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USDA Rural Development Guaranteed Loan (WCLEC)

Effective: 12/17/10

Term Product Description 30 yr Fixed P&I Rural Housing Repayment Type Products All

Product Number 971

Description Principal and Interest payments for the term of the loan

Maximum Loan Amounts Number of Units 1 Unit

All States $417,000

Owner Occupied Properties - LTV, CLTV, and Loan Amount Chart Minimum Maximum Maximum (1,2) Credit Score LTV CLTV Purchase 1 Unit SFD, SFA, PUD, Condo 620 103.5% N/A Rate Term Refinance 1 Unit SFD, SFA, PUD, Condo 620 101% N/A Cash Out Refinance N/A Note: Maximum LTV is based on 100% of the appraisal value + 3.5% guarantee fee. The LTV is never permitted to exceed the system calculated LTV of 115%. 1) Newly constructed homes lacking a Certificate of Occupancy or an approved 10 year builder’s warranty will have a maximum LTV of 90% 2) The loan amount may exceed the appraisal value by the amount of the guarantee fee. The borrower may finance all or a portion of the closing costs and pre-paids into the loan amount if the appraisal value exceeds the purchase price. The total loan amount should not exceed $417,000. Discount Points may be rolled into the loan amount for low income applicants. Please refer to the state specific Guaranteed Rural Housing Program Income limit chart for details. Loan Purpose

Property Type

Example: Purchase Price: $150,000, Appraised Value: $152,000 $152,000 ÷ .965 = $157,512.95 this loan amount assumes maximum possible financing including the one time 3.5% guarantee fee. In this scenario the borrower would be able to roll in up to $2,000 of closing costs and/or pre-paids. To disclose the correct fee to your clients $157,512.95 x 3.5% = $5,512.95. Underwriting Requirements Underwrite according to Conventional Underwriting Guidelines unless noted differently within this product description. Risk Assessment Loans must be manually underwritten. AUS findings from GUS (Guaranteed Underwriting System) are not permitted. The following must be applied in addition to USDA’s standard underwriting guidelines: Subordinate financing not permitted Recommended minimum 620 credit score Seller Contributions are permitted as follows: o LTV > 97: 4% o LTV > 90 and < / = 97: 5% o LTV < / = 90: 6% Prior Approval A request for the Single Family Housing Loan Guarantee must be submitted to RD and RD must issue a RD Conditional Commitment for the Loan Guarantee prior to closing/funding.

Borrower Eligibility

Any increases to the loan amount or interest rate will require an updated Conditional Commitment Standard guidelines apply, except as follow:

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May retain property that is not structurally sound or functionally adequate or is outside of the commuting area, even if the home was financed with Rural Development If the borrower owns a home outside the commuting area and plans to rent it out a projected profit and loss statement must be completed Adjusted Annual Income cannot exceed the applicable income limit. Must not have had a previous loan for which Rural Housing Service [RHS] has suffered a loss unless the loss was beyond the applicant's control, and any identifiable reasons for the loss no longer exist. Outstanding tax liens or delinquent government debts with no satisfactory arrangements for payments, no matter what their age as long as they are currently delinquent and/or due and payable are not permitted. Clear CAIVRS is required for all borrowers Permanent and Non Permanent Resident Aliens are permitted Non-Occupant Co-borrowers not permitted

Transaction Type

Homebuyer Education May be required. Many states require first time homebuyers with a credit score less than 660 to complete homebuyer education. Please confirm with the appropriate state agency. Standard guidelines apply, except as follow: Subordinate Financing not permitted

