FNMA HomeStyle Program Manual

Transcription

Correspondent Program Manual
Fannie Mae HomeStyle® Renovation Loan
June, 2015
FNMA HomeStyle® Rehabilitation Loan Program
INTRODUCTION ..................................................................................................................................................... 4
FNMA HOMESTYLE – PROGRAM OVERVIEW .......................................................................................................... 4
A.
B.
LOAN PURPOSE: ....................................................................................................................................................4
KEY FEATURES: .....................................................................................................................................................4
FNMA HOMESTYLE – GENERAL CREDIT POLICIES ................................................................................................... 5
A.
B.
C.
D.
E.
F.
G.
I.
J.
K.
M.
N.
O.
Q.
R.
S.
T.
U.
V.
W.
X.
Y.
Z.
AA.
BB.
CC.
DD.
EE.
BORROWER ELIGIBILITY ..........................................................................................................................................5
OCCUPANCY: ........................................................................................................................................................ 5
TRANSACTION TYPES: .............................................................................................................................................5
LOAN TERMS: ....................................................................................................................................................... 5
PROGRAM CODE: ..................................................................................................................................................5
VESTING: .............................................................................................................................................................5
MAXIMUM LOAN-TO-VALUE (“LTV”): .....................................................................................................................5
SALES AND FINANCING CONTRIBUTIONS: ...................................................................................................................6
PITI RESERVES: .....................................................................................................................................................6
PROPERTY ELIGIBILITY: ...........................................................................................................................................6
UNDERWRITING: ...................................................................................................................................................7
MINIMUM FICO SCORE: ........................................................................................................................................7
CREDIT HISTORY: ...................................................................................................................................................7
QUALIFYING RATIOS: .............................................................................................................................................8
GEOGRAPHIC RESTRICTIONS: ...................................................................................................................................8
ADDITIONAL DOCUMENTATION REQUIREMENTS: ........................................................................................................8
MAXIMUM LOAN AMOUNT: ...................................................................................................................................8
GUIDE TO COMPLETING THE HOMESTYLE® RENOVATION MAXIMUM MORTGAGE WORKSHEET (“FNMA 1035”): ...................9
ELIGIBLE EXPENSES: .............................................................................................................................................12
DISCLOSURES AND HOMESTYLE® RELATED FEES: ......................................................................................................12
FUNDING OF THE LOAN:........................................................................................................................................12
CONTINGENCY RESERVE: .......................................................................................................................................13
MORTGAGE PAYMENT RESERVE:............................................................................................................................13
REHABILITATION PERIOD: .....................................................................................................................................14
APPRAISAL REQUIREMENTS: ..................................................................................................................................14
CLOSING COSTS: ..................................................................................................................................................14
PROPERTY INSURANCE REQUIREMENTS: ..................................................................................................................15
REQUIRED IMPROVEMENTS: ..................................................................................................................................15
FNMA HOMESTYLE – CORRESPONDENT PROCEDURES......................................................................................... 16
FILE SUBMISSION FOR BUILDER AND PROJECT REVIEW ....................................................................................... 17
A.
B.
C.
D.
E.
F.
G.
LOAN APPLICATION AND PROJECT PACKAGE SUBMISSION (LO/SELLER PROCESS): ..........................................................17
LOAN APPLICATION AND PROJECT PACKAGE SUBMISSION (BANC HOME LOAN PROCESS): ...............................................19
CONTRACTOR SELECTION AND ELIGIBILITY REVIEW (CORRESPONDENT SELLER PROCESS):................................................. 19
CONTRACTOR SELECTION AND ELIGIBILITY REVIEW (BANC HOME LOANS SELLER PROCESS): .............................................19
CONTRACTOR’S BID/SCOPE OF REPAIRS (CORRESPONDENT SELLER PROCESS):...............................................................23
FEASIBILITY STUDY (CORRESPONDENT SELLER PROCESS).............................................................................................23
APPRAISAL ORDER (CORRESPONDENT SELLER PROCESS): ...........................................................................................23
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Construction and Renovation Lending
Rev. June, 2015
H.
I.
J.
K.
L.
M.
N.
APPRAISAL COMPLETED (CORRESPONDENT SELLER PROCESS): ....................................................................................24
APPRAISAL COMPLETED (BANC HOME LOANS PROCESS): ...........................................................................................24
APPRAISAL REVIEW AND EVALUATION PROCESS (BANC HOME LOANS PROCESS):...........................................................24
EQUITY: .............................................................................................................................................................25
APPRAISAL AND PROJECT CONDITIONS (CORRESPONDENT SELLER PROCESS): ................................................................25
APPRAISAL AND PROJECT CONDITIONS (BANC HOME LOANS PROCESS): .......................................................................25
PROJECT DOCUMENTS (CORRESPONDENT SELLER PROCESS): ......................................................................................26
LOAN CLOSING AND LOAN PURCHASE ................................................................................................................. 26
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
K.
L.
M.
N.
O.
P.
Q.
R.
S.
T.
U.
V.
W.
X.
Y.
Z.
AA.
BB.
CC.
DD.
EE.
LOAN REGISTRATION AND LOCKING: .......................................................................................................................26
CLOSING PROCEDURES: ........................................................................................................................................26
POST-CLOSE SERVICING AND ACCOUNTING SET-UP...................................................................................................27
POST-CLOSE ADMINISTRATIVE SET-UP AND COMMENCEMENT OF CONSTRUCTION .........................................................27
WELCOME CALL: .................................................................................................................................................27
CONTINUAL UPDATES:..........................................................................................................................................28
COMMENCEMENT OF CONSTRUCTION: ....................................................................................................................28
COMPLETION OF CONSTRUCTION: ..........................................................................................................................28
CUSTOMER SERVICE: ............................................................................................................................................28
DRAW PROCESSING AND FUNDS DISBURSEMENT OVERVIEW: .....................................................................................29
MATURITY: ........................................................................................................................................................ 29
HOLDBACK: ........................................................................................................................................................ 29
DRAW TRANSMITTAL PACKAGE:.............................................................................................................................29
DRAW PROCESSING AND FUNDING: ........................................................................................................................29
FINAL DRAW PROCESSING AND FUNDING: ...............................................................................................................29
DRAW REQUIREMENTS - DETAILED .........................................................................................................................30
DEPOSITS: ..........................................................................................................................................................30
CONTINGENCY/CHANGE ORDERS: ..........................................................................................................................30
LINE ITEM TRANSFER: ...........................................................................................................................................31
LINE ITEM/ OVERALL BUDGET VARIANCE:................................................................................................................31
LIEN RELEASE POLICY: ..........................................................................................................................................31
TITLE UPDATE POLICY:..........................................................................................................................................31
NON-PERFORMANCE - SUSPENSION OF CONSTRUCTION .............................................................................................31
CONTRACTOR REPLACEMENT REQUIREMENTS: .........................................................................................................32
INSPECTIONS:......................................................................................................................................................32
INSURANCE & LICENSE: ........................................................................................................................................32
OTHER DISBURSEMENTS .......................................................................................................................................33
EXTENSIONS ....................................................................................................................................................... 33
NON-PERFORMANCE DEFAULT ..............................................................................................................................33
EXCEPTION POLICY ...............................................................................................................................................33
ANNUAL YEAR-END REPORTING.............................................................................................................................34
REFERENCE EXHIBITS ........................................................................................................................................... 35
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Rev. June, 2015
Introduction
Banc Home Loans Correspondent Lending Division (CLD) provides a unique product support services to
Correspondent Lenders for FNMA HomeStyle transactions that are submitted and sold to Banc Home
Loans. Due to the specialized processing, underwriting, loan administration, and fund control
requirements of these loans, many lenders are unprepared to execute the steps necessary to efficiently
and accurately manage this production. Other lenders have significant experience in renovation lending
and are eligible for delegated project underwriting if their experience warrants.
This Program Manual is an extension of the Correspondent Seller Guide, Section 12.2, and provides
specific program policies and procedures used by Banc Home Loans CLD and RenovationReady®, a
division of Banc of California in supporting approved Correspondent Lenders that are not delegated in
project underwriting.
