Announcement 19-0022: Carrington Advantage Program Guideline Updates

Carrington Flexible Advantage Guidelines

Old Requirements

Updated Requirements

New - Higher Priced Mortgage Loans (HPML)

A higher-priced mortgage loan (HPML) is a closed-end consumer credit transaction secured by the consumer’s principal dwelling (owner-occupied, primary residence, 1- 4 units, 1^st or 2^nd lien purchase and refinance transactions).

Exemptions: These requirements do not apply to the following:

• Second homes
• Investment properties
• HELOCs

The loan will be considered a HPML if the APR exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set by:

• 1st Lien: 1.5% or more
• 1st Lien (Jumbo Loans): 2.5% or more
• 2nd Lien: 3.5% or more

New - Higher Priced Mortgage Loan Requirements

CMS must comply with the following requirements on all HPML:

Escrow Accounts Required

CMS may not extend a higher-priced mortgage loan secured by a first lien on a consumer’s principal dwelling unless an escrow account is established before consummation for payment of property taxes and premiums for mortgage-related insurance required by the creditor.

Insurance Premiums: Insurance premiums need not be included in escrow accounts for loans secured by dwellings in condominiums, planned unit developments, or other common interest communities in which dwelling ownership requires participation in a governing association, where the association has an obligation to the dwelling owners to maintain a master policy insuring all dwellings.

Appraisals Required

Generally, CMS is required to obtain an appraisal prior to extending a higher-priced mortgage loan to a consumer. CMS must provide to the consumer a copy of any written appraisal performed in connection with a higher-priced mortgage loan. Copies must be provided no later than three business days prior to consummation of the loan or in the case of a loan that is not consummated, no later than 30 days after CMS determines that the loan will not be consummated.

A second appraisal, at no cost to the consumer, must be obtained if:

• The seller acquired the property 90 or fewer days prior to the date of the consumer’s agreement to acquire the property and the price in the consumer’s agreement to acquire the property exceeds the seller’s acquisition price by more than 10%, or
• The seller acquired the property 91 to 180 days prior to the date of the consumer’s agreement to acquire the property and the price in the consumer’s agreement to acquire the property exceeds the seller’s acquisition price by more than 20%.

The second appraisal must be obtained by a different certified or licensed appraiser than the one who prepared the first appraisal.

Flip Transactions

When the subject property is being resold within 365 days of its acquisition by the seller and the sales price has increased more than 10%, the transaction is considered a “flip”. To determine the 365-day period, the acquisition date (the day the seller became the legal owner of the property) and the purchase date (the day both parties executed the purchase agreement) should be used.

Flip transactions are subject to the following requirements:

·       All transactions must be arm’s length, with no identity of interest between the buyer and property seller or other parties participating in the sales transaction

·       No pattern of previous flipping activity may exist in the last 12 months. Exceptions to ownership transfers may include sales by government agencies, properties inherited or acquired through divorce, and sales by the holder of a defaulted loan

·       The property was marketed openly and fairly, through a multiple listing service, auction, for sale by owner offering (documented) or developer marketing

·       Transactions involving newly constructed properties require a second appraisal

·       No assignments of the contract to another buyer

·       If the property is being purchased for more than 5% above the appraised value, a signed letter of acknowledgement from the borrower must be obtained

·       An additional appraisal product is required. See Appraisal Review Process

Flip transactions must comply with the HPML appraisal rules in Regulation Z. A second appraisal is required in the following circumstances:

·       Greater than 10% increase in sales price if seller acquired the property in the past 90 days

·       Greater than 20% increase in sales price if seller acquired the property in the past 91-180 days

Flip Transactions

A transaction will be considered a flip transaction when:

·       The seller acquired the property 90 or fewer days prior to the sales contract date, and the new contract price exceeds the seller’s acquisition price by more than 10 percent; or

·       The seller acquired the property 91 to 180 days prior to the sales contract date, and the new contract price exceeds the seller’s acquisition price by more than 20 percent.

