% of the borrower’s own funds is required for any purchase

transaction. A borrower’s real estate commission from the subject property cannot be used

to satisfy the minimum down payment requirement.

Reserves Per Fannie Mae DU Findings

Page 118 / 183

Property Types

Eligible Property Types:

Single Family Residence (attached and detached)

PUDs (attached and detached)

2-4 Units

Fannie Mae warrantable condominiums (low, mid, and high-rise)

Ineligible Property Types:

2-4-unit condominiums

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 properties

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 and group homes

Properties not readily accessible by roads that meet local standards

Manufactured and mobile homes

Condo-hotels

Condominium conversions less than three years from completion Co-

operatives

Time share units/projects

Motel conversions

Non-warrantable condominiums

Properties with resale restrictions such as retirement or senior communities with age

restrictions

Properties with any type of litigation

Properties 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

Page 119 / 183

A public sewer or certified septic system

Public electricity

Natural or LP gas

G A L T O N F U N D I N G Page 109 / 183

Ineligible Property Types (continued):

Properties appraised "subject to" without a Completion Certificate (FNMA Form 1004D

or FHLMC Form 442)

Properties appraised “as is” that are incomplete and/or that require significant

repairs

Properties with square footage < 700 feet (eligible with 2 acceptable

comparables that are within 100 square feet of subject property)

Unique housing types, including earth, geodesic, and log homes

Property condition ratings of C5 and C6

Properties zoned commercial, industrial, or business (where highest and best use is

commercial, industrial, or business)

Any property with health and safety, habitability, or structural issues

Multi-family > four units

Properties in Hawaiian flow hazard lava Zones 1 and 2 as determined by the

U.S. Geological Survey Hawaiian Volcano Observatory

Properties located in declining markets (as determined by the appraisal or other third-

party valuation performed on the subject property)

Flipped Properties

A flip transaction is when the property is being resold within 180 days of its acquisition

by the current seller

Flip transactions are not permitted unless one of the following conditions are met:

Property obtained through inheritance

Property that is part of a settlement in a divorce agreement

Property that is part of an employer relocation program

Property acquired by the lender or servicer as a result of foreclosure or Deed

in Lieu of foreclosure

Property that has been substantially improved by verified renovations since

the property was acquired by the property Seller in which any increase in sales

price over the property seller’s acquisition costs is representative of the

market

G A L T O N F U N D I N G Page 109 / 183

Properties Currently

Listed for Sale/Listed

Past Six Months

Properties that are listed for sale at the time of application are not eligible. Refinance

transactions on properties that have been listed within six months of the application date are

acceptable with the following:

Rate/Term Refinance:

Primary residence and second homes only

Documentation to show cancellation of listing on or before the application date

Letter of explanation from the borrower detailing the reason for cancelling the

listing

Cash-out Refinance:

Primary residence and second homes only

Documentation to show cancellation of listing on or before the application date

Letter of explanation from the borrower detailing the reason for cancelling the

listing

A maximum CLTV of 80% or the program maximum, whichever is less

Warrantable

Condominiums

Must be Fannie Mae warrantable. Non-warrantable condominiums are not

allowed.

Seller must indicate on the Uniform Underwriting and Transmittal Summary (FNMA

Form 1008) that the condominium project is Fannie Mae warrantable and the type

of review completed.

HOA certification form required.

Transferred

Appraisals

Allowed.

FHA/VA appraisals are not allowed. Must be on a Fannie Mae approved form.

Age of Documents

Per Fannie Mae

Appraisal and Third

Party Valuation

Requirements

Refer to the ALTLOAN DU/DO Second Lien Collateral Valuation.

G A L T O N F U N D I N G Page 109 / 183

Regulatory

Requirements

Seller must meet all the following:

Federal, state, and local requirements

CFPB ATR Regulation Z, Section 1026.43(c) requirements Higher

Priced Mortgage Loan (HPML) requirements

High Cost Loans are not permitted

Escrow Holdbacks Permitted if the escrow holdback is complete and documented by the time ALTLOAN funds the

loan.

Non-Arm’s Length

Transactions

Not allowed. A Gift of Equity or Inherited property are eligible transactions.