Banc Home Loans CLD and RenovationReady® provide the quality assurance services described in the
Program Manual to help Correspondent Lenders avoid common mistakes and pitfalls related to the
rehabilitation project. The policies and procedures outlined below are designed to implement all FNMA
standards and guidelines as provided in FNMA Homestyle References.
FNMA Homestyle – Program Overview
The Fannie Mae (“FNMA”) HomeStyle® Renovation Mortgage provides a convenient way for borrowers
to make renovations, repairs, or improvements totaling up to fifty percent (50%) of the as-completed
value of the property with a first mortgage, rather than a second mortgage, home equity line of credit,
or other, more costly financing method. The funds can be used for any repairs or renovations that are
permanently affixed and add value to the property.
A. Loan Purpose:
1. Refinance and renovate an existing residential property
2. Purchase and rehabilitate an existing structure.
B. Key Features:
This program was designed to allow a borrower to finance both the acquisition of a property (or pay
off of existing mortgage debt) plus the rehabilitation of a property in need of repair all in one
mortgage loan. Other key features of this program are:
1. No minimum dollar amount requirement for the eligible improvements to the existing
structure on the property;
2. All health, safety, and energy conservation items should be addressed prior to completing
general home improvements;
3. The defined scope of work must demonstrate that once the rehabilitation is completed, the
property will meet minimum property standards as defined by Fannie Mae® and/or Banc
Home Loans (“BHL”);
4. A contingency reserve of 10%-20% is required for all renovation loans. Exceptions on a caseby-case basis.
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Rev. June, 2015
FNMA Homestyle – General Credit Policies
A. Borrower Eligibility
a. Eligible borrowers:
U.S. Citizens
Permanent Resident Aliens.
b. Ineligible borrowers:
Non-Permanent Resident Aliens
Foreign Nationals
Corporation or LLC's
Non-Profit Organizations.
B. Occupancy:
Owner-occupied
Second homes
Investment properties.
C. Transaction Types:
a. Purchase
1
b. Rate/Term Refinance .
D. Loan Terms:
a. 15 and 30 year Fixed Rate
E. Program Code:
1. CF30HS-37- FNMA 30 Year Fixed Homestyle
2. CF15HS-37 -FNMA 15 Year Fixed Homestyle
3. CF30HSJ-37 – FNMA High Balance 30 Year Fixed Homestlye
4. CF15HSJ-37 – FNMA High Balance 15 Year Fixed Homestyle
F. Vesting:
As per FNMA vesting guidelines.
G. Maximum Loan-To-Value (“LTV”)2:
Max LTV/CLTV ratios follow those set by FNMA and are found online at FNMA Single Family
Loan Limits. FNMA loan limits change from time-to-time and supersede limits as listed below3. It is
recommended you check the current FNMA loan limits. The table below is in reference to Maximum
Conforming Loan Amounts only.
1
Cash-out refinances are not allowed.
2
LTV/CLTV restrictions are imposed as per Fannie Mae® guidelines and override ratios as listed in this
Product Guide. Fannie Mae®’s current LTV/CLTV ratios may be found online at FNMA Eligibility Matrix.
It is recommended you check current Fannie Mae® guidelines.
3
Limits cited were current as of date of distribution. Ratios assume loan is a fixed-rate mortgage. Ratios apply to
both purchase and rate/term refinance, unless otherwise specified.
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1 unit
2 units
3-4 units
Principal Residence
95%
85%
75%
Second Home
90%
N/A
N/A
Investment Property
85% on purchases, 75% on refinances
N/A
N/A
See “Maximum Loan Amount” section also.
NOTE: Maximum LTV/CLTV ratios may not be allowable with all mortgage insurance companies. It is
recommended you confirm with your mortgage insurance vendor they will insure second homes,
investment properties, and/or multi-unit properties above 80% LTV/CLTV.
H. Minimum Cash Investment:
See Maximum LTV guidelines.
I.
Sales and Financing Contributions:
Sellers, or other interested parties such as real estate agents, builders, developers, or a
combination of parties are permitted to contribute a percentage of the purchase price towards the
buyer’s closing costs, prepaid expenses, discount points and other financing concessions as follows:
>90%
>75%, but ≤ 90%
≤ 75% LTV/CLTV
Primary Residence
3%
6%
9%
Second Home
3%
6%
9%
Investment Property
2%
2%
2%
These parties may not contribute funds towards the borrower’s down payment and required cash
investment. Closing costs normally paid by the borrower are considered contributions if paid by the
seller, and include all seller-paid prepaid items and other costs. Contributions may not exceed the
allowed percentage as dictated by the LTV/CLTV limitations. CLTV limitations include secondary
financing from all sources. Each dollar exceeding FNMA’s limit must be subtracted from the
property’s sales price before applying the appropriate loan-to-value ratio.
J.
PITI Reserves:
Per DU / AUS findings.
K. Property Eligibility:
Eligible Properties:
a. 1-4 unit principal residence
b. 1 unit second home
c. 1 unit investment property
d. Detached PUDs
e. Detached Condos
f. Condominiums (Exception Basis Only: Subject to HOA/CC&R prior review and
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Rev. June, 2015
clearance of design control and permission of proposed work)
Ineligible Properties:
a. Manufactured Homes
b. All Attached SFR and Attached PUD’s
a. Condotels
b. Cooperatives
When the security property is a detached condo unit, the project must be one for which the
proposed renovation work is permissible under the bylaws of the homeowners’ association
or co-op corporation or one for which the homeowners’ association or co-op corporation
has given written approval for the renovation work.
The renovation work for a detached condo unit must be limited to the interior of the unit,
including the installation of fire walls in the attic.
L. Loan Amounts:
a. Loan limits are as cited in the table below.
Maximum Base Loan Amount¹
Unit
Continental U.S.
1
$417,000
2
$533,850
3
$645,300
4
$801,950
1
The loan amounts are affective through December 31, 2015.
Alaska & Hawaii
$625,500
$800,775
$967,950
$1,202,925
b. High Balance Loan Amounts: Please refer to Product Guidelines.
c. A loan in which the base loan amount exceeds the standard conforming limit will be
considered as a high balance loan amount. FNMA high balance loans are eligible and maybe
subject to additional credit overlays.
M. Underwriting:
a. DU – approve/eligible only
N. Minimum FICO Score:
a. A minimum credit score of 620 is required.
O. Credit History:
a. Acceptable credit history determined by AUS, plus a minimum of two credit scores for all
borrowers. For all disputes, follow AUS Findings. If not mentioned in AUS Findings, no
further action is required. Bankruptcy, Foreclosures, and Deed-in-Lieu must be recognized
by the DU AUS system. DU is not able to identify pre-foreclosures or short sales in the credit
report data. The pre-foreclosure sale requirements must be manually applied to the DU loan
case files, regardless of the underwriting recommendation received from DU.
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Rev. June, 2015
P. Cash Reserves:
a. Follow the Fannie Mae Eligibility Matrix to determine the amount of reserves needed based
on the DTI, Credit Score, and LTV (Ann SM 2013.03-10 a).
Q. Qualifying Ratios:
a. Varies; determined by DU maximum DTI allowance.
R. Geographic Restrictions:
a. As established by Seller state-by-state approval
S. Additional Documentation Requirements (items marked with * not required by Banc Home Loans
but may be required by other investors):
a. Additional documentation is required supporting the rehabilitation portion of the
HomeStyle® Renovation loan as follows:
i.
ii.
iii.
iv.
HomeStyle® Renovation Maximum Mortgage Worksheet (“MMW”) (Form 1035)
*Construction Loan Agreement (Form 3735)
Contractor Profile Report (Form 1202)and supporting documentation
Contractor Bid’s, listing all repairs as shown in the appraisal. Bid amount should
equal the repair amount on box C.1.a. on the MMW
v. Construction Contract (From 3734)
vi. HomeStyle® Renovation Consumer Tips (Form 1204)
vii. *Construction Addendum Amending Note (Form 3736)
viii. *Construction Loan Rider to Security Instrument (Form 3737)
ix. If applicable, Investor Rider to Security Instrument (Form 2728)
x. For homes on private water and/or septic systems, a well water test and/or a septic
certification maybe required. Completion of well or septic repairs may be included
in the loan. Completion certifications may be required as part of project close-out
processing.
xi. For homes with termite or other pest damage, an appropriate pest report will be
required. Termite or other pest damage may be included in the loan. Completion
certifications may be required as part of project close-out processing.
xii. For homes were the presence of mold or lead based paint is identified and
processed per April 2010 EPA Renovation, Repair and Painting Rule in underwriting,
repairs may be included in the loan. Completion certifications may be required as
part of project close-out processing.