The chain of title and appraisal report must be reviewed for prior sale and transfer history. Flip transactions are subject to the following requirements:

·       All transactions must be arm’s length, with no identity of interest between the buyer and property seller or other parties participating in the sales transaction

·       No pattern of previous flipping activity may exist in the last 12 months. Exceptions to ownership transfers may include sales by government agencies, properties inherited or acquired through divorce, and sales by the holder of a defaulted loan

·       The property was marketed openly and fairly, through a multiple listing service, auction, for sale by owner offering (documented) or developer marketing

·       No assignments of the contract to another buyer

·       If the property is being purchased for more than 5% above the appraised value, a signed letter of acknowledgement from the borrower must be obtained

·       An additional appraisal product is required:

o   Non-HPML flip transactions follow the Appraisal Review Process

o   Higher Priced Mortgage Loans (HPML) require a Second Full Appraisal. See Second Full Appraisal.

o   HPML New Construction Properties with any title transfer within 180 days prior to the sales contract date, or any title transfer after the sales contract date, including land-only and zero value title transfers, require a Second Full Appraisal. See Second Full Appraisal

Vesting

Borrower(s) approved on the transaction must have a vested interest to the subject property. CMS will permit co-signer(s) on refinance transactions. The borrower(s) names and marital status (where applicable) must match the 1003 application.

Purchase transactions require a certified copy of a Transfer Deed from the title company or settlement agent transferring title from the seller(s) to the borrower(s) and non-borrowing spouse(s) (when applicable).

Refinance transactions requiring corrections to the borrower(s) and/or non-borrowing spouse(s) vested name and/or marital status to match the 1003 application require a Transfer Deed.

Acceptable forms of vesting are:

·       Individuals

·       Joint tenants

·       Tenants in Common

Vesting

Borrower(s) approved on the transaction must have a vested interest to the subject property. CMS will permit co-signer(s) on refinance transactions. The borrower(s) names and marital status (where applicable) must match the 1003 application.

Purchase transactions require a certified copy of a Transfer Deed from the title company or settlement agent transferring title from the seller(s) to the borrower(s) and non-borrowing spouse(s) (when applicable).

Refinance transactions requiring corrections to the borrower(s) and/or non-borrowing spouse(s) vested name and/or marital status to match the 1003 application require a Transfer Deed.

Acceptable forms of vesting are:

·       Individuals

·       Joint tenants

·       Tenants in Common

Note: Vesting in the name of a Trust is not permitted.

Multiple Financed Properties

There is no limit on the number of properties borrowers may currently have financed. When the transaction is for a second home or investment property, 2 months of additional reserves for each financed property is required.

CMS Mortgage exposure may not exceed a maximum of five (5) loans for each individual borrower. Exceptions to this policy will be reviewed on a case-by-case basis.

Multiple Financed Properties

There is no limit on the number of properties borrowers may currently have financed. When the transaction is for a second home or investment property, 2 months of additional reserves for each financed property is required. Additional reserves are not required when the subject property is a primary residence.

CMS Mortgage exposure may not exceed a maximum of five (5) loans for each individual borrower. Exceptions to this policy will be reviewed on a case-by-case basis.

Mortgage and Rental Payment Verification

Mortgage and rental payments not reflected on the original credit report must be documented via an institutional Verification of Rent or Verification of Mortgage (VOR/VOM). A combined total of all late mortgage and rental payments in the past 12 months must be used to determine the housing history.

Mortgage and Rental Payment Verification

Mortgage and rental payments not reflected on the original credit report must be documented via an institutional Verification of Rent or Verification of Mortgage (VOR/VOM). A combined total of all late mortgage and rental payments in the past 12 months must be used to determine the housing history for all borrowers.

Delinquent Credit Belonging to Ex-Spouse

Delinquent credit belonging to an ex-spouse can be excluded from the credit evaluation when all of the following apply:

Borrower provides a copy of the divorce decree or separation agreement which shows the derogatory accounts belong solely to the ex-spouse

·       Late payments occurred after the date of the divorce or separation

·       Evidence of title transfer prior to any delinquent debt must be provided if debt is a mortgage, and evidence of buyout as part of court proceedings

Delinquent Credit Belonging to Ex-Spouse

Delinquent credit belonging to an ex-spouse can be excluded from the credit evaluation when all of the following apply:

·       Borrower provides a copy of the divorce decree or separation agreement which shows the derogatory accounts belong solely to the ex-spouse

Note: CMS will follow State specific divorce laws for acceptable documentation.