A borrower may be represented by a relative in the transaction (realtor or loan officer) if it is an

open market transaction and there are no fees credited to the borrower. A relative cannot be

both realtor and loan officer for the borrower.

Examples of non-arm’s length transactions include, but are not limited to the following:

Relatives: Relatives are individuals related by blood, marriage, adoption, or legal

guardianship. The definition also includes domestic partners and fiancés.

Transactions between an individual and relatives are considered non-arm’s

length.

Parents purchasing and financing a property for a child who then wants to

refinance to pay off the parents.

A financing transaction between relatives.

Employer/Employee:

A purchase and sale transaction between an employer and an employee. A

financing transaction between the borrower and their employer.

Landlord/Tenant:

A purchase and sale transaction between a landlord and tenant. A

financing transaction between a landlord and tenant.

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.

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.

ALTLOAN Seller Employees:

A borrower who is employed by the Seller of the loan (i.e. no employee

loans). This includes a loan originated by the Seller for the Seller’s employee,

broker, contractor, or principal.

Owner Financed:

The payoff of a loan currently financed by the seller of the subject property.

Continuity of

Obligation

For refinance transactions, there must be a continuity of obligation. If additional borrowers

are added who are not currently on the title, the transaction is limited to a rate/term

refinance. Cash-out is not allowed when additional borrowers who are not on title are added

to the transaction.

Continuity of obligation is met when any one of the following exists: For

properties with an existing lien:

At least one borrower is obligated on the new loan who was also a borrower

obligated on the existing loan being refinanced.

At least one borrower has been on the title for at least 12 months.

There is a relationship with the current borrower – spouse, domestic partner, or

fiancé only.

The loan being refinanced and the title to the property are in the name of a Limited

Liability Company (LLC) or acceptable trust. The borrower must have been (prior to

the transfer) or is currently a member of the LLC or trust.

The borrower has recently inherited or was legally awarded the property through

divorce, separation or dissolution of a domestic partnership.

For properties that are owned free and clear:

All Borrower(s) have been on title for a minimum of 6 months.

Property purchased by borrower:

If the borrower’s purchase date is within 6 to 12 months prior to application

date and there is no lien, the LTV/CLTV must be based on the lesser of the

original sales price or the current appraised value.

If the borrower’s purchase date is more than 12 months prior to application

date and there is no lien, the LTV/CLTV may be based on the current appraised

value.

Property was not purchase by borrower (e.g. borrower was granted the

property):

If the borrower has been on title for at least 6 months the appraised value can

be used to calculate LTV/CLTV and the LTV/CLTV maximum is 50% or the

program maximum whichever is less.

Borrower must meet all other program guidelines including the mortgage housing history.

Note: The transfer of ownership from a corporation to an individual does not meet the

continuity of obligation requirement.

Delayed Financing

Per Fannie Mae

Will be treated as a cash-out refinance

Maximum Loans to

One Borrower Sold to

ALTLOAN

The aggregate dollar amount of all loans sold to ALTLOAN or serviced by ALTLOAN may

not exceed $4M. The maximum number of loans that can be submitted at one time for

the same borrower (to be sold to ALTLOAN) is limited to 4 or by the aggregate dollar

amount of the total loans sold to or serviced by ALTLOAN. If more than 4 loans need to

be reviewed at the same time (and the aggregate dollar amount is within guidelines)

then the review will have to be coordinated and approved by ALTLOAN.

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.

Escrows Required unless state or federal laws prohibit

Funding into the

Month Loans that fund/disburse beyond the 10th calendar day of the month are ineligible

E-Signatures

The following documents are not allowed to be electronically delivered or signed:

Final/Closing Custodial Documents

Notarized Documents

Documents executed with an eSignature after a Power of Attorney is in

effect

Initial Disclosures executed with an eSignature prior to a Power of Attorney being in

effect is allowed

The Seller is responsible for determining that the documents have been properly

signed by all parties (as is the case with non-electric documents) per Fannie Mae

Maximum Dollar

Amount Sold to

ALTLOAN

The aggregate dollar amount of all loans made to one borrower sold or serviced by ALTLOAN

may not exceed $4 million.

