VA Fixed Rate and Adjustable Rate Mortgage (10/24/18)

VA IRRRL Fixed Rate and Adjustable Rate Mortgage (10/24/18)

This document is not all encompassing. It is a summary reference tool to be utilized in conjunction with Agency guidelines and applicable Freedom Mortgage Corporation credit and compliance policies. Refer to Agency guidelines when this document, the Freedom Mortgage Corporation Seller Guide and Correspondent Overlay Matrix are silent

All highlighted items are Freedom Mortgage Corporation overlays.

Table of Contents:
Product Specifications

• Product Types    Underwriting Specifications

• Ability to Repay Rule and Qualified Mortgage Standards (ATR/QM)    
• Amortization    • Buydown (Temporary)    • Property Types (Ineligible)
• Arm Requirements    • Credit Profile and Minimum Representative Credit Score Requirements    • Qualifying Rates
• Loan Amount    • Down Payment    • Qualifying Ratios
• LTV    • Maximum Number of Properties Financed    • Refinance Seasoning Requirements
• CLTV    • Occupancy    • Texas Section 50(a)(4) and 50(a)(6) Transactions
• Secondary Financing    • Prepayment Penalty    • Underwriting
• VA Funding Fee    • Property Types (Eligible)    • Manual Underwriting
• Verbal Verification of Employment (VVOE)
PRODUCT SPECIFICATIONS
PRODUCT TYPES
VA Conforming Fixed Rate
VA High Balance Fixed Rate
VA Conforming 3/1 ARM
VA High Balance 3/1 ARM
VA Conforming 5/1 ARM
VA High Balance 5/1 ARM
AMORTIZATION
Conforming Fixed Rate– 15, 20, 25, and 30-year terms
High Balance Fixed Rate – 30-year term
Conforming and High Balance ARMs – 30-year term
Odd terms down to 240 months for Fixed Rate transactions only
ARM REQUIREMENTS
Margin: 2.25 or 2.00
Index: 1 Year U.S. Treasury Security (Constant Maturity Treasury)
The initial index is based off an available index in effect during the 45 days prior to consummation.
An interest rate adjustment resulting in a change to the borrower’s monthly payment must be based on the most recent index value available 45 days before the date of the rate adjustment.
Convertibility: N/A
Caps: 1% Initial, 1% Annual, 5% Lifetime
LOAN AMOUNT
Loan amount is based on the lower of the appraised value or purchase price plus funding fee, if financed. VA loan limits are available at http://benefits.va.gov/homeloans/purchaseco_loan_limits.asp.
When the base loan amount exceeds the conforming loan limit or the maximum loan amount for properties located in high cost counties identified by VA, the loan will be designated and priced as a high balance loan.
In the event of an Energy Efficient Mortgage (EEM), the base loan amount is viewed as the final base loan amount after adding the financed energy efficient improvements.
In addition, the amount of the borrower’s VA entitlement or the entitlement plus down payment or borrower equity must equal
25% of the purchase price or the appraised value, whichever is lower, OR
In accordance with Ch. 3, 4-a of the VA Lender’s Handbook, which states, “the percentage and amount of guaranty is based on the loan amount including the funding fee portion when the fee is paid from loan proceeds”.
Either guaranty calculation will be acceptable for all VA purchase, new construction and non-IRRRL refinance transactions delivered to FMC for purchase consideration
The maximum loan amount limits below are base loan amounts and do not include the financed VA Funding Fee:
Fannie Mae 1 unit conforming loan limit, or
Maximum VA county loan amount for VA High Cost Counties.
LTV
100% Purchase
100% Cash-out Refinance
Rate and Term Refinance is to be calculated in accordance with VA Lender’s Handbook Ch. 3, 3-a
CLTV
Unlimited.
SECONDARY FINANCING
Permitted, in accordance with the VA Lender’s Handbook Ch. 9, 4.
VA Funding Fee
The requirement for a VA Funding Fee must be determined and calculated in accordance with the VA Lender’s Handbook, Ch. 8, 8, including, but not limited to:

Verifying the status of any Veteran who may be exempt from paying the Funding Fee, and
Determining the amount of Funding Fee owed by any non-exempt borrower.
Refer to Sections 500 and 600 of the Correspondent Seller Guide for Freedom Mortgage Corporation delivery and documentation requirements.