T. Maximum Loan Amount:
a. Maximum Mortgage Worksheet (Fannie Mae Form 1035) is used to calculate the maximum
loan amount and LTV. See “Maximum Loan-To-Value” section for more information.
i. Maximum loan amount is calculated as follows:
1. Purchase: max allowable LTV (as stated above) times the lessor of the
purchase price plus improvement costs, or “as completed” appraised value
of the property.
2. Refinance: max allowable LTV (as stated above) times the “as completed”
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Rev. June, 2015
appraised value of the property.
3. Loan amount is based on the amounts shown on the HomeStyle®
Renovation Maximum Mortgage Worksheet (Form 1035). The maximum
mortgage calculation differs based on the applicable transaction type. See
“Maximum Loan-To-Value.”
U. Guide to completing the Homestyle® renovation maximum mortgage worksheet (“FNMA 1035”):
Input borrower’s name and date.
Section A
Box A1
Dependent on the borrower’s down payment in the event of a purchase,
or the loan amount needed to cover the existing pay off and all
applicable fees in the event of a refinance
Box A2
Dependent on the amount needed to repair the home. It is best to
complete section C first, then come back and calculate this percentage
based on the amount in line C2 divided by the “As Completed” value and
shown as a percentage
Box A3
Indicate whether the subject property will be a primary residence,
second home, or investment property
Section B
Box B1
Input the sales price, if the loan is a purchase
Box B2
Input the mortgage pay off amount(s), if loan is a refinance
Box B3
Defer to the borrower’s opinion of the home’s value after repairs have
been made during the pre-approval stage, though you may recommend
they consult with their Realtor® on a purchase transaction. You may also
suggest they contact someone they know in the real estate industry to
help them determine the after-improved value if the loan is a refinance,
perhaps the Realtor® who sold them the home. But, in either case you
will defer to the borrower’s estimate and discuss the risks involved if the
appraisal does not support their estimate of the home’s value
Section C
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Box C.1.a
Enter the estimated amount of repairs needed using an estimate given to
you by the borrower. It would be wise to instruct the borrower that the
figures on this form are subject to change, depending on the amount of
the actual bid for repairs
Box C.1.b
Input 10-20% for all loans, regardless of status of utilities
Box C.1.c
If any architectural or engineering fees are anticipated, use the
borrower’s estimate of costs until an invoice has been received
Box C.1.d
Input the fee for the Feasibility Study, but only if the borrower intends to
roll the cost of the consultant service into the repair escrow. This is
seldom allowed, as most consultants require payment at the time service
is rendered. During the pre-approval stage, advise the borrower that
chances are likely they will have to pay for the services of a Feasibility
Study at the time the service is rendered, so this will be left blank for
now. If consultant agrees to allow them to escrow a portion or all of
his/her fees, adjustments to the worksheet will be made later to include
the application fee amount
Box C.1.e
Disclose 5 inspections at $100 each for a total of $500
Box C.1.f
Disclose 5 title updates at $75 each for a total of $375
Box C.1.g
The amount for permits will vary greatly. In some cases, the contractor
agrees to pay for the permits so they will be included in the bid. In other
cases, the borrower is responsible for paying them. During the preapproval stage, it is best to ask the borrower if they know whether or not
permits will be required for the work they wish to have done and what
the amount of the permits are and use their estimate
Box C.1.h
Up to 6 months PITI payments may be financed for the period that the
property is expected to remain unoccupied. This may occur when the
property is uninhabitable, or when the nature of the project may create
health or safety concerns. Either the consultant who conducts the
Feasibility Study or the contractor will determine how long the home will
be uninhabitable and recommend the number of escrowed payments. If
you feel early on in the process that this may become a necessity, you
may estimate the number of escrowed PITI mortgage payments, not to
exceed a maximum of 6
Box C.1.i
Determined by lender
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Rev. June, 2015
Box C.2
Total of lines C1a to C1i. Please note: this total may NOT exceed 50% of
the “As Completed” value listed on line B3
Section D
Box D.1
In the event of a purchase, input the purchase price plus total on line C2
Box D.2
Enter the estimated “As Completed” value from line B3
Box D.3
Enter the amount of financed PMI, if applicable
Box D.4
Enter the purchase loan amount, which will be the lesser of the figure on
line D1 or the “As Completed” value times the appropriate LTV
percentage
Box D.5
For a refinance, enter the appropriate LTV percentage times the
Estimated “As Completed” value of the home
Section E
Box E.1
Enter the figure from line B1 in the purchase column, if loan is a purchase
transaction
Box E.2
Enter the figure from line C2 in the appropriate column for either a
purchase or refinance transaction
Box E.3
N/A
Box E.4
Enter the amount on line B2 in the refinance column, if loan is a
refinance transaction
Box E.5
Enter the estimated amount of pre-paid items in the appropriate column
for either a purchase or refinance transaction
Box E.6
Enter the estimated amount of closing costs in the appropriate column
for either a purchase or refinance transaction
Box E.7
Enter the amount of financed PMI, if applicable, in the appropriate
column for either a purchase or refinance transaction
Box E.8
Enter the amount of discount fees, if applicable, in the appropriate
column for either a purchase or refinance transaction
Box E.9
Enter the total of lines E1 to E8 in the appropriate column for either a
purchase or refinance transaction
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Rev. June, 2015
Box E.10
Enter the amount of Subordinate Financing, if applicable, in the
appropriate column for either a purchase or refinance transaction. See
BANC Home Loans FNMA Conforming guidelines RE: subordinate
financing
Box E.11
Enter the amount of closing costs being paid by the seller under the
purchase column, if loan is a purchase transaction
Box E.12
Enter any other credits in the appropriate column for either a purchase
or refinance transaction
Box E.13a
Enter the appropriate loan amount from either line D4 or D5, depending
on whether the transaction is a purchase or refinance and in the
appropriate column
Box E. 13b
Same as Box E. 13a
Boxes E. 14 and E.15
Complete using the exact formula indicated on Fannie Mae Form 1035
and in the appropriate column for either a purchase or refinance
transaction.
V. Eligible Expenses:
a. Expenses eligible to be included in the cost of rehabilitation are materials, labor,
contingency reserve, overhead and construction profit, plus expenses related to the
rehabilitation such as permits, inspection fees during construction by a
consultant/inspector, lien protection fees for title updates and architectural/engineering
fees. The cost of rehabilitation may also include the discounts, which the borrower will pay
on that portion of the mortgage proceeds allocated to the rehabilitation.
W. Disclosures and HomeStyle® Related Fees:
a. In addition to the typical FNMA disclosure package, the borrower and/or contractor must
execute the following HomeStyle® specific disclosures:
b. Maximum Mortgage Worksheet (Form 1035)
c. HomeStyle® Renovation Consumer Tips (Form 1204)
d. Construction Contract (Form 3734)
e. Contractor Profile Report (Form 1202)
f. There are also additional required specific HomeStyle® Renovation loan program fees. Refer
to the Exhibit 1, “HomeStyle® Fee Sheet Summary” for all related HomeStyle® Renovation
fees.
X. Funding of the Loan:
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a. The full loan amount is funded at closing. The funds reserved for the rehabilitation, including
any contingency reserve, inspection fees, title update fees and mortgage payment reserve,
must be set-up in an interest-bearing repair escrow account and the balance dispersed to
purchase the property or refinance an existing mortgage. At the completion of work, any
interest earned or unused rehabilitation funds will be applied towards a principal
curtailment (see “Contingency Reserve” for more information).