Maximum Properties

One Borrower May Own

A borrower may finance or own multiple properties. ALTLOAN offers two options for borrowers

who own multiple properties. They include:

• If the loan being sold to ALTLOAN is secured by the borrower’s principal residence,

there are no limitations to the number of properties that the borrower can own or

currently financing.

• If the loan being sold to ALTLOAN is secured by the borrower’s second home or an

investment property:

o The borrower may have up to 20 financed properties (including their principal residence), or

o The borrower may own or have financed an unlimited number of properties if the loan being sold to ALTLOAN 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 who

have made multiple real estate acquisitions (more than 50% of the properties purchased) in

the past 12 months may require additional review and/or documentation or be ineligible for

funding.

Maximum Loans in One

Market Area Sold to

ALTLOAN

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.

Taxes and Hazard

Insurance

The appropriate amount of hazard insurance is determined as the lesser of: 100% of the

insurable value of the improvements with replacement cost

coverage, as established by the property insurer, or the unpaid principal balance

of the first and second mortgage (sufficient coverage for the new combined loans),

or

The combined unpaid principal balance of the first and any secondary financing, as

long as it equals the minimum amount required to compensate for any damage or loss

on a replacement cost basis, typically 80% of the insured value of the improvements. If

it does not, then coverage that does provide the minimum required amount must be

obtained.

Pre-Payment

Penalties Not allowed

Lien Position

Seller must ensure ALTLOAN has first lien position

UCC filings, private transfer covenants, mechanics liens, and other items that would

impact title, marketability, or foreclosure are not allowed

Title Insurance

A full American Land Title Association (ALTA) Policy

Seasoned Loan

Submissions

Loans in which more than three payments have been made (at the time of funding by

ALTLOAN) are ineligible.

Fraud Detection

Tools

The Seller must provide evidence in the loan file that they have ordered a third-party fraud

detection report and have resolved any red flags, discrepancies, and conflicting information.

DU/DO FIRST LIEN APPRAISAL VALUATION SUMMARY

First

Liens

Seller Appraisal

Requirements

• 1 Full Appraisal1 if Combined Loan Amount ≤ $1.5 M

• 2 Full Appraisals1 if Combined Loan Amount > $1.5 M2

• Condominiums require HOA Certification Form

Third Party Review

Requirements

• Collateral Desktop Analysis (CDA) or

• CU score of 2.5 or less (if the CU score is greater than 2.5, a CDA is required)4

Clear Capital Escalation

• If the CDA returns a value that is ≤ 10% of the Appraised Value3 or the purchase price, the lower of the Appraised Value3 or purchase price can be used to

establish the LTV/CLTV.

• If the CDA returns a value that is "Indeterminate" or > 10% of the Appraised Value3, a Clear Capital Broker Price Opinion (BPO) and Clear Capital Value Reconciliation of Three Reports must be ordered. The reconciled value determined by Clear Capital will be used to determine LTV/CLTV.

• If the Clear Capital CDA returns a value that is greater than the Appraised Value3, the Appraised Value3 will be used to determine LTV/CLTV.

HOA Certification • Condominiums require HOA Certification Form

1 "Full Appraisal" refers to a Uniform Residential Appraisal Report (URAR), including FNMA Form 1004 and FHLMC Form 70.

2 The CDA will be completed on the lower of the two appraisals.

3 The “Appraised Value” is the value determined from the original appraisal(s) obtained by the Seller.

4 The CU can be run off the appraised value entered in DU. If a 2nd appraisal is required, then we will use the lower of the 2 appraised values for LTV/CLTV calculation.

NON-WARRANTABLE CONDOMINIUMS Non-warrantable condominiums are acceptable under the following circumstances:

Category

Non-Warrantable Allowances

Litigation

Projects involved in litigation are ineligible.

HOA Reserves

HOA 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% complete. At least 50% must be sold or under

bona fide contract.

Investor Concentration

Maximum investor concentration of 60%. Calculation based on total units in current and

previous legal phases.

Single Entity Ownership

No 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 Name

The 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 Dues

No 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 Type

Low-, 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 35% 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 only allowed with some program types. Refer to ALTLOAN Loan Program Matrices for

restrictions.