Geographic Locations/Restrictions Property Eligibility

Refinances No Flood Certification required Cannot refinance debts other than existing Rural Development Guaranteed loan. The interest rate of the new loan must be at least 100 basis points (1%) below that of the existing loan to be refinanced. The existing loan to be refinanced must be current for the previous 180 days prior to application. The maximum origination fee is 1%. The maximum LTV can be up to 101% if the Rural Development Guarantee Fee is included in the loan. The property may be in an ineligible area because of area changes by Rural Development An appraisal is not required if the borrower is refinancing only the unpaid principal on an existing GRH loan with the 1% guarantee fee. However, a new appraisal is required if interest and closing costs (including pre-paid expenses) are included in the new Guaranteed Rural Housing loan. Financing is only available within the 50 states Click here to determine if the property is located in an eligible RHS community Refer to LTV/CLTV/Loan Amount chart for property eligibility. Properties must be located in a designated rural area Population not in excess of 10,000, or, if located outside of any Metropolitan Statistical Area (MSA), not in excess of 25,000. Cannot be located on a farm tract with farm service buildings Must be contiguous to and have direct access from a street, public road or driveway. Streets and roads must be hard surfaced or all-weather surface. Properties with in-ground pools are not eligible unless a waiver has been obtained from the state USDA office o The appraiser will be required to state how much the pool adds to the value of the home. This amount must be deducted from the total appraisal value to determine the maximum loan amount that can be financed Properties designed for income producing purposes are not eligible Newly constructed homes or homes less than 12 months old and never occupied require a Building Permit, Certificate of Occupancy and a 12 month Builderâ&#x20AC;&#x2122;s Warranty

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In jurisdictions that do not perform construction inspections or issue Certificateâ&#x20AC;&#x2122;s of Occupancy, Lenders may substitute a 10 Year builderâ&#x20AC;&#x2122;s warranty from an Agency approved warrantor in lieu of obtaining the three construction inspections or Certificates of Occupancy that are typically required For properties lacking the documentation listed above, financing is limited to a 90% LTV o NPCA-99A and 99B are required Condos must be FNMA/FHLMC approved Standard guidelines apply, except as follows: o

Project Review Appraisal Analysis

All appraisals must be completed by an FHA roster appraiser. All appraisals must contain verbiage certifying that the property meets HUD Handbook 4150.2 and 4905.1 required minimum standards. If the appraisal indicates any adverse language regarding heating, plumbing, electrical, roofing or water/waste systems, separate inspections or repairs are required prior to closing. If repairs and/or additional inspections must be made prior to closing, the sales contract must be amended to reflect who will be responsible for the costs. o If the property is less than one year old, the "Estimated Reproduction Cost-New Improvement" addendum must accompany the appraisal. Any existing properties located in a flood zone will be required to obtain an elevation survey showing the elevation of the lowest floor of habitable space (this includes space in the basement that has been finished) of the dwelling is "above" the 100 year flood level. If there are mechanical systems/components in a basement or crawl space (furnace, water heater, etc.) they must also be above the 100 year flood elevation. New construction properties located in a flood zone are not permitted. Inspections Termite Inspection Only required in the state of Nevada NPCA-99A and 99B are required for newly constructed homes or homes less than 12 months old and never occupied Well and Septic Inspections All private wells must be tested for bacteria, nitrates and any other contaminants known to cause health hazards in the area. The water tests must be considered "safe" based on EPA drinking water standards. Tests must be completed by a local Health Department, Department of Public Health or a state certified lab. A system owned by a private party must have a legally binding agreement, which allows interested third parties, such as the Lender, to enforce the obligation of the operator to provide satisfactory service at reasonable rates. Inspections are not required on public water and wastewater disposals. Septic inspections will be completed by the FHA roster appraiser and should note the following: Any evidence of system failure Separation distances between the well and septic systems Confirm whether the separation distances meet HUD guidelines (or state well codes) If the appraiser recommends an additional septic inspection, it must be completed. Repair Escrows Allowed due to inclement weather conditions with the following requirements: A signed contract and bid schedule is in effect for the proposed exterior development work The contract must provide for completion within 120 days from closing A final inspection report must be obtained and RHS must be notified when the work has been completed USDA Rural Development Guaranteed Loan (WCLEC)