Y. Contingency Reserve:
a. A contingency reserve must be established, except in rare cases, to allow for cost overruns
or additional repairs that are discovered during the course of rehabilitation. The contingency
reserve is based on FHA standards as per HUD Handbook 4240.2, 1-9 F where a range of
contingency from a minimum 10% is required. Higher contingency amounts (e.g. 20%) may
be required depending on property age, scope and complexity of the rehabilitation project,
and underwriter discretion.
b. The amount of the contingency required can be funded by the borrower at close. If the
borrower funds the contingency reserve with their own funds, and any funds remaining
after the completion of the scope of repairs identified will be returned to the borrower up
to the amount brought in by the borrower at closing.
c. When adjustments to the proposed rehabilitation (i.e. deleting a skylight from the scope of
work as defined during loan processing) are made following loan closing, the amount by
which the costs are reduced are added to the contingency reserve. Work items cannot be
deleted from the rehabilitation if it will decrease the value of the home.
d. Use a Change Order Request (Form1200) when the scope of rehabilitation will be affected.
This form must be included in the file.
Z. Mortgage Payment Reserve:
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a. When the property is not going to be occupied during rehabilitation, funds not to exceed six
(6) mortgage payments, including PITI and mortgage insurance, can be included in the cost
of rehabilitation and deposited into the mortgage payment reserve account to assist the
borrower.
b. On multi-unit properties, if one or more units are occupied, the mortgage payment must be
reduced according. If the owner occupies one of the units, or if the rents received are not
sufficient to cover that portion of the mortgage, then the mortgage payment will be
reduced by dividing the PITI by the number of units in the property (i.e. monthly mortgage
payment for a triplex is $1,248; if one unit is occupied, the mortgage payment is reduced to
$832).
c. The number of mortgage payments cannot exceed the completion timeframe required in
the rehabilitation loan agreement.
d. The monthly mortgage payment must be made directly from the interest-bearing reserve
account. These payments will be handled by the Servicing and Accounting departments.
e. Funds that remain in the account after the final release notice is issued must be used to
reduce the principal through a principal curtailment, unless the funds were provided by the
borrower, in which case the funds will be returned to the borrower.
f. To comply with program guidelines and to make sure adequate payment funds are
escrowed, the financing of mortgage payments must be reviewed and approved by BHL
AA. Rehabilitation Period:
a. Rehabilitation construction must begin within thirty (30) days of closing, must not cease for
more than a thirty (30) day period and all work must be completed within nine (9) months
of closing.
BB. Appraisal Requirements:
a. All appraisals must be ordered through the lender’s approved AMC. Please refer to the
above section, Maximum, Mortgage Amount, for the determination for the basis of the LTV.
In order to determine the maximum mortgage amount, the FNMA HomeStyle® valuation
analysis determines the “as completed” value of the subject property.
b. “As Completed” Value:
The appraisal report must provide an “as completed” value that estimates the market value
of the property upon completion of the proposed rehabilitation and/or improvements. The
borrower’s or the cost consultant’s estimate must be available for the appraiser to use in
order to determine the “as completed” value, and therefore must be provided prior to
requesting the appraisal. The appraisal report should be noted: “subject to repairs,
alterations etc."
CC. Closing Costs:
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a. Customary and reasonable costs may be charged necessary to close the mortgage. All fees
must be allowable under FNMA guidelines.
b. Refer to the HomeStyle® Fee Sheet Summary (Exhibit 1) for all related HomeStyle® fees.
DD. Property Insurance Requirements:
a. Property hazard and flood insurance policies apply on all transactions. Please refer to Banc
Home Loans’ Insurance Policy for specific requirements.
b. Improvement Eligibility: Improvements are allowed and/or required as follows:
Required Improvements
Any repairs cited as required in appraisal report as per FNMA B4-1.3-06:
Property Condition and Quality of Construction of the Improvements
Eligible Improvements
Any and all improvements that are permanently affixed to the real property
and add value to the property
Ineligible Improvements
Improvements not permanently affixed to the real property
EE. Required Improvements:
In general, property condition and lender’s required scope of repairs will be determined based on
the appraiser’s selection of condition, quality, and other characteristic ratings as per FNMA B4-1.3-
06: Property Condition and Quality of Construction of the Improvements. Please refer to VI:
Project Review and Approval, Section H, Property Inspection/Property Condition/ Scope of
Rehabilitation for inspection requirements. Appraisers should consider the following categories
when evaluating site and physical conditions:
a. Property Exterior: Appraiser should examine exterior of home and any detached structure
and/or out-building(s) for condition and photograph for the appraisal report.
b. Structural: Appraiser should look for evidence of possible structural failure (e.g., settlement
or bulging foundation wall) and report findings. Any failure of wood and steel structural
members in the floors, walls and roof system must be reported in the appraisal.
c. Roof Covering and Structure: Appraiser should examine roof covering. Roofs should have no
greater than three (3) layers and have an anticipated life expectancy of 2 years or greater.
d. Windows and Doors: Appraiser should examine windows to insure they are in good working
order and without damage to sash, frames, sills and glass. Doors and locksets must be
functional and seal properly and securely.
e. Wood Boring Insect and Wood Rot Damage (Exterior/Interior): Appraiser should report on
existence of rodents, dry-rot, termites and other pest infestation. When evidence of
infestation or dry rot is found the appraiser should photograph the affected area and report
its location in the appraisal report. This assessment applies to both exterior and interior.
(NOTE: A termite/pest inspection will be require if any evidence of the above is observed)
f. Health and Safety Concerns (Exterior/Interior): Appraiser should report on any item in the
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Rev. June, 2015
g.
h.
a.
b.
c.
d.
e.
f.
property that may affect the health and safety of the occupants. This would include peeling
paint, the presence of lead paint, missing or broken stairs, rails, and unsound decks.
Mechanical Systems: Appraiser should examine the mechanical systems of home and
photograph for the appraisal report.
HVAC: Appraiser should examine the heating, ventilating and air conditioning system for
general performance, age and condition.
Electrical: Appraiser should examine the home’s electrical service relative to modern
appliances and electronics (minimum of 100 amp main service). GFCI outlets/breakers
should be present and functioning in all areas within six (6) feet of water or located on the
exterior. Service panels and junction boxes should be sealed and protected from moisture
and accidental human contact.
Plumbing: Appraiser should examine plumbing systems to support the dwellings
requirement adequately. Supply and waste lines should be free of leaks and have sufficient
water pressure and drainage of waste. All fixtures should be properly functioning.
Waterheaters should be properly vented and on a stable platform with seismic strapping
where required. Private well and septic systems may require additional certifications.
Property Interior: Appraiser should examine the mechanical systems of home and
photograph for the appraisal report.
Interior Walls/Ceilings/Flooring/Doors: Appraiser should examine interior walls to be free
of plaster/drywall damage (cracks, holes or moisture). Interior doors should be functional
and undamaged (includes closet doors). Sub-floors should be evaluated for soft spots or sag
and reported.
Cabinetry and Fixtures: Appraiser should examine cabinets, vanities, and countertops to
determine conditions are useable and free of decay and/or damage.
Smoke/CO Detectors: Appraiser should examine each sleeping area has a minimum of one
(1) approved, listed, and labeled smoke detector installed adjacent to the sleeping area. CO
detectors should be present on each floor level and a minimum of one (1) unit must be
located within fifteen (15) feet from bedrooms.
FNMA Homestyle – Correspondent Procedures
CLD support for FNMA HomeStyle transactions that are submitted and sold to Banc Home Loans covers
both pre-close contractor evaluation, rehabilitation project review and post-close draw process, loan
administration
Pre-close contractor and rehabilitation project review provides the additional processing required for
this program including the builder and project validation as well as the review of construction
documentation on all FNMA HomeStyle submissions. If the submitted loan is sold to an investor other
than Banc Home Loans, lender will be charged a Per Loan Closed Fee as indicated on the Correspondent
Rate sheet published daily. (not applicable on loans sold to Banc Home Loans).
Post-close draw process and loan administration provides the post-closing administrative processing of
inspections, draw disbursements and title updates as part of its quality assurance process. CLD is
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Rev. June, 2015
supported by RenovationReady®, a division of BANC of California. Details around this process are
provided on pages 28-37 below and only apply on loans sold to Banc Home Loans. The post-close draw
process and loan administration services are not provided on loans submitted to Banc Home Loans but
sold or securitized to an investor other than Banc Home Loans.
Please refer to FNMA HomeStyle Guidelines for additional information.
File Submission for Builder and Project Review
The following procedural steps are described as a series of actions and responses between the
Correspondent Lender and the internal quality assurance steps taken by CLD and RenovationReady®.