3. COLLATERAL

Eligible Property Types ..................................................................................................... 131

Single-Family Residence ................................................................. 131

Row Home ..................................................................................... 131

Townhouse .................................................................................... 131

Multi-Family .................................................................................. 131

Modular Homes (Panelized, Pre-Cut Homes) .................................. 131

Rural Residential ............................................................................ 131

Cooperatives .................................................................................. 132

Planned Unit Developments (PUDs) ............................................... 132

Condominiums ............................................................................... 135

Non-Warrantable Condominiums ...................................................................................... 139

Rural Properties ............................................................................................................... 139

Ineligible Property Types .................................................................................................. 140

Flipped Properties ............................................................................................................ 141

Occupancy........................................................................................................................ 141

Owner Occupied Primary Residence ............................................... 141

Second Home or Vacation Homes .................................................. 141

Non-Owner Occupied Investment Properties ................................. 142

Property Underwriting ...................................................................................................... 142

Seller Considerations ...................................................................... 142

Appraiser Qualifications ................................................................. 143

Appraisal Requirements ................................................................. 143

Appraisal Evaluation ...................................................................... 145

ELIGIBLE PROPERTY TYPES The property types listed below are eligible for funding by ALTLOAN programs. For property type eligibility, refer to the ALTLOAN Loan Program Matrices.

SINGLE-FAMILY RESIDENCE

This is defined as 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

This is defined as 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 condominium, does not share any common

areas, does not pay homeowners’ association fees or have covenants, conditions, or 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

This is defined as a site-built attached dwelling unit generally having two or more floors and is attached to other similar

units via party walls. Townhouses are often used in Planned Unit Developments and condominium developments, which

provide for clustered or attached housing and common open space.

This may be considered a 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 owned by the same party(s).

Properties with more than four units are ineligible.

Additional scrutiny will be used in situations where a borrower currently owns a residence which he plans to rent out while

purchasing a three to four-unit property as an owner-occupied property.

MODULAR HOMES (PANELIZED, PRE-CUT HOMES)

Modular homes are factory-built homes constructed according 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 of the comparables must be a modular/prefabricated home. Manufactured

homes are not acceptable as comparables.

A manufactured or mobile home is a structure that is constructed almost entirely in a factory and rests on a permanent steel

chassis or supporting frame, and is transported to the building site. The wheels can be removed but the chassis stays in place.

Manufactured and mobile homes are not eligible for ALTLOAN programs.

RURAL RESIDENTIAL Properties zoned Rural Residential are eligible providing they meet all the following criteria:

• Owner occupied properties only

• Appraisal must indicate that the properties present use is ‘highest and best use’

• Property cannot be income producing

• Lot size and acreage must be typical for area and similar to the comparables

• Outbuildings may be considered in determining the market value of the subject property when there are similar

comparables

• Subject property’s neighborhood must exhibit suburban characteristics

COOPERATIVES All cooperatives (co-ops) must meet the following criteria:

• Owner occupied properties only (primary and second homes).

• Ownership in the co-op must be represented by shares, stock, a membership certificate or other contractual

agreement in a co-op housing corporation.

• The co-op housing project must be designed principally for residential use and must have a minimum of 5 or more

residential units.

• Co-op housing projects must be located in areas that have a demonstrated market acceptance of the co-op form of

ownership.

• Property must be located in one of the 5 boroughs in New York City.

• Acceptable lien search must be provided.

• All Fannie Mae requirements must be met.

PLANNED UNIT DEVELOPMENTS (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. ALTLOAN reserves the right to:

• Determine whether a particular subject 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 ALTLOAN, 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

subject property is a detached PUD, no additional analysis is required.

If the subject property 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 ALTLOAN

• This is the sole eligibility criterion for qualifying as a Type E project

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 was not 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 ALTLOAN 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 ALTLOAN must the sole ownership interest in, and

right to the use of the projects’ facilities once control of the owners’ association has been turned over to

ALTLOAN

The HOA should complete a Limited Project Review Questionnaire (see Forms chapter) for confirmation that the Type F warranty requirements have been met. The Project Review Questionnaire is required for all new associations (less than one year) and all non-Fannie Mae/Freddie Mac Approved Projects.