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Escrows & Insurance

Ratios

Establish account with 150% of the cost of completion Loan note guarantee is required. Purchase transactions: 3.5% Refinance transactions: 0.50% Escrows Hazard insurance, flood insurance (if applicable) and taxes must be escrowed 29/41 31/43: expanded ratios are automatically eligible for existing homes located in Florida built after 01/2001, North Carolina built after 04/2002 or home is Georgia that meet the 2000 International Energy Conservation Code (EICC) due to the increased energy efficiency of the home. Deferred student loans should be included in the debt ratio calculations regardless of the deferment period Debt ratio waivers can be requested from Rural Development if the borrower has compensating factors. Those factors include, but are not limited to, the following: The borrower having a 12 month history of devoting a similar percentage of income to housing expense to that of the proposed loan The borrower having a 12 month history of accumulating savings which, when added to the borrowerâ&#x20AC;&#x2122;s housing expense shows capacity to make payments on the proposed loan The borrower has demonstrated a conservative attitude toward the use of credit and ability to accumulate savings The borrower has potential for increased earnings, as indicated by job training or education in the borrower's profession The borrower receives compensation or income not reflected in the qualifying income, but directly affects the ability to pay the mortgage There is only a minimal increase in the borrower's housing expense The borrower has substantial cash reserves after closing Payment Shock In cases where the new loan causes an increase in the borrowerâ&#x20AC;&#x2122;s housing expense of 100% or higher or in cases where the borrower did not have housing expenses prior to purchasing a home, no additional risk layering (such as adverse credit waivers, debt ratio waivers, or buydowns) should be allowed without strong compensating factors.

Credit

Example calculation: Current rent: $500 New proposed PITI: $1300 New PITI $1300 divided by current rent $500 minus 1 = 1.60 or 160% payment shock Standard guidelines apply, except as follows: Recommended minimum representative credit score of 620 is required. The borrower's credit history must indicate a reasonable ability and willingness to meet obligations as they become due. Note: If there is more than one borrower, the credit score of the primary wage earner should be emphasized Non-traditional credit is allowed when the borrower has no credit history and therefore no credit scores. An adverse credit history waiver is required for loans with at least one of the following characteristics: A foreclosure within the past 3 years

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Bankruptcy: o Chapter 7 - discharged within the past 3 years o Chapter 13 - a completed debt restructuring plan within the previous 12 months Late mortgage payments in the most recent 12 months Previous delinquent federal debt Previous Rural Development loan that defaulted The following will not indicate an unacceptable credit history: "No history" of credit transactions by the borrower A bankruptcy in which the borrower was discharged more than 36 months before application A satisfied judgment more than 12 months before the date of application

Liabilities Income

Borrowers enrolled in CCCS o Documentation must be provided from the counseling service to show that the borrower is in good standing Standard guidelines apply Qualifying Annual Income The borrowers qualifying annual income is the amount of income that is determined to be adequate and dependable to consider for repayment ability and is utilized for ratio calculation. Includes all income (salary, tips, bonus, overtime, alimony, child support, etc.) received by the applicant and co-applicant(s) only. o 12 month history of child support and alimony is required Non-taxable income can be grossed up Salaried Income can be verified by any of the following: o VOE and recent pay stub. o Two years W2s, recent pay stub covering one full month and telephone verification. o Electronic or computer generated documentation printed from an Intranet or Internet, two years W2s and telephone verification of the borrower's current employment. Adjusted Annual Income The borrowerâ&#x20AC;&#x2122;s adjusted annual income may not exceed 115% of the median household income for the area. The adjusted annual income is the amount of income earned, by all adult household members, to determine if they qualify for the program, less the following but not limited to the following: 1. A deduction of $480 for each member of the family residing in the household, other than the borrower, spouse, or co-borrower, who is: a. Under 18 years of age, or b. Eighteen years of age or older and is disabled, or c. A full-time student aged 18 or older 2. A deduction of $400 for any elderly (age 62 or older) family member 3. Certain child care and medical expenses 4. Disability of the borrower

Assets

Please click click here to determine the borrowers adjusted annual income Reserves are not required Asset limits are generally not enforced which enables borrowers to keep their liquid cash savings and other investments Down Payment Gifts may come from a relative, regardless of whether the relationship is by blood, adoption, marriage or legal guardianship. The gift may also be provided by the borrowerâ&#x20AC;&#x2122;s domestic