After each subtitled section, a (Parenthetical) statement identifies the party associated with the step
described. For example, (LO/Seller Process) means a step or action(s) conducted by the Correspondent
Lender Loan Officer.
A. Loan Application and Project Package Submission (LO/Seller process):
a. BHL Renovation Account Executive (BHL AE) Contact Information:
i. Please refer to the BHL Correspondent Lending web portal under “Contact Us” for a
list specific team members to assist with this product
ii. LO/Seller should contact their Banc Home Loans Renovation AE (AE) with any
questions.
b. Upon a signed offer on a purchase transaction or upon a signed application on a refinance
transaction, LO goes to BHL Correspondent Lending Portal:
Click on “Renovation Products” (no login rights required):
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Rev. June, 2015
c. LO completes online Renovation Ready Submission Form submission form and:
d. Uploads 3.2 file (where indicated)
e. And provides the following items (where indicated:
i. Purchase Contract and Addenda
ii. Good Faith Estimate
iii. Inspection or other reports (if applicable)
iv. Contractor’s bid
v. Contractor Questionnaire and supporting contractor acceptance documents
vi. Any other supporting project documentation
f. LO will receive confirmation receipt email from BHL and notification that your AE will
contact you to confirm loan terms, review scenario, and submit to fulfillment workflow.
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Rev. June, 2015
B. Loan Application and Project Package Submission (Banc Home Loan process):
a. BHL AE will contact submitting LO to confirm loan terms, review scenario, and board loan for
project prior review process.
b. BHL Renovation Project Conditions is generated which lists all required documents,
reports, bids, and other relevant materials needed to complete Renovation Services
as outlined in Section 12 of the Seller Guide (SLA 48-72 hours). An example of the
Renovation Fulfillment and Conditions report is provided in Exhibit 3.
C. Contractor Selection and Eligibility Review (Correspondent Seller Process):
a. LO ensures timely contractor selection by borrower.
b. LO responsible for directing contractor to complete Contractor Questionnaire either using
Lender’s Contractor Questionnaire form (See Reference Exhibit) or using Contractor
Registration and Online Resume Submission LO responsible for providing copy of license(s),
proof of Liability insurance, Worker’s Comp (or exemption), W-9 and any other supporting
documentation (see more details below)
D. Contractor Selection and Eligibility Review (Banc Home Loans Seller Process):
a. Once all contactor documents are received, determination of eligibility will be provided in
48 hours.
b. If contractor does not meet acceptance guidelines, an exception may be considered by
Seller.
c. Contractor Review and Acceptance Requirements:
d. Contractor Selection: The contractor selection shall be at the election of the borrower.
Lenders should not endorse, recommend, or otherwise promote the selection of any
particular contractor. Resources generally available to the public are available to find active
contractors serving the area where the proposed renovation project is situated. Such
resources include, but are not limited to, web sites, State contractor license lists, renovation
and remodeling service providers, and other sources. It is required that any independent
feasibility consultants strictly adhere to FNMA guidelines, act independently of all parties
involved in the transaction, which includes not making contractor recommendations.
e. Contractor/Builder Requirements: The qualifications of the renovation contractor are
evaluated to determine if they have the requisite experience to perform and complete the
proposed renovation work, as well as, the credit worthiness to pay their obligations and
deliver the home free of mechanics’ liens. The Contractor information is gathered through a
completed Renovation Contractor Questionnaire (Exhibit 2) or via the Contractor
Registration link below:
f. Contractor Registration and Online Resume Submission LO/Seller required to insure
contractor’s completer registration and submission.
g. Contractors are required to provide a completed Renovation Contractor Questionnaire and
items 1-5 below. Completed submission in including all required attachments will be
reviewed and acceptance determined within 48 hours.
h. Attachments to the Contractor Questionnaire include the following (except national
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Rev. June, 2015
chains/big box stores, where applicable):
1. Licensing and Certifications: Current contractor license information and, if
State License is not online, a copy of current General Contractor’s license
including expiration date and a satisfactory clearance from the appropriate
licensing authority, if required. If a contractor is in a local area that does
not require licensing, homeowner, subcontractor or supplier references must
be checked. In addition, any certifications the contractor has acquired
should be provided. The contractor is required to be certified in lead paint
abatement or proof-trained in lead paint abatement activities for all pre1978 built homes, or if lead paint abatement is required. RR adheres to the
April 2010 EPA Renovation, Repair and Painting Rule.
2. Liability Insurance: Evidence of liability insurance in an aggregate amount of
$1,000,000
3. Workman’s Compensation Insurance: Evidence of Worker’s Compensation
insurance, if Contractor has employees. If no employees, a Certificate of
Exemption or a letter from the contractor stating he/she has no employees
is required.
4. Identification: Contractor’s Date of Birth (DOB) to check Patriot Act Watch
List.
5. Tax Information: Receipt of a W-9 form from Contractor. This requirement
cannot be waived due to Federal Law.
Banc Home Loans uses the following minimum standards in evaluating and accepting
borrower selected contractors. Contractor acceptance parameters are organized into four
(4) categories based on renovation/construction contractor amount:
1. <$5,000
2. $5,000 - $30,000
3. $30,000 - $100,000
4. $100,000 - $1,000,000
The requirements for each category are outlined in the table below:
Page 20
Rev. June, 2015
Construction Contract
Amount
<$5,000
$5,001 - $30,000
$30,001 - $100,000
Project Description
Retail Installation
Cosmetic Repairs,
Streamline 203K
Structural Repairs,
Major Remodel, Adding
GLA
Construction to Perm,
Major Renovation,
Small Spec
Contractor/Builder
Description
Lowes,
HomeDepot, Best
Buy, etc
Sub-contractor or
Trade
General Contractor,
Builder, Sub-contractor
or Trade
General Contractor,
Builder
Homeowner/Contractor
Agreement or
Construction Contract
Type
N/A – Purchase
Invoice Agreement
Homeowner/
Contractor
Agreement
Agreement
Agreement or AIA
Standard
HUD LDP/GSA
Exclusionary List (203K
Only)
Required
Required
Required
Required
Contractor License
Not Required
Required (If State
required)
Required (If State
required)
Required (If State
required)
Liability Insurance
Not Required
Required ($1MM)
Required ($1MM)
Required ($1MM)
Worker’s Compensation
Insurance
Not Required
Required (If
Contractor has
employees)
Required (If Contractor
has employees)
Required (If Contractor
has employees)
Fraud/OFAC
Not Required
Required
Required
Required
Lexis/Nexis or similar
(relationship w/ other
entities, litigation
history, financial
health, and negative
news)
Not Required
Required
Required
Required
Credit – Personal (if
commercial credit
unavailable)
Not Required
Not Required
620
660
Credit – Commercial
Not Required
Not Required
Experian 50 or equal
Experian 60 or equal
Years as Licensed
General Contractor or
Sub-contractor
Not Required
3 Years
3 Years
5 Years
Page 21
Rev. June, 2015
$100,000 - $1MM
1. <$5,000 - Retail Installers: Where the contractor is a recognized national or regional
home improvement retailer providing installation services (e.g.: Home Depot,
Lowes, Sears, 84 Lumber, Orchard Supply & Hardware), no acceptance process will
be required. However, funding and documentation will be revised as follows:
a. The store contract will be used in lieu of a Construction Contract;
b. Funding will be a reimbursement draw for the amount evidenced in
paid receipts, and will reimburse directly to the borrower;
c. Borrower should be informed upfront of the difference in procedures
when using these types of contractors, and it should be explained that
they, the borrower, will be required to pay any upfront costs required
by retailers and/or their installers;
d. No contractor questionnaire or self-help agreement will be needed.
2. $5,000 - $30,000: Where repairs are greater than $5,000 and no more than
$30,000; a completed renovation Contactor Questionnaire and accompanying
support provides the following information:
a. Lexis Diligence Report
b. Experience: The number of years in the home renovation business.