UNDERWRITING SPECIFICATIONS
ABILITY TO REPAY RULE AND QUALIFIED MORTGAGE STANDARDS (ATR/QM)
The CFPB’s Ability to Repay Rule and Qualified Mortgage Standards and VA’s Interim Final Rule for Ability-to-Repay Standards and Qualified Mortgage are effective for all mortgage loan applications and case numbers assigned on or after January 10, 2014.

Refer to Section 1001.00 of the online Seller Guide for details
BUYDOWN (TEMPORARY)
Not permitted.
CREDIT PROFILE AND MINIMUM REPRESENTATIVE CREDIT SCORE REQUIREMENTS
Full tri-merged credit report is required for all transactions.
The following minimum representative credit scores are required:
Minimum 580 score for all Conforming purchase transactions.
Minimum 580 for all Conforming full documentation Cash-Out transactions
Minimum 640 for all High Balance transactions.
Minimum 640 for all eligible manually underwritten loans
For credit profiles containing authorized user accounts, refer to Section 601.00 for details.
DOWN PAYMENT
Standard VA requirements
MAXIMUM NUMBER OF PROPERTIES FINANCED
Freedom Mortgage Corporation will not purchase more than four financed properties for one individual.
OCCUPANCY
Primary Residence
1-4 Unit
One unit must be occupied by Veteran
PREPAYMENT PENALTY
Not permitted
PROPERTY TYPES (ELIGIBLE)
Single Family Attached or Detached
1-4 Unit
Condominium*, PUD, Townhouse
*Condos must be VA approved.

PROPERTY TYPES (INELIGIBLE)
Manufactured Housing, permanently and non-permanently affixed
Non-warrantable Condo/PUD/Townhouse
Timeshare
Working Farm
Mixed Use
Cooperative
Condo/PUD Hotel
Commercial Property
Life Estates
QUALIFYING RATES
FRM - Note rate
3/1 ARM – Note rate
5/1 ARM – Note rate
QUALIFYING RATIOS
Per AUS, or
45% Debt-to-Income for eligible manually underwritten Conforming loans
43% Debt-to-Income for eligible manually underwritten High Balance loans
REFINANCE SEASONING REQUIREMENTS
In accordance with refinance seasoning requirements detailed in Section 601.00 of the Seller Guide.
TEXAS SECTION 50(a)(4) AND 50(a)(6) TRANSACTIONS
Not permitted
UNDERWRITING
All loans must have an AUS approval or fully comply with the Manual Underwriting requirements in the topic below.
DU Approve/Eligible Loan Product Advisor Accept Required
MANUAL UNDERWRITING:
In addition to the standard VA Underwriting requirements, VA manually underwritten loans must comply with the following:

Acceptable AUS recommendation
DU or Loan Product Advisor Refer/Eligible recommendation, or
DU Approve/Eligible or Loan Product Advisor Accept/Eligible with manual downgrade
45% maximum Debt-to-Income for Conforming
43% Debt-to-Income for High Balance
640 minimum representative credit score
Manually underwritten loans, as defined above, and a credit score of 500 to 639 must be underwritten and priced in accordance with Freedom First product and price requirements.
Three open trade-lines used within the past 12 months
Minimum 12-month housing history (mortgage or rent) without any late payments
VERBAL VERIFICATION OF EMPLOYMENT (VVOE)
For salaried borrowers, the VVOE must be completed within 10 business days of the Note date.
For self-employed borrowers, the VVOE must be completed within 120 days of the Note date through an acceptable third-party source.