·       Late payments occurred after the date of the divorce or separation

·       Evidence of title transfer prior to any delinquent debt must be provided if debt is a mortgage, and evidence of buyout as part of court proceedings

Chapter 13 Bankruptcy

For C Credit Grade: There is no seasoning requirement for Chapter 13 bankruptcies when dismissed. Full bankruptcy papers may be required.

A Chapter 13 bankruptcy may remain open after loan closing when all of the following requirements are met:

·       A minimum 12-month repayment period in the bankruptcy has elapsed

·       Bankruptcy plan payments for the last 12 months have been made on time

·       Borrower has received written permission from bankruptcy court to enter into the transaction

Note: Open Chapter 13 bankruptcy will be graded per the mortgage rating.

Chapter 13 Bankruptcy

For C Credit Grade: There is no seasoning requirement for Chapter 13 bankruptcies when dismissed. Full bankruptcy papers may be required.

A Chapter 13 bankruptcy may remain open after loan closing when all of the following requirements are met:

·       A minimum 12-month repayment period in the bankruptcy has elapsed

·       Bankruptcy plan payments for the last 12 months have been made on time

·       Borrower has received written permission from bankruptcy court to enter into the transaction

Note: Open Chapter 13 bankruptcy will be graded per the mortgage rating. If the bankruptcy has late payments within the last 12 months, they must be paid off and the loan must be graded as Credit Grade C.

Housing Events

A Housing Event is any one of the following events listed below:

·       Foreclosure

·       Deed-in-Lieu

·       Short Sale

·       Modification

·       1x120 mortgage history

Seasoning of a foreclosure, deed-in-lieu or short sale is measured from the date of completed sale or final property transfer. The Housing Event must be completed prior to loan closing with no outstanding deficiency balance remaining.

Housing Events

A Housing Event is any one of the following events listed below:

·       Foreclosure

·       Deed-in-Lieu

·       Short Sale

·       Modification

·       1x120 mortgage history

Seasoning of a foreclosure is measured from the date of the Sheriff’s sale or foreclosure auction. Seasoning of a deed-in-lieu or short sale is measured from the date of final property transfer. The Housing Event must be completed prior to loan closing with no outstanding deficiency balance remaining.

Employment/ Income Documentation

IRS 4506-T

IRS Form 4506-T must be completed and signed by all borrowers at closing. 4506-T transcripts are not required for business tax returns or loans utilizing Bank Statement Documentation for income; however, loans utilizing Bank Statement Documentation must have a signed IRS 4506-T at closing.

Documentation received from executing the 4506-T must be reviewed and compared to the qualifying income to confirm consistency. Results from processing the 4506-T should generally be equal to or greater than the income used to qualify the loan. Any inconsistencies between the 4506-T results and qualifying income should be addressed by the Underwriter. 

Note:  If there are no transcript records available, CMS will accept a copy of the tax return, stamped or otherwise, and proof of receipt of the refund or a cancelled check/bank draft documenting the taxes were paid. The refund or check/bank draft must match the tax return exactly.

Employment/ Income Documentation

IRS 4506-T

IRS Form 4506-T must be completed and signed by all borrowers at closing. 4506-T transcripts are not required for business tax returns or loans utilizing Bank Statement Documentation for income. 

Documentation received from executing the 4506-T must be reviewed and compared to the qualifying income to confirm consistency. Results from processing the 4506-T should generally be equal to or greater than the income used to qualify the loan. Any inconsistencies between the 4506-T results and qualifying income should be addressed by the Underwriter. 

Note:  If there are no transcript records available, CMS will accept a copy of the tax return, stamped or otherwise, and proof of receipt of the refund or a cancelled check/bank draft documenting the taxes were paid. The refund or check/bank draft must match the tax return exactly.

Appraisal Review Process

The following require a Second Full Appraisal:

·       HPML Property Flip Transactions

·       HPML New Construction Properties with one or more title transfers within 180 days of the purchase contract date

Desk Reviews, Field Reviews, and Second Full Appraisals, when required, must be ordered from a CMS-approved AMC.  CMS reserves the right to request additional appraisal products at our discretion based on review of the appraisal and loan file.