ALTLOAN reserves the right to limit the number and/or aggregate dollar amount of loans funded in any one subdivision or PUD

project or to declare loans in any project ineligible for funding.

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 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 subject 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 ALTLOAN

• 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 is ineligible.

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 that 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 or mobile 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 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 the owned units

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 have 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 use 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 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.

ALTLOAN will fund 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 and secure the approval. For projects that are already Fannie Mae- approved, the

approval type must be included with the Loan File submission.

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 (FNMA 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.

• HOA certification.

• Insurance declaration page.

• Flood determination certificate.

• Current project budget must be 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 ALTLOAN through performance of its project underwriting or due diligence. The solution to the

problem must be deemed acceptable by ALTLOAN.

The following Fannie Mae project reviews types are acceptable for the Project Type Codes of – E, F, P, Q, R, S, and T:

• Full Review (completed with or without using Condo Project Manager (CPM)

• Fannie Mae Review through the standard Project Eligibility Review Service (PERS) process

• Fannie Mae Review through the streamlined PERS process (for established condominium projects)

• Limited Review as allowed by Fannie Mae

While the Seller may need to obtain additional documents (e.g., 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 any of the following apply:

• 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), or

• The control of the HOA has not been turned over to the individual unit owners.

Established projects – A project in which all the following apply:

• 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 or mobile 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 must meet ALTLOAN’s Non-Warrantable condominium requirements. Fannie Mae Warrantable 2-4 Unit condominium projects are not allowed.

Project Concentration Limits

ALTLOAN 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.

ALTLOAN reserves the right to limit the number and/or aggregate dollar amount of loans funded in any one subdivision or condominium project or declare loans in any project ineligible for funding.

Eligible Project Types

Condominium projects with all the following characteristics are eligible:

• At least 90% of the total units in the project have been conveyed,

• 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. 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 that are less than 3 years from the conversion date.

• 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 ALTLOAN 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 must 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 with:

– 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 or mobile 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 the

owned units 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

• These transactions will be reviewed as single family residences

Warranties for Site Condominiums

If the subject property is a site condominium unit, the Seller warrants the following to ALTLOAN as of the Funding Date:

• The mortgage on the subject property is covered by a title insurance policy that includes a Condominium

Endorsement (ALTA Form A)

• The property is covered by hazard, flood, liability, and Fidelity insurance as required under the Property

Insurance Requirements section below

Insurance Requirements

The Seller must confirm that 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 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 the lesser of 100% of insurable value or the maximum coverage allowed per the National Flood

Insurance Program (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

HO 6 (Walls-In) Coverage that is no less than 20% of the condominium 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 must be 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 they 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 regularly budgeted 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 taking of condominium units and/or

common elements.

NON-WARRANTABLE CONDOMINIUMS Non-warrantable condominiums are allowed under the Jumbo Prime, Alt-A and Non Prime Loan Programs. Refer to Chapter

5, Loan Programs and ALTLOAN 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 subject

property

• Less than 25% of the surrounding market area is developed

INELIGIBLE PROPERTY TYPES The following property types are not acceptable for any ALTLOAN Loan Program:

• Fannie Mae Warrantable 2-4 Unit condominiums (2-4 Unit condominiums must meet ALTLOAN’s Non- Warrantable

condominium requirements)

• Mixed use properties, including, but not limited to:

Properties that accommodate or have been modified for home businesses, such as catering, in-home day

care, animal boarding facilities, or auto repair

• Unimproved land

• Rural properties (unless Rural Residential requirements are met)

• 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 and group homes

• Properties not readily accessible by roads that meet local standards

• Manufactured and mobile homes

• Condo-hotels

• Condominium conversion less than three years from completion

• Time share units/projects

• Motel conversions

• Properties with resale restrictions such as retirement or senior communities with age restrictions

• Properties with any type of litigation

• Properties zoned commercial, industrial, or business (where highest and best use is commercial, industrial, or

business)

• Properties 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 an Appraisal Update and/or Completion Certificate (FNMA Form 1004D

or FHLMC Form 442)

• Properties appraised “as is” that are incomplete and/or require significant repairs