Contractors should have a minimum three (3) years in the business;
3. $30,000 - $100,000: Where repairs are greater than $30,000 and no more than
$100,000; a completed renovation Contactor Questionnaire and accompanying
a. Credit: Authorization to inquire into the contractor’s credit history and
criminal background check in the State where Contractor resides. A personal
credit report by a tri-merge credit company or an Experian Biz IQ Check
report will be obtained.
b. A minimum mid credit score of 620 and an Experian Biz IQ score of 50 is
required;
c. If the mid credit score is less than 620 or the Experian Biz IQ score is less
than 50, an exception will be required from the lender for the contractor to
be accepted;
d. In the event that there are unresolved liens or judgments, the contractor
will be declined;
e. If Contractor refuses to provide a Social Security Number, Experian
Contractor online credit review program will be used to determine the
contractor's credit history.
f. Lexis Diligence Report
g. Experience: The number of years in the home renovation business.
Contractors should have a minimum three (3) years in the business;
4. $100,000 - $1,000,000: Where repairs are greater than $100,000 and no more than
$1,000,000; a completed renovation Contactor Questionnaire and accompanying
a. Credit: Authorization to inquire into the contractor’s credit history and
criminal background check in the State where Contractor resides. A personal
credit report by a tri-merge credit company or an Experian Biz IQ Check
report will be obtained.
b. A minimum mid credit score of 660 and an Experian Biz IQ score of 60 is
required;
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Rev. June, 2015
c. If the mid credit score is less than 660 or the Experian Biz IQ score is less
than 60, an exception will be required from the lender for the contractor to
be accepted;
d. In the event that there are unresolved liens or judgments, the contractor
will be declined;
e. If Contractor refuses to provide a Social Security Number, Experian
Contractor online credit review program will be used to determine the
contractor's credit history.
f. Lexis Diligence Report
g. Experience: The number of years in the home renovation business.
Contractors should have a minimum five (5) years in the business;
J. Owner/Contractors:
a. Banc Home Loans does not accept owner/builders.
b. Banc Home Loans does not allow self-help.
c. Contractor Re-Acceptance:
k. Contractor re-acceptance must be performed on any active contractor prior to their one (1)
year acceptance date.
a. In addition, at any point during the rehabilitation process, if information is obtained
that indicates the viability of the project could be compromised by the contractor, a
contractor re-acceptance must be performed.
b. The following criterion applies, but is not limited to:
i.
A written request of re-acceptance indicating the reason for re-evaluation;
ii.
An updated credit report reflecting no deterioration in payment history;
iii.
An updated Contractor Questionnaire is not required unless information that
causes concern has been obtained;
iv.
No references will be checked, unless information that causes concern has been
obtained
v.
Liability and Worker’s Compensation insurances must be current and in place;
vi.
The General Contractor's license must be current and in place.
l. Number of Contractors:
c. Only one contractor is allowed on the HomeStyle® Renovation loan.
E. Contractor’s Bid/Scope of Repairs (Correspondent Seller Process):
a. LO/Seller to review bid to ensure scope of work meets FNMA Homestlye Guidelines
F. Feasibility Study (Correspondent Seller Process)
a. If property and/or proposed renovation project includes any of the following conditions, a
project Feasibility Study should be required and ordered by LO/Seller:
i. Increase in Gross Living Area
ii. Modification or adjustment to floor plans
iii. Home originally constructed prior to 1978
b. Note -Feasibility Study (if applicable) is not required to order appraisal but is required for
BHL’s review of and evaluation of appraisal/project
G. Appraisal Order (Correspondent Seller Process):
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Rev. June, 2015
a. Seller orders “subject to” appraisal providing AMC copy of purchase contract, contractor’s
bid and any other pertinent project exhibits (plans, engineer’s reports, etc)
H. Appraisal Completed (Correspondent Seller Process):
a. Seller submits appraisal and any underwriting appraisal or project conditions through BHL
Correspondent Portal
b. Seller submits any project documentation not previously provided
I. Appraisal Completed (Banc Home Loans Process):
a. BHL reviews and evaluates the appraisal and underwriting appraisal conditions to confirm
FNMA Homestyle requirements and scope of work is met, ensure that the project is
program compliant, and feasible.
b. Updated Renovation Project Conditions detailing required WWU, contractor’s bid and/or
appraisal corrections is provided to Seller.
J. Appraisal Review and Evaluation Process (Banc Home Loans Process):
a. Renovation Project Requirements: Lenders must review the proposed project to determine
FNMA requirements and scope of work is met, ensuring that the project is program
compliant and feasible.
b. The following is provided by the contractor or borrower:
a. Architectural Exhibits (If Applicable): Plans/Drawings showing the layout and
dimensions of the proposed project must be included. Elements include, but are not
limited to the following:
b. Engineer Reports (foundation & structural repairs);
c. Floor plans (existing and proposed);
d. Engineered Structural plans (additions). The requirements of this section are adjustable
according to the scope and size of the contract.
c. Renovation Contract: A program compliant renovation contract signed by the borrower and
the contractor.
d. Contractor’s Bid:
i. A variance of 10% contract cost (contractor’s bid) to cost approach by appraiser is
allowed;
ii. The contract cost must be detailed in a manner which allows for underwriting
review and progress inspection. Line item cost breakdowns should be aligned to the
default 35 item budget. Any budget that does not have sufficient detail will be
reallocated by contractor, or rejected;
iii. Contract costs will be analyzed for frontloading. Any contract that is determined to
be significantly front-loaded will be reallocated or declined;
e. Certifications for roofs, private sewer/water, and termite damage, environmental
conditions, etc. If these certifications require repairs, and the repairs are an eligible work
item, then the funds for correction must be included in the list of repairs.
f. Permits: Copy of all applicable permits, as required by local municipality, must be obtained
within thirty (30) days of the loan closing. No progress draws will be made until permits
Page 24
Rev. June, 2015
have been received and forwarded to loan administration. The Underwriter does have the
discretion to request permits prior to close, if deemed necessary. Notification will be given
as to if and when permits are required.
g. Appraisal: The company or individual used to prepare the appraisal may be used as the
inspector.
h. State-specific statutory forms, if applicable: In addition, all parties must execute all Statespecific statutory forms not mentioned above.
i. Property Inspection/Property Condition/Scope of Rehabilitation: In general, property
condition and lender’s required scope of repairs will be determined based on the appraiser’s
selection of condition, quality, and other characteristic ratings as per FNMA B4-1.3-06:
Property Condition and Quality of Construction of the Improvements.
In addition (and as noted in section F above), if the property and/or proposed renovation project
includes any of the following conditions, a project Feasibility Study should be required to document and
evaluate the quantity, quality, and cost of the renovation work proposed:
a. Increase in the Gross Living Area (“GLA”)
b. Modification or adjustment to floor plans (e.g. moving walls regardless of structural load
transfers)
c. Home originally constructed before 1978
Feasibility Study can be prepared by HUD Consultants, FHA Fee Inspectors, General Contractors
(independent from subject project), Architects, or Renovation Consultants. Feasibility Studies should
include information about the property condition, floor plan sketches (if changes are proposed),
specification of proposed work or line items, and cost estimates. It is the responsibility of the loan
officer to determine in the initial borrower interview if, based on the project proposed, a Feasibility
Study should be ordered.
K. Equity:
If the loan requires a borrower’s equity contribution to complete the hard cost budget, the equity
contribution will be collected at the time of the loan closing. The equity funds will be disbursed in
accordance with the standard draw procedures prior to the disbursement of any funds. Deferred equity
is not permitted.
L. Appraisal and Project Conditions (Correspondent Seller Process):
a. Seller to address all appraisal and project conditions
b. Seller sends updated/corrected documentation through BHL Correspondent Lending Portal.
M. Appraisal and Project Conditions (Banc Home Loans Process):
a. BHL reviews and evaluates the updated/corrected documentation.
b. If all appraisal and project conditions have been met, BHL provides supporting FNMA
Homestlyle documentation and Clear to Close Renovation Project Conditions list to Seller.
c. Correspondent sellers will receive the documents and renovation project information
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Rev. June, 2015
listed in the example below:
i. Draft Maximum Mortgage Worksheet (FNMA 1035)
ii. Homestyle Renovation Consumer Tips
iii. Construction Contract (FNMA 3734)
iv. Permits/Certifications Required
v. Contractor Bid
vi. Contractor Documentation
vii. ** See below
** If submitted loan is sold or securitized to investor other than Banc Home Loans, an additional FAQ
document listing the lender’s primary renovation contact information will be provided to direct the
borrower and contractor to the appropriate lender contact for all post-closing inquiries.