Appraisal Review Process

The following require a Second Full Appraisal:

·       Higher Priced Mortgage Loans* (HPML) Property Flip Transactions

·       HPML* New Construction Properties with any title transfer within 180 days prior to the sales contract date, or any title transfer after the sales contract date, including land-only and zero value title transfers, require a Second Full Appraisal.

*Refer to HPML Requirements. Only Principal Dwellings are subject to HPML regulations, and the borrower may not pay for the second appraisal when ordered solely due to HPML flipping rules.

Desk Reviews, Field Reviews, and Second Full Appraisals, when required, must be ordered from a CMS-approved AMC. A Second Full Appraisal must be completed by a different appraiser than the first appraisal. CMS reserves the right to request additional appraisal products at our discretion based on review of the appraisal and loan file.

New - Additions without Permits

If the appraiser identifies an addition(s) that does not have the required permit, the appraiser must comment on the quality and appearance of the work and its impact, if any, on the market value of the subject property.

Carrington Investor Advantage Guidelines

Old Requirements

Updated Requirements

New - Short Term Rentals

Short term rentals of less than one month in term will be qualified as an unleased property. Examples of short term rentals are Air BNB, Vacation Rental By Owner (VRBO), etc.

Short term rental properties may not be modified in a way that affects the residential character of the property. For example, parking lots and reception areas are not acceptable.

Cash-Out Refinance

The mortgage amount for a cash-out refinance transaction may include any of the following:

·       Existing first mortgage payoff

·       Closing costs and prepaid items (interest, taxes, insurance) on the new mortgage

·       The amount of any subordinate mortgage liens being paid off that do not meet seasoning and draw history requirements as described in Rate/Term Refinance.

·       The amount of any non-mortgage related debt paid off through closing.

·       Additional cash in hand reflected on the settlement statement

Cash-Out Refinance

The mortgage amount for a cash-out refinance transaction may include any of the following:

·       Existing first mortgage payoff

·       Closing costs and prepaid items (interest, taxes, insurance) on the new mortgage

·       The amount of any subordinate mortgage liens being paid off that do not meet seasoning and draw history requirements as described in Rate/Term Refinance.

·       The amount of any non-mortgage related debt paid off through closing. Non-mortgage debt paid with cash-out loan proceeds must comply with the Business Purpose & Occupancy Affidavit. The loan file must contain documentation to support that non-mortgage debts were derived from real estate business activities, and are not personal, family, or household debts.

·       Additional cash in hand reflected on the settlement statement  

Non-Arm’s Length Transactions

The following additional requirements apply only to family sales:

·       Payment history for the seller’s mortgage on the subject property must be obtained and show no pattern of delinquency within the past 12 months (if applicable)

·       Verification that the borrower has not been in title to the property in the past 24 months

·       Gift of equity is permitted

Non-Arm’s Length Transactions

The following additional requirements apply only to family sales:

·       Payment history for the seller’s mortgage on the subject property must be obtained and show no pattern of delinquency within the past 12 months (if applicable)

·       Verification that the borrower has not been in title to the property in the past 24 months

·       Gift funds and Gifts of equity are not permitted

Vesting and Ownership

Ownership must be fee simple. Acceptable forms of vesting are:

·       Individuals

·       Joint tenants

·       Tenants in Common

·       Business Entity

o   Limited Liability Company (LLC)

o   Limited and General Partnerships

o   Corporations

o   S-Corporations 

Vesting and Ownership

Ownership must be fee simple. Acceptable forms of vesting are:

·       Individuals

·       Joint tenants

·       Tenants in Common

·       Business Entity

o   Limited Liability Company (LLC)

o   Limited and General Partnerships

o   Corporations

o   S-Corporations

Note: Vesting in the name of a Trust is not permitted.