• Properties with square footage < 700 feet (eligible with 2 acceptable comparables that are within 100 square feet of

subject)

• Unique housing types, including earth, geodesic, and log homes

• Property condition ratings of C5 and C6

• Any property with health and safety, habitability or structural issues

• Multi-family > four units

• Properties in Hawaiian flow hazard lava Zones 1 and 2 as determined by the U.S. Geological Survey’s Hawaiian

Volcano Observatory

FLIPPED PROPERTIES A flip transaction is when the property is being resold within 180 days of its acquisition by the current seller. Flip

transactions are not permitted unless one of the following conditions are met:

• Property obtained through inheritance

• Property that is part of a settlement in a divorce agreement

• Property that is part of an employer relocation program

• Property acquired by the lender or servicer as a result of foreclosure or Deed in Lieu of foreclosure

• Property that has been substantially improved by verified renovations since the property was acquired by the

property Seller in which any increase in sales price over the property seller’s acquisition costs is representative of the

market

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 one- to four-unit dwelling that is occupied by the borrower as their principal

residence. A property will not be considered a primary residence unless at least one of the borrowers occupies all or part of the

subject 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 subject

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

ALTLOAN 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 ALTLOAN Loan Program Matrices.

NON-OWNER OCCUPIED INVESTMENT PROPERTIES

A non-owner occupied investment property is a one- to four-unit residential property that is neither the borrower’s primary

residence nor their 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 funding by ALTLOAN 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

ALTLOAN 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 subject 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 their 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 of which they are aware about the subject property that could impact

the marketability of the property

• Providing the appraiser with the ratified sales contract and other financing or sales concessions associated with the

transaction

• Ordering and receiving the appraisal report for each mortgage transaction

• 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 must 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 subject 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, Board of Governors of the Federal Reserve System, the Federal

Deposit Insurance Corp. (FDIC), and 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 subject

property

ALTLOAN may at any time notify the Seller that ALTLOAN will no longer approve loans secured by a subject 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 the ALTLOAN 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. Refer to the ALTLOAN Appraisal Valuation 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 subject 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 subject 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 subject 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 (FNMA Form 1004/Freddie Mac Form 70)

Statement of Limiting Conditions and Appraiser’s Certification (FNMA Form 1004B or FHLMC Form 439)

For single-family investment properties, if the income is necessary for qualifying, the following additional form is

required:

Single Family Comparable Rent Schedule (FNMA Form 1007)

• Condominium Units

Individual Condominium Unit Appraisal Report (FNMA Form 1073 or FHLMC Form 465) with

Statement of Limiting Conditions

Appraiser’s Certification (FNMA Form 1004B or FHLMC Form 439)

• Two-to-Four Unit Properties

Small Residential Income Property Appraisal Reports (Fannie Mae Form 1025)

Statement of Limiting Conditions

Statement of Limiting Conditions and Appraiser’s Certification (FNMA Form 1004B or FHLMC Form 430)

Operating Income Statement (FNMA Form 216)

Field Reviews

ALTLOAN may, at its discretion, require a field review appraisal to be performed. The Residential Appraisal Field Review Report

(FNMA Form 2000/FHLMC 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 loan-to-value and combined loan-to-value (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 (FNMA Form 1004D or FHLMC 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 subject property and comparables.

• Three clear descriptive photographs (front, rear, and street scene) of the subject 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 subject 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.

Disaster Areas

If the subject property is located in an area that is declared a federal disaster area, the Seller must ensure that the property

meets all ALTLOAN 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 exterior inspection of the

subject property is required, and the following pre-disaster guidelines apply:

• The original appraiser should perform the inspection and provide a certificate stating:

Subject property is free from damage and is in the same condition as previously appraised

Marketability and value remain the same

• If the original appraiser is not available:

The inspection may be completed by any of the following:

– Property/building inspection company

– Licensed general contractor

– Building or safety inspector for local municipality

– Licensed structural engineer

The inspector must be given a copy of the original appraisal report The

inspector must provide certification, on their letterhead, stating:

– The original appraisal has been reviewed and to the best of their knowledge:

▪ Subject property 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

subject 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

• ALTLOAN 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 subject 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.