This document is not all encompassing. It is a summary reference tool to be utilized in conjunction with Agency guidelines and applicable Freedom Mortgage Corporation credit and compliance policies. Refer to Agency guidelines when this document, the Freedom Mortgage Corporation Seller Guide and Correspondent Overlay Matrix are silent.

All highlighted items are Freedom Mortgage Corporation overlays.

Table of Contents:
Product Specifications

• Product Types    Underwriting Specifications

• Ability to Repay Rule and Qualified Mortgage Standards (ATR/QM)

• Appraisal Requirements    
• Amortization    • Buydown (Temporary)    • Occupancy
• ARM Requirements    • Cash Back at Closing    • Prepayment Penalty
• Loan Amount    • Credit Profile and Minimum Representative Credit Score Requirements    • Property Types (Eligible)
• LTV/CLTV    • IRRRL Payment Decrease/Increase Requirements    • Property Types (Ineligible)
• Secondary Financing    • IRRRL Payment History and Documentation Requirements    • Qualifying Rates
• VA Funding Fee    • Maximum Number of Properties Financed    • Qualifying Ratios
• Minimum 1003 Requirements    • Recoupment of Fees
• Mortgage Payment History    • Seasoning Requirements
• Net Tangible Benefit    • Texas Section 50(a)(4) and 50(a)(6) Transactions
• Title Requirements
• Underwriting
• Verbal Verification of Employment (VVOE)
PRODUCT SPECIFICATIONS
PRODUCT TYPES
VA Conforming Fixed Rate
VA High Balance Fixed Rate
VA Conforming 3/1 ARM
VA High Balance 3/1 ARM
VA Conforming 5/1 ARM
VA High Balance 5/1 ARM
AMORTIZATION
Conforming Fixed Rate– 15, 20, 25, and 30-year terms
High Balance Fixed Rate – 30-year term
Conforming and High Balance ARMs – 30-year term
The maximum loan term is the original term of the VA loan being refinanced plus 10 years, not to exceed 30 years.
Odd terms down to 240 months for Fixed Rate transactions only.
ARM REQUIREMENTS
Margin: 2.25 or 2.00
Index: 1 Year U.S. Treasury Security (Constant Maturity Treasury)
The initial index is based off an available index in effect 45 days prior to consummation.
An interest rate adjustment resulting in a change to the borrower’s monthly payment must be based on the most recent index value available 45 days before the date of the rate adjustment.
Convertibility: N/A
Caps: 1% Initial, 1% Annual, 5% Lifetime
LOAN AMOUNT
County loan limits do not apply to IRRRLs.

Minimum loan amount is the existing unpaid principal balance.
Maximum mortgage calculation amount may include the:
Outstanding principal balance of the existing VA first lien,
Current interest due,
Eligible closing costs, and
VA funding fee
The new loan amount may not include any delinquent interest from the existing mortgage.
When the base loan amount exceeds the conforming loan limit or the maximum loan amount for properties located in high cost counties identified by VA, the loan will be designated and priced as a high balance loan.
In the case of an Energy Efficient Mortgage (EEM), the base loan amount is viewed as the final base loan amount after adding the financed energy efficient improvements.
LTV/CLTV
If FICO is ≥ 620, there is no maximum LTV/CLTV, and no AVM is required.
If FICO is < 620, LTV/CLTV is permitted to 115% with one of the following options:
2055 exterior-only conventional appraisal with 1004 MC, or
AVM ordered by the Client from a Freedom Mortgage Corporation approved AVM (details provided in 602.00).
SECONDARY FINANCING
Secondary financing is acceptable if the Veteran is not placed in a substantially worse position than if the entire amount borrowed had been guaranteed by VA and meets the requirements within the VA Lender’s Handbook Ch. 9, 4.
Any second lien must be re-subordinated.
For properties located in Texas, the first mortgage being refinanced cannot be a 50(a)(6).
VA Funding Fee
The requirement for a VA Funding Fee must be determined and calculated in accordance with the VA Lender’s Handbook, Ch. 8, 8, including, but not limited to:

Verifying the status of any Veteran who may be exempt from paying the Funding Fee, and
Determining the amount of Funding Fee owed by any non-exempt borrower.
Refer to Sections 500 and 600 of the Correspondent Seller Guide for Freedom Mortgage Corporation delivery and documentation requirements.