Vesting in the Name of a Business Entity

Asset Documentation

Assets must be seasoned for 60 days or sourced, and verified with one of the following:

·       Most recent 2 months’ account statements, or most recent quarterly account statement, indicating opening and closing balances, and reflecting a consecutive 60 days of asset verification

·       Supporting documentation should be obtained for single, unexplained deposits that exceed 50% of the borrower’s gross monthly qualifying income for the loan.

·       Documentation of large deposits is not required on refinance transactions

·       If account summary page provides the required information, additional pages are not required.

·       Written Verification of Deposit (VOD), completed by the financial institution

·       Must include the current and average balances for the most recent 2 months

·       Large disparities between the current balance and the opening balances will require additional verification or supporting documentation

·       Account statements must provide all of the following information:

·       Borrower as the account holder

·       Account number

·       Statement date and time period covered

·       Current balance in US dollars

Asset Documentation

Assets must be seasoned for 60 days or sourced, and verified with one of the following:

·       Most recent 2 months’ account statements, or most recent quarterly account statement, indicating opening and closing balances, and reflecting a consecutive 60 days of asset verification

·       Supporting documentation must be obtained for single, unexplained deposits that exceed 2% of the appraised value for the loan.

·       Documentation of large deposits is not required on refinance transactions

·       If account summary page provides the required information, additional pages are not required.

·       Written Verification of Deposit (VOD), completed by the financial institution

·       Must include the current and average balances for the most recent 2 months

·       Large disparities between the current balance and the opening balances will require additional verification or supporting documentation

·       Account statements must provide all of the following information:

·       Borrower as the account holder

·       Account number

·       Statement date and time period covered

·       Current balance in US dollars

Depository Accounts

Funds held in a checking, savings, money market, certificate of deposit, or other depository accounts can be used for down payment and closing costs.

The Underwriter must investigate any indications of borrowed funds, including recently opened accounts, recent large deposits, or account balances that are considerably greater than the average balance over the previous few months. A signed, written explanation of the source of funds must be obtained from the borrower and the source of funds verified. Unverified funds are not acceptable. See also Asset Documentation.

If the borrower does not hold the deposit account solely, all non-borrower parties on the account (excluding a non-borrowing spouse) must provide a written statement that the borrower has full access and use of the funds.

If bank/asset statements provided reflect payments being made on obligations not listed on the credit report, or 1003, additional information must be obtained to determine if the liability should be included in the borrower’s debt-to-income ratio.

If the obligation does not belong to the borrower, supporting documentation is required. If there is a non-borrower also on the account, a signed letter of explanation from the borrower is sufficient.

If the borrower is the obligor on the debt, an account statement and pay history should be obtained to review the account for acceptability. The payment must be included in the debt ratio.

Depository Accounts

Funds held in a checking, savings, money market, certificate of deposit, or other depository accounts can be used for down payment and closing costs.

The Underwriter must investigate any indications of borrowed funds, including recently opened accounts, recent large deposits, or account balances that are considerably greater than the average balance over the previous few months. A signed, written explanation of the source of funds must be obtained from the borrower and the source of funds verified. Unverified funds are not acceptable. See also Asset Documentation.

If the borrower does not hold the deposit account solely, all non-borrower parties on the account (excluding a non-borrowing spouse) must provide a written statement that the borrower has full access and use of the funds.

Earnest Money / Cash Deposit on Sales Contract

If earnest money is needed to meet the borrower’s minimum contribution requirement, the Underwriter must verify that the funds are from an acceptable source. Satisfactory documentation includes any of the following:

·       Copy of the borrower's canceled check

·       Certification from the deposit holder acknowledging receipt of funds

·       VOD or bank statement showing that the average balance was sufficient to cover the amount of the earnest money at the time of the deposit

If the earnest money check has cleared the bank, bank statements should cover the period up to and including the date the check cleared the account.

A copy of the check that has not cleared may also be obtained along with a processor’s certification verifying with the bank the date the check cleared, the dollar amount of the check, and the individual providing the information.