• Properties Currently Listed for Sale or Listed in the Previous Six Months

Properties that are listed for sale at the time of application are not eligible. Refinance transactions on properties

that have been listed within six months of the application date are acceptable with the following:

Rate/term refinance:

– Primary residence and second homes only

– Documentation to show cancellation of listing on or before the application date

– Letter of explanation from the borrower detailing the reason for cancelling the listing

Cash-out refinance:

– Primary residence and second homes only

– Documentation to show cancellation of listing on or before the application date

– Letter of explanation from the borrower detailing the reason for cancelling the listing

– A maximum LTV/CLTV of 80% or the program maximum, whichever is less.

• 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 five miles from the

subject 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 subject property’s value. If

the subject 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 subject 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 ALTLOAN is 20 acres. Generally, value should only be given to five 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

subject 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 subject

property’s land-to-value ratio should be consistent with other properties in the area. For areas that are built up at

less than 25%, 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 subject property is located will be recognized.

• Zoning

The zoning of the subject 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 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 must be obtained stating the property may be rebuilt “as-is” in the

event of a loss.

• 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 subject property, the property is not acceptable.

Subject Property Analysis

The subject 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 subject property should be typical of the marketing area. The appraisal should use

comparables of similar size to demonstrate the marketability of the property.

ALTLOAN 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 funding by ALTLOAN on a case-by-

case basis at ALTLOAN’s sole discretion.

• Design

The appraiser should assess the design and overall appeal of the subject 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 have a building permit 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 (FNMA Form 1004D or FHLMC Form 442).

Debris, Graffiti, or Trash

Properties showing an excessive amount of debris, graffiti, or trash may require cleanup. If necessary, an

Appraisal Update and/or Completion Report (FNMA Form 1004D or FHLMC 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 (e.g.,

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 physical and useful 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

– 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 subject property must be disclosed. The appraiser must note these in the appraisal and document any other

nuisances or environmental hazards.

If ALTLOAN suspects a nuisance or environmental hazard, it may require an environmental study be completed prior

to considering the loan for funding. 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.

ALTLOAN must be convinced that any known or suspected hazards will not have an adverse effect upon the

appraised value of the subject 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 subject

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 have become unfashionable or unnecessary in the

eyes of ALTLOAN. 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 are 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 subject property.

ALTLOAN considers the following key items in its review and analysis of the market data approach:

• Proximity of Comparables to the Subject Property

Comparable properties should be located in the same neighborhood and/or school district. Comparable sales should

be located within one mile of the subject property in urban and suburban areas. If two of three comparable

properties used by the appraiser exceed a distance of five miles from the subject 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 the subject 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 subject 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 subject property.

• Dollar Amount of Adjustments

The dollar amount of adjustments should reflect the market reaction to the difference between the subject

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 subject property. If used, these comparables should be supported by documents showing 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 (e.g., 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, decorating, or 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

ALTLOAN 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, ALTLOAN 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.

BORROWER AFFIRMATION – BANK STATEMENT PROGRAMS

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

ALTLOAN will analyze the adequacy of the comparable sales by the date of sale, proximity to the subject,

and number and amount of adjustments. As with 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

BORROWER AFFIRMATION – BANK STATEMENT PROGRAMS

Projects that were not originally built for use as a condominium are considered conversions (e.g., 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 ALTLOAN.

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

ALTLOAN 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.

Properties in Declining Markets

ALTLOAN will fund properties in declining markets with limitations. A market will be considered declining as determined by the

appraisal or other third-party valuation (e.g., CDA, Enhanced BPO, ClearVal) performed on the subject property. The following

must be met:

• Primary residence only

• A 10% reduction to LTV/CLTV up to 80% or the program maximum, whichever is lower

• Single-family, PUDs, and Fannie Mae warrantable condominiums

• First lien transaction

BORROWER AFFIRMATION – BANK STATEMENT PROGRAMS

Third-Party Property Review Requirements

ALTLOAN will require varied third-party appraisal review products, based on Loan Program, Product and characteristics.

Refer to the ALTLOAN Appraisal Valuation Summary (attached) for appraisal review requirements by product.