UNDERWRITING SPECIFICATIONS
ABILITY TO REPAY RULE AND QUALIFIED MORTGAGE STANDARDS (ATR/QM)
The CFPB’s Ability to Repay Rule and Qualified Mortgage Standards and VA’s Interim Final Rule for Ability-to-Repay Standards and Qualified Mortgage are effective for all mortgage loan applications and case numbers assigned on or after January 10, 2014.

Refer to Section 1001.00 of the online Seller Guide for details
APPRAISAL REQUIREMENTS
VA IRRRL Appraisal Requirement

When charging discount points on VA IRRRL transaction, an appraisal is required to validate the LTV requirements are met, as described in Section 602.00 VA IRRRL Appraisal Requirement.

BUYDOWN (TEMPORARY)
Not permitted.
CASH BACK AT CLOSING
No cash back is permitted.
If adjustments are made at closing, the cash back may not exceed $500.
CREDIT PROFILE AND MINIMUM REPRESENTATIVE CREDIT SCORE REQUIREMENTS
Full tri-merged credit report is required for all Credit Qualifying IRRRL transactions.
Mortgage-only tri-merged credit report with credit scores, is permitted on Non-Credit Qualifying IRRRLs, and,
The following minimum representative credit scores are required:
Minimum 580 for Conforming transactions, and
Minimum 640 for High Balance transactions.
IRRRL PAYMENT DECREASE/INCREASE REQUIREMENTS
The following payment decrease/increase requirements apply:

The Veteran’s Comparison Statement (Initial and Final) must be completed, provided and documented in accordance with Section 602.00.
The veteran must be receiving a reasonable benefit from the transaction.
The comparison statement must take into account any increase in the principal balance, the result of financing closing costs, as well as any closing cost not financed.
The transaction must result in a lower payment.
Sellers must confirm in the Loan Guaranty Certificate (LGC) process that the Veteran was provided the disclosures as prescribed in VA Circular 26-18-1.
Fixed Rate IRRRL:

An IRRRL fixed rate mortgage must bear a lower interest rate than the loan being refinanced, unless the loan being refinanced is an ARM.
The principal and interest payment on the new loan must be less than the principal and interest payment on the existing loan unless:
The term of the new loan is shorter than the term of the existing loan or
The new transaction is refinancing an existing ARM program.
Energy efficiency improvements can be included in the IRRRL
A significant increase in the veteran's monthly payment may occur with any of these three exceptions, especially if combined with one or more of the following:
financing of closing costs
financing of up to two discount points
financing of the funding fees and/or
higher interest rate when an ARM is refinanced
For a reduction in term or for an ARM to a fixed rate product, the new monthly PITIA payment may increase. However,
The increase must be less than 20%, or
The loan must be credit qualified.
ARM IRRRL:

An IRRRL ARM transaction must bear a lower interest rate than the loan being refinanced.
The principal and interest payment on the new loan must be less than the principal and interest on the existing loan unless:
The new loan amount includes energy efficient improvements and then it may not increase more than 20%, otherwise the loan must be credit qualified.
IRRRL PAYMENT HISTORY AND DOCUMENTATION REQUIREMENTS
All VA IRRRL transactions must have six months or more consecutive payments made on the existing loan at the time of the streamlined refinance.

Utilize the table below to determine VA IRRRL payment history documentation requirements:

IF the Credit Report . . .

THEN . . .