Earnest Money / Cash Deposit on Sales Contract

If earnest money is needed to meet the borrower’s minimum contribution requirement, the Underwriter must verify that the funds are from an acceptable source. Satisfactory documentation includes any of the following:

·       Copy of the borrower's canceled check

·       Certification from the deposit holder acknowledging receipt of funds

·       VOD or bank statement showing that the average balance was sufficient to cover the amount of the earnest money at the time of the deposit

If the earnest money check is required for funds to close, bank statements must cover the period up to and including the date the check cleared the account. If the earnest money has not cleared the account, a copy of the check and receipt from the closing agent are required; however, the earnest money may not be credited towards funds to close unless clearance is documented.

Ineligible Property Types

·       Manufactured Homes

·       Co-operative Units

·       Condotels or Condo Hotels

·       Mixed-Use Properties

·       Leaseholds

·       Log Homes

·       Rural Properties

·       Agriculturally Zoned

·       Properties that provide income to borrower

·       Farms or Hobby/Working Farms

·       Properties subject to Rent Control regulations

·       Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)

·       Properties with oil, gas, or mineral rights

·       Builder Model Leaseback

·       Non-Conforming zoning regulations that prohibit rebuilding

Ineligible Property Types

·       Manufactured Homes

·       Co-operative Units

·       Condotels or Condo Hotels

·       Mixed-Use Properties

·       Leaseholds

·       Log Homes

·       Rural Properties

·       Agriculturally Zoned

·       Farms or Hobby/Working Farms

·       Properties subject to Rent Control regulations

·       Unique Properties (Earth Homes, Berm Homes, Dome Homes, etc.)

·       Properties with oil, gas, or mineral rights

·       Builder Model Leaseback

·       Non-Conforming zoning regulations that prohibit rebuilding

·       State-approved medical marijuana producing properties

Valuation Analysis > Cost Approach

When completed, the cost approach must clearly segregate value attributed to land, outbuildings, etc. If the ratio of land value to total value exceeds 35%, an explanation from the appraiser may be required to demonstrate conformance with neighboring properties. See also Land Value. Appraisals that rely solely on the cost approach as an indicator of market value are not acceptable.

Valuation Analysis > Cost Approach

When completed, the cost approach must clearly segregate value attributed to land, outbuildings, etc. See also Land Value. Appraisals that rely solely on the cost approach as an indicator of market value are not acceptable.

Appraisal Review Process

The Appraisal Review Process requires CMS to obtain a secondary appraisal desk review product to support the appraisal value for all transactions. Acceptable review products include:

·       Desk Review through Nationwide Property and Appraisal Services or Appraisal Links (must contain a value and comparative sales data to support the valuation result), or

·       Clear Capital Collateral Desktop Analysis (CDA)

The following transactions may require a 2nd full appraisal:

·       HPML property Flip transactions

Existing CMS policies should continue to be followed for guidance on ordering discretionary appraisal review products if there are concerns with the original appraisal report.

Appraisal Review Process

The Appraisal Review Process requires a secondary due diligence product to support the appraised value for the transaction. Acceptable products include:

·       Desk Review (must contain a value and comparative sales data to support the valuation result)

·       Second Full Appraisal

Desk Reviews and Second Full Appraisals, when required, must be ordered from a CMS-approved AMC. A Second Full Appraisal must be completed by a different appraiser than the first appraisal. CMS reserves the right to request additional appraisal products at our discretion based on review of the appraisal and loan file.

Existing CMS policies must be followed for guidance on ordering discretionary appraisal review products if there are concerns with the original appraisal report.

New - Additions without Permits

If the appraiser identifies an addition(s) that does not have the required permit, the appraiser must comment on the quality and appearance of the work and its impact, if any, on the market value of the subject property.

Multiple Dwellings on One Lot

Properties with 2 or more detached single-family homes on a single lot are generally ineligible for financing. Single-family properties containing additional residential dwellings (guesthouse, carriage house, etc.) must comply with local zoning regulations. They must be typical and common within the subject’s neighborhood. Typically, the additional dwelling is smaller than the main dwelling and will not be rented. The subject property should be appraised as a single-family residence. Any value for additional dwellings should be supported by comparable sales. See also Accessory Units.

Removed Requirements

New Construction

The following are required for all new construction properties:

·       Appraisal Update and/or Completion Report (FNMA Form 1004D) with complete interior and exterior photos reflecting completion, if applicable. Proposed improvements are not allowed.