N. Project Documents (Correspondent Seller Process):
a. Seller receives BHL documents package for inclusion in loan file.
b. Seller to ensure that all FNMA Homestyle documents are properly executed by the appropriate
parties.
Loan Closing and Loan Purchase
The loan closing, loan purchase, post-close loan administration and draw processes described below
apply on loans purchased by Banc Home Loans Correspondent Lending.
A. Loan Registration and Locking:
a. See Seller Guide Section 4 in the BHL Correspondent Portal for loan registration and
locking policies and procedures.
B. Closing Procedures:
a. Processor’s Steps:
i. Upon receipt of Clear to Close from RenovationReady Services:
ii. Review and determine if any re-disclosures are needed;
iii. Provide Closing Department the RenovationReady Funding Guide and Recap
Form for correct disbursement of allowable renovation funds.
iv. Double check to make sure all rehab funds to be released at closing are entered
into the preliminary HUD-1 worksheet.
v. Verify the FNMA LTV maximums have not been exceeded and the DU output is
Approve/Eligible
vi. Notify the internal and external parties of the scheduled closing date;
vii. Follow all other standard loan closing policies and procedures
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Rev. June, 2015
Closer’s Steps:
viii. Verifies all documents and information is accurate;
ix. Draws FNMA closing documents, including additional HomeStyle® specific
documents, through lender’s system;
x. Submits closing package to the attorney or title company;
xi. Reviews preliminary HUD-1 and confirms the following HomeStyle® details are
shown and are in the correct sections of the HUD-1:
1. HomeStyle® Repair Escrow
Section 100
2. Inspection Fees
Section 800 or 1300
3. Title Update Fee
Section 800 or 1300
4. Permits
Section 1300
5. Consultant Fee
Section 1300 (May be POC)
6. Architectural/Engineering
7. Other Fees (Lead-Based Paint
8. Cert., Feasibility Study)
b. Follow procedures set forth in Section 9.0 of the Correspondent Lending Seller Guide
C. Post-Close Servicing and Accounting Set-Up
When a HomeStyle® loan closes:
a. ALL renovation escrow funds will initially be deposited into the lender’s rehabilitation
escrow account. Upon delivery of the closed loan to BHL for purchase, the following loan
purchase steps will occur:
b. BHL Correspondent Lending will confirm closing amounts, closing documents, and
renovation escrow balances are correct.
c. Upon clearance of all credit and renovation conditions, loan will be clear for purchase.
d. At time of purchase, Renovation Escrow Balance will be netted from wire and deposited into
BHL Renovation Escrow Account to be administered by Renovation Loan Administration.
D. Post-Close Administrative Set-Up and Commencement of Construction
Renovation Loan Administration boards and balances closed Homestyle loan and executes the
following:
E. Welcome Call:
a. After initial set-up, the borrower and contractor will both receive a welcome call that
describes in detail the draw procedures including, but not limited to:
b. Draw submission,
c. Requisite forms,
d. Website use,
e. Inspection procedures, and
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Rev. June, 2015
f. Respective duties and responsibilities of the borrower and the contractor.
g. The borrower and the contractor will be informed that any changes to the original plan must
be approved prior to any work to avoid the risk of having disbursements delayed or
withheld.
F. Continual Updates:
a. It is important that any changes to the borrower information initially submitted on the
application be tracked throughout the term of construction. This would include the
borrower occupying the property, the borrower moving to a temporary residence,
telephone number changes, contractor changes or any other material
matter.
Accurate borrower information is required to properly administer the repair escrow and
service the loan. In many cases, the borrower’s telephone number or mailing address will
change from the information on the application before the property is occupied. Reporting
this information is needed for the borrower to properly receive his draw disbursements.
G. Commencement of Construction:
a. Construction on the project must commence within thirty (30) days of the Note Date.
Required permits must also be received within thirty (30) days of the Note Date.
b. Rehabilitation progress will be monitored for compliance, per protocol below:
i. Thirty (30) days from close, if no inspection/draw has been requested, the
borrower and contractor will be contacted and the progress of construction will
be ascertained. Adequate information must be received to confirm work is in
progress.
ii. Sixty (60) days from close, if no inspection/draw has been requested, a status
inspection will be scheduled to determine project progress. If the inspection
finds that work is not being performed on a timely and compliant basis, an
action plan for completion will be developed with the Consultant, contractor
and borrower. All parties will sign the agreed to written plan. Ninety (90) days
from close, verification that the action plan has been implemented will be
obtained. If deemed necessary, a status inspection will be scheduled to verify
that the action plan is being properly executed.
H. Completion of Construction:
a. Construction on the project must be completed within twelve (12) months of the Note Date,
unless an extension has been requested and granted pursuant to FNMA guidelines. If
construction is not complete and an extension is not granted, the loan will be considered to
be in technical default for non-performance/Suspension of Construction.
b. Please refer to: Non-Performance/Suspension of Construction – for additional information.
I.
Customer Service:
a. Throughout the rehabilitation period, a full-service customer service department will be
maintained to:
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Rev. June, 2015
i. Manage the draw process;
ii. Address inquiries by all parties of interest;
iii. Manage inspections, draws, and related support.
iv. Detailed customer service phone and email logs will be maintained for support and
audit purposes.
J.
Draw Processing and Funds Disbursement Overview:
a. All draw requests are processed pursuant to FNMA compliant policy and procedures.
K. Maturity:
a. Prior to the release of any draw, the completion date of the construction period will be
checked. Loans that have exceeded the construction period without being extended will
have funding suspended and require that work on the project cease until extension is
executed.
L. Holdback:
a. The loan shall be set up with a minimum 10% retainage. The retainage will be netted
from the total draw request. The holdback will be released with or after the final draw.
M. Draw Transmittal Package:
a. With each draw, a standardized draw transmittal package will be prepared.
N. Draw Processing and Funding:
a. Upon receipt of the standardized draw transmittal package, it is reviewed and endorsed
by the underwriter or the acceptable assignee in loan administration. The signed draw
approval is then used to request funds be wired from the Custodial Escrow Account to
be used for payment to all approved payees.
O. Final Draw Processing and Funding:
a. The final draw requires additional documents to be included in the Draw Transmittal
Package. These documents are as follows:
i. An inspection showing work has been completed to 100%;
ii. Certificate of Occupancy, permit sign-off or other local equivalent, where
appropriate;
iii. Completion Certificate (Form 1036);
iv. Final Release Notice;
v. Contingency Release Letter;
vi. Any other State Statutory required documents.
vii. The final draw will be processed and funded following the same procedures for all
other draws.
viii. At the time of final disbursement, any construction budget funds and contingency
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Rev. June, 2015
funds remaining and undisbursed will be applied to the outstanding principal
balance of the renovation loan, except when the borrower funded the contingency.
In this case, the remaining contingency funds will be returned to the borrower.
P. Draw Requirements - Detailed
a. Draw Disbursement Request/Authorization:
i. It is required that the draw be applied to specific budget line items. Individual line
items cannot be overdrawn. The amounts allocated to individual lines, and the total
of the draw must reconcile.
ii. All product specific required FNMA Forms will be utilized and executed
electronically or by hand by the required parties prior to funding. Other draw
approval forms may be used as required by Banc Home Loans.
iii. The expiration dates for the contractor’s license and insurance, as well as the twelve
(12) month loan rehabilitation expiration date is tracked.
iv. No draw package will be generated unless all such license or insurance are current.
If the contractor’s insurance or license has expired, proof of renewal will be
obtained prior to any draws.
v. With respect to the expiration date of the twelve (12) month rehabilitation period,
no draw will be paid past this date without the proper extensions being obtained.
Q. Deposits:
a. Deposits at close are not permitted.
b. Mobilization deposits are not allowed.
c. Labor deposits are not allowed.
R. Contingency/Change Orders:
a. Use of construction contingency funds to pay for change orders will be supported by the
requisite product compliant forms and only for product specific approved use.
b. All contingency requests will be reviewed with regard to the appropriateness of amount and
timing. If the change order is deemed acceptable, the request will be approved or if deemed
unacceptable the amount may be adjusted accordingly.
c. As a general rule, a change order or a proof of payment/receipt is required to process draws
from the contingency. The cost of a change order will be paid out of the contingency fund.