Confirms a minimum of six months consecutive payments made on the existing loan at the time of the streamlined refinance

No additional validation of payment history is required

Does not confirm a minimum of six months consecutive payments made on the existing loan at the time of the streamlined refinance

A payment history for the existing loan being refinanced is required, in addition to the credit report

MAXIMUM NUMBER OF PROPERTIES FINANCED
Freedom Mortgage Corporation will not purchase more than four financed properties for one individual.
MINIMUM 1003 REQUIREMENTS
Credit Qualifying:
Fully completed loan application is required.
Non-Credit Qualifying:
Fully completed loan application, excluding the:
Income Section, and
Asset Section (unless assets are required for closing)
MORTGAGE PAYMENT HISTORY
Loan must be current at the time of closing/Note date and have no 30-day or greater mortgage late payments in the most recent 12 months.
All other mortgages must meet standard VA IRRRL requirements.
NET TANGIBLE BENEFIT
Net tangible benefit is a reduced rate, reduced term, and/or change from an ARM to a fixed rate mortgage that results in a financial benefit to the Borrower, as defined in VA Lender’s Handbook, Ch. 6,1 and Section 602.00 VA IRRRL Net Tangible Benefit Requirements.

Refer to Section 602.00 VA IRRRL Appraisal Requirement when charging discount points on VA IRRRL transactions.
OCCUPANCY
Primary Residence
1-4 Unit
One unit must be occupied by Veteran
Secondary/Vacation Home*
1 unit only
Investment Property*
1-4 Unit
*The loan file must contain documentation that the Veteran previously occupied the subject property as their primary residence at one point in time.

PREPAYMENT PENALTY
Not permitted
PROPERTY TYPES (ELIGIBLE)
Single Family Attached or Detached
1-4 Units
Condominium*, PUD, Townhouse
*VA approval of condo is not required with IRRRLs.

PROPERTY TYPES (INELIGIBLE)
Manufactured Housing, permanently and non-permanently affixed
Non-warrantable Condo/PUD/Townhouse
Timeshare
Working Farm
Mixed Use
Cooperative
Condo/PUD Hotel
Commercial Property
Life Estates
QUALIFYING RATES
FRM – Note rate
3/1 ARM – Note rate
5/1 ARM – Note rate
QUALIFYING RATIOS
Credit-Qualifying IRRRLs must be manually underwritten in accordance with VA Lender’s Handbook Ch. 4, 10-b, Section 603.00 of the online guide, and the Freedom Mortgage Corporation Correspondent Overlay Matrix.
Per VA, 120% residual income is required for DTIs greater than 41%.
Non-Credit Qualifying IRRRL transactions do not require a DTI calculation.
RECOUPMENT OF FEES
The requirement is to meet a worthwhile benefit to the Veteran for a monthly savings with a recoupment time of 36 months or less.

The Seller must provide satisfactory documentation confirming compliance with Recoupment of Fees.
Refer to Section 602.00 Recoupment of Fees for complete details.
SEASONING REQUIREMENTS
Subject properties with mortgages require the first payment due date of the new refinance loan occur no earlier than 300 days after the first payment due date of the VA mortgage being refinanced, as required in Section 602.00.
TEXAS SECTION 50(a)(4) AND 50(a)(6) TRANSACTIONS
Not permitted
TITLE REQUIREMENTS
Only the Veteran and spouse (if applicable) can take title to the property. No other individuals are permitted on title.
UNDERWRITING
Credit Qualifying IRRRL transactions:
Automated Underwriting is not permitted.
Manual Underwriting is required.
Underwrite Credit Qualifying and Non-Credit Qualifying IRRRL transactions in accordance with this product guide, VA Lender Handbook Chapter 6, 1, Section 600 of the online guide and the FMC Overlay Matrix.
VERBAL VERIFICATION OF EMPLOYMENT (VVOE)
For salaried borrowers, the VVOE must be completed within 10 business days of the Note date for all Credit-Qualifying and Non-Credit-Qualifying VA IRRRLs.
For self-employed borrowers, the VVOE must be completed within 120 days of the Note date through an acceptable third-party source.