·       Property taxes are calculated at 1.5% of the sales price for qualification. 1.25% should be used for properties located in CA.

New Construction

The following are required for all new construction properties:

·       Appraisal Update and/or Completion Report (FNMA Form 1004D) with complete interior and exterior photos reflecting completion, if applicable. Proposed improvements are not allowed.

·       To calculate property taxes for new construction, use the estimated taxes from the builder or escrow/closing agent or the Prequalification Tax Rate Table can be used when other resources do not exist to provide tax information for the subject property county. This table contains recommended percentages; however, actual values should be used whenever possible.

Minimum Hazard Insurance Coverage Amount

Hazard insurance must protect against loss or damage from fire and other hazards covered by the standard extended coverage endorsement. The coverage must provide for claims to be settled on a replacement cost basis. Extended coverage must include, at a minimum, wind, civil commotion (including riots), smoke, hail, and damages caused by aircraft, vehicle, or explosion.

Hazard insurance policies that limit or exclude from coverage (in whole or in part) windstorm, hurricane, hail damages, or any other perils that normally are included under an extended coverage endorsement are not acceptable.

Borrowers must not obtain hazard insurance policies that include such limitations or exclusions, unless they are able to obtain a separate policy or endorsement from another commercial insurer that provides adequate coverage for the limited or excluded peril or from an insurance pool that the state has established to cover the limitations or exclusions.

Hazard insurance coverage should be in the amount of the lesser of:

·       100% of the insurable value of improvements, as established by the property insurer; or

·       The unpaid principal balance of the mortgage, as long as it equals the minimum amount (80% of the insurable value of the improvements) required to compensate for damage or loss on a replacement cost basis. If it does not, then coverage that does provide the minimum required amount must be obtained.

·       Guaranteed 100% Replacement Cost Coverage as stated on the policy declaration page.

Minimum Hazard Insurance Coverage Amount

Hazard insurance must protect against loss or damage from fire and other hazards covered by the standard extended coverage endorsement. The coverage must provide for claims to be settled on a replacement cost basis. Extended coverage must include, at a minimum, wind, civil commotion (including riots), smoke, hail, and damages caused by aircraft, vehicle, or explosion.

Hazard insurance policies that limit or exclude from coverage (in whole or in part) windstorm, hurricane, hail damages, or any other perils that normally are included under an extended coverage endorsement are not acceptable.

Borrowers must not obtain hazard insurance policies that include such limitations or exclusions, unless they are able to obtain a separate policy or endorsement from another commercial insurer that provides adequate coverage for the limited or excluded peril or from an insurance pool that the state has established to cover the limitations or exclusions.

The minimum requirements for the Hazard Insurance is outlined in the CMS Insurance Binder/Policy, which must be provided covering the subject property to include the following:

·       Coverage must be in an amount at least equal to the lessor of the replacement cost from the property appraisal or the base loan amount, or the policy must include “Guaranteed Replacement Cost” (if the policy includes “Extended Replacement Cost” the additional amount may be applied towards the dwelling amount).

Dwelling Coverage determined by totaling the following:

Dwelling Amount +

Dwelling Amount (other structures)*

Extended Replacement Cost %

Example: $100,000 (Dwelling) + $10,000 (Other Structures) = $110,000

50% (Extended Replacement Cost) = $165,000 (Total Dwelling Coverage)

·       A Cost Estimator from the insurance agent may only be used to determine the replacement cost of the subject property in absence of an appraisal with a completed replacement cost.

Vesting

Final title policy vesting should reflect the name(s) of the individual borrower(s). See Vesting and Ownership.

Vesting

Final title policy vesting must reflect the name(s) of the individual borrower(s) or business entity if vesting in the name of a business. See Vesting and Ownership.

Title Commitment Review > Chain of Title

All files are to contain a 24-month title history from an acceptable source. Transfer date, price, and buyer and seller names on any title transfers that occurred within the previous 24 months should be provided. The vesting history should be reviewed for inconsistencies or any indication of flipping activity.

Title Commitment Review > Chain of Title

All files must contain a 24-month chain of title from an acceptable source. For purchase transactions, the chain of title must be reviewed for flipping activity.