In the event that the contingency fund is inadequate, the fee must be paid by the borrower.
d. Contingency reserve funds may be used for cost overruns and related changes associated
with the mandatory work items as detailed in the defined scope of work.
e. If funds are remaining after the completion of the mandatory work items, they may be used
for property improvement “upgrades” per FNMA guidelines, but generally these upgrades
will be in line with the scope of work which has already been approved.
f. Unused contingency funds will be applied as a principal reduction to the mortgage, or if
funds were provided by the borrower, funds will be returned to the borrower.
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Rev. June, 2015
S. Line Item Transfer:
a. During the draw process there may be a need to transfer funds from one line item to
another. To undertake a revision of a line item, evidence of savings must be verified in the
surplus line item, and a change order with additional costs must be submitted and verified
before surplus funds from another line item can be utilized to fund the deficient line item.
b. If applicable, surplus funds may be transferred into the contingency reserve from lines that
have been inspected to 100% complete and proof of payment to the subcontractor and/or
supplier has been received.
c. Line item transfers may be denied unilaterally based on other risk mitigation factors
including variance, inactivity or excessive number of line item transfers early in the
construction phase.
T. Line Item/ Overall Budget Variance:
a. Unless the product specifically prohibits any budget variance, a maximum 10% budget
variance from the overall percentage of work complete in relationship to the total funds
disbursed, is allowed.
b. Deposits for specialty items manufactured offsite will not be included in the equation. If a
variance occurs in excess of policy, future draws will be cut back until the variance falls
within guidelines or the draw will be suspended until a resolution is reached.
U. Lien Release Policy:
a. State lien laws have placed the burden on the borrower to ensure subcontractors and
suppliers are paid for their materials and their labor. In order to protect the collateral value
of the home, Banc Home Loans also has to ensure that subcontractors and suppliers have
been paid.
b. Invoices and lien releases from the General Contractor(s) and certain other support in
accordance with generally accepted best practices will be required with each draw.
c. Some states require a State-specific lien release to be used. In those states, the required
State-specific form must be used; otherwise, the standard Waiver of Lien forms will be used.
V. Title Update Policy:
a. Title updates will be made on each draw. Draws will be funded only if the title update
reflects that there are no mechanic’s or tax liens encumbering the property.
b. If a lien is filed on the project, the loan will be suspended until the issue is resolved
satisfactorily;
c. All specific statutory pre-lien notices, lien notices, or communications regarding nonpayment of subcontractors or suppliers should be forwarded to RR.
W. Non-Performance - Suspension of Construction
a. Banc Home Loans complies with FNMA Guidelines in regards to the uninterrupted
continuation of work, and compliance with all HomeStyle® construction initiation and
completion guidelines.
b. Non-performance relates to non-monetary issues related to escrow and scope of work. Nonpayment and other monetary issues are not covered.
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Rev. June, 2015
c. Project rehabilitation non-performance includes, but is not limited to: inability to complete
rehabilitation work in the required timeframe, refusal to complete FNMA conventional
minimum property repairs, expanding improvements without prior written approval,
absence of occupancy by primary or co-borrower in required timeframe, liens are files on
the property and are not cleared, changing contractors without prior written approval, or
construction ceases on the property for more than thirty (30) days.
d. Loans that remain non-performing for ninety (90) days will require further action. No further
draws from the Rehabilitation Escrow Account will be allowed and the loan may be
transferred to Asset Management for resolution.
X. Contractor Replacement Requirements:
a. In the event a contractor needs to be replaced, the following is required:
i. A written letter from the Borrower requesting that the existing Contractor be
replaced including the reason for the replacement and a list of all known liens
recorded or pending.
ii. A fully executed State specific Indemnification and Hold Harmless Agreement from
the Borrower(s).
iii. A fully completed Contractor Questionnaire with all attachments from the new
Contractor.
iv. A fully executed Renovation Contract from the new general Contractor to complete
the project, and verification that the remaining funds are sufficient to complete the
project. The contract is required to be compliant with the requirements of Section
III Part A #2.
v. A new Renovation Budget matching the amount left in the loan. If the new budget is
greater than the amount left in the loan, arrangements or other alternative steps
must be made for the Borrower’s equity contribution to the escrow account. Such
funds will be provided to the lender for deposit to the escrow account. NOTE: It is
possible for these additional funds to come from the existing contingency account
as long as the contingency funds are still adequate to meet the requirements of its
purpose. A final lien waiver executed by the original Contractor.
vi. A current title update.
vii. All other Contractor Acceptance requirements apply.
viii. A signed exception authorization.
Y. Inspections:
a. Inspections will be completed by Consultants and/or appraisers.
b. Inspections will be done to confirm the work is in place and complete per each draw
request. The scope of inspection will include the entire budget and will be on a line by line
basis.
c. Inspections will be submitted with a field report and digital pictures.
d. Credit will not be given for materials that are not installed or work that has not been
completed.
Z. Insurance & License:
a. All insurance and license information must be accurate and current at all times.
The following is required:
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Rev. June, 2015
Contractors:
a. Contractor’s State License (if required by State)
a. Liability Insurance
b. Workman’s Compensation Insurance, if applicable. (Details about the
contractor’s requirements are outlined in Contractor’s Review section.)
b. Homeowners:
a. Homeowner’s Insurance
b. Flood Insurance, if applicable.
AA. Other Disbursements
a. Monthly Mortgage Payment from Reserves:
i. If a reserve for the monthly mortgage payment was established at closing, the
monthly mortgage payment must be made directly from the interest bearing
reserve account. Payment will be made by the 5th of each month by the
servicing department of the lender.
BB. Extensions
a. Extensions of the original completion date are to be requested by the borrower in
accordance with the specific program guidelines. The specific situation must dictate an
extension and not be used to cover up problems that will complicate the process later.
b. Extensions, with adequate written documentation, must be submitted to Banc Home
Loans to request an extension. The extension must be reviewed and approved by the
Loan Servicing Administrator.
c. An extension can only be granted if the loan payments are current. Extensions will be
required when necessary before any disbursement can be made. Extensions for
disbursement of final draws are not required, when the project is 100% complete.
CC. Non-Performance Default
a. In the event of a non-performance default, Banc Home Loans will work in concert with
the borrower and contractor to review the available risk mitigation alternatives. Banc
Home Loans has the option to call the mortgage loan due and payable.
b. The funds remaining in the account can be applied to reduce the mortgage principal.
DD. Exception Policy
a. Contractor acceptance exceptions are allowed on a case by case basis, approved by the
underwriter. The exception request for a contractor acceptance exception will require
submission of all documentation supporting the request.
b. A maturity extension exception may be allowed on a case by case basis as approved by
the underwriter. The exception request for an extension will require submission of all
documentation supporting the request.
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Rev. June, 2015
EE. Annual Year-End Reporting
a. In order to satisfy annual 1099 IRS Reporting requirements, Banc Home Loans will
perform the following:
b. Obtain completed IRS Form W-9’s from all payees of funds as such may be required by
applicable IRS rules and regulations. Prepare, issue and mail Form 1009-MISC using Banc
Home Loans’ EIN to all payees of funds and submit applicable reports on an annual basis
in compliance with IRS guidelines and time requirements.
c. Prepare, report and provide to borrowers all interest earned by borrowers from the
funds held in the rehabilitation accounts in the form of an IRS Form 1099-INT on an
annual basis in compliance with IRS guidelines and time requirements.
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Rev. June, 2015
Reference Exhibits
Homestyle Fee Sheet
The following fees should be charged on all
HomeStyle loans:
The following fees may be charged on a HomeStyle Loans :
Inspection Fee (line C1 e)
Architect/Engineering Fee (C1 c)
Title Updates (line C1 f)
Consultants Fee(C1 d)
Other (C1 i)
Permits (C1 g)
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Rev. June, 2015
Contractor Registration Form and Online Resume Submission
Page 36
Rev. June, 2015
Contractor Registration Form and Online Resume Submission (Cont’d)
Page 37
Rev. June, 2015
Page 38
Rev. June, 2015
Page 39
Rev. June, 2015
Page 40
Rev. June, 2015
Sample 35 Line Item Budget
Page 41
Rev. June, 2015

FNMA HomeStyle Program Manual

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