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partner, fiancĂŠe or fiancĂŠ. Closing Costs Borrower may not receive cash back at closing unless it is reimbursement for costs paid out of pocket by the borrower. If the borrower is receiving cash back at closing, that is not reimbursement for costs paid out of pocket, a principal reduction must be completed. Seller Contributions are permitted as follows: LTV > 97: 4% LTV > 90 and < / = 97: 5% Contract/Agreement of Sale Temporary Buydowns

Assumable Pre-payment Penalty

LTV < / = 90: 6% Standard guidelines apply Not available with: Tier 3 (brokered) transactions 2-1 buydown available with prior approval from RHS No No

Documents Correspondent to complete: Form RD 1980-21 - Request for Single Family Loan Guarantee to be fully completed and executed by the borrowers on page 2 and submitted in the underwriting file. Underwriting to complete: RHS Processing Package Checklist Form RD 1980-21 - Request for Single Family Loan Guarantee Waiver Request(s) Tier 3/6 PHH Post Closing to complete: RHS Closing Package Checklist Issue check to USDA for the guarantee fee Form RD 1980-19 - Guaranteed Loan Closing Report will need to be completed and delivered to Rural Development with the check for the guarantee fee Procedures Prior to submitting the underwriting file, the client should qualify the borrower and verify the following: 1. Income Eligibility o Determine borrower meets RHS Adjusted Income guidelines by checking the following website: http://eligibility.sc.egov.usda.gov/eligibility/incomeEligibilityAction.do?pageAction=state&NavKey=income @11 2. Property Eligibility o Determine that property is in an eligible rural area by accessing the following website: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do 3. Program Eligibility o Qualify the borrower at up to 103.5% of the sales price, if the appraisal has been received the borrower can be qualified at up to 103.5% of the appraisal value o Advise borrower of guarantee fee 4. Check CAIVRS and provide print out from FHA connection with approval confirmation code 5. Contact Pricing Department to register loan Once the Underwriting package is received back from the client, Underwriting will review the loan and ensure the following: Review income and verify that it meets RHS guidelines http://eligibility.sc.egov.usda.gov/eligibility/incomeEligibilityAction.do?pageAction=state&NavKey=income@11 USDA Rural Development Guaranteed Loan (WCLEC)

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When closing costs, prepaids and guarantee fee are rolled in, Underwriter must ensure that the loan amount does not exceed 103.5% of the appraised value. Once the loan is approved, Underwriting will submit the documents included in the state specific checklist below and a cover sheet to the applicable Rural Development State Office. RHS Processing Package Checklist The coversheet should indicate that the original Conditional Commitment should be mailed to the following contact and address: Janet Prewitt Mailstop DC 1 Mortgage Way Mt. Laurel, NJ 08054 The Underwriter should receive a faxed copy of the Conditional Commitment from Rural Development. Once the Conditional Commitment has been issued to a lender, no increases to the loan amount or interest rate are permitted without prior written consent from Rural Development. The loan amount including the guarantee fee should never exceed the loan amount approved on the Conditional Commitment. Decreases to the loan amount or interest rate do not require re-submission to Rural Development for approval. PHH will review the loan prior to closing/funding to ensure the Conditional Commitment and loan parameters match. Important Note (Tier 3/6): PHH will net the guarantee fee from the wire to the Correspondent and issue the check for the guarantee fee to USDA with the post closing LNG submission. In all cases PHH will submit the check to USDA for the guarantee fee and submit the post closing LNG package. Tier 7 Client Responsibility Register loan as USDA Rural Development: Program 971 Client submits fully executed package and check in the amount of the Guarantee Fee to USDA Please note: Tier 7 loans will not be purchased without a Conditional Commitment and its conditions. In order for the loan to be purchased, terms and conditions of the closing documents must match terms and conditions of the Conditional Commitment (including the interest rate, loan amount and the guarantee fee.) HUD-1 Settlement to show the Guarantee Fee as paid to the Lender Funding package must include page 2 of the Conditional Commitment executed to indicate that the loan will be sold to PHH Loan Note Guarantee (LNG) to be sent to PHH within 60 days of Funding date to Mailstop DC67. LNG document will be monitored as the Final Documents are monitored today.

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PHH USDA Guidelines