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Learn More >Correspondents must receive prior approval to originate this product. Please contact your Correspondent Specialist, Regional Sales Executive, or contact us via the support line 1-800-929-4744 for additional information.
This document outlines PHH’s detailed general underwriting requirements for Non-Agency loans and is intended to be used in conjunction with the PHH Selling Guide and the individual PHH Product Descriptions. For non-agency guideline questions not addressed by PHH’s published guidelines and policies, defer to FNMA guidelines or reach out to NonAgencyScenarioDesk@phhmortgage.com.
For all Non-Agency loans, the lender must document in the loan file that the borrower does not qualify for a GSE loan or has chosen a non-GSE loan program
PHH offers several non-agency loan products. Refer to the product descriptions for product-specific guidelines:
Non-Agency loans may be QM or Non-QM.
All loans that are subject to Reg Z ‘Ability to Repay” must demonstrate the ability to repay. Some of the underwriting factors that are considered under Reg Z Ability to Repay include:
Loan files that are subject to the Ability to Repay regulation must include a borrower certification attesting to the following:
Definitions and general requirements related to Non-Agency loans are outlined per the below. Refer to the individual Product Description for product-specific eligibility:
The maximum exposure to PHH for each borrower cannot exceed $3 MM.
Ineligible BorrowersAll U.S. Citizens, as defined by the U.S. Department of Immigration and Naturalization Service (INS)
Permanent Resident AliensA Permanent Resident Alien is an individual who is not a U.S. Citizen but maintains legal, permanent residency in the United States. A Permanent Resident Alien typically maintains an alien registration card (“green card”).
Non-Permanent Resident AliensA Non-Permanent Resident Alien is an individual who is not a U.S. Citizen but lives in the U.S. under the terms of an applicable Visa.
Inter-Vivos TrustsOften referred to as a family trust, a living trust, or a revocable living trust, an Inter-Vivos Revocable Trust, this borrower type is eligible for a 1-unit primary residence, second home, or investment property when the trust meets FNMA guidelines.
Limited Liability Company (LLC)A limited liability company (LLC) is a for-profit company where ownership is divided into shares and where the governing rules are set forth in a contract entered by all the initial shareholders. Shareholders limit their liability exposure to their percentage of ownership or equity interest in the company. When title is vested in the name of a LLC, the loan is qualified based on the income and assets of the individual members, who are required to sign a Personal Guaranty.
Residency StatusOther than U.S. Citizens, eligible borrowers must evidence their residency status by providing applicable INS documentation. Other forms of documentation not listed here that evidence residency status may be accepted, however, must be reviewed on a case by case basis.
Eligible Borrowers | Required Documents | Notes |
---|---|---|
Permanent Resident Aliens | Alien Registration Card I-151 (“Green Card”) or Alien Registration Card I-551 with no expiration or Alien Registration Card I-551 with expiration and accompanied by INS Form I751 (petition to remove conditions) or An unexpired foreign passport with an unexpired stamp (valid for 3 years). |
front/back front/back front/back (1) |
Non-Permanent Resident Aliens (including DACA) | Evidence of employment in the U.S. including an EAD document. or Non-immigrant Visa The following Visas are acceptable: E series, G series, H series, L series, O series or Deferred Action for Childhood Arrivals (DACA) approval4 |
(2) (3) |
Inter-Vivios Trust | Per FNMA requirements |
(1) Stamp must state the following: “Processed for I-551 Temporary Evidence of Lawful Admission for Permanent Residence. Valid until mm/dd/yyyy Employment Authorized”
(2) Employment Authorization Document must be issued by the U.S. Citizenship & Immigration Service (USCIS) providing authorization to work in the US without restrictions
(3) An unexpired (at time of closing) Non-immigrant Visa with an Entry Stamp issued by the U.S. Department of State which will evidence legal entry into the U.S. for temporary residence. Visa must not expire for 3 years following the close date. Please see FNMA Guides for acceptable VISAs.
Unless prohibited in the Product Description, the following are eligible for title vesting:
Title to the property may be vested in a non-individual entity as outlined below:
Inter-Vivos Revocable TrustAn inter-vivos revocable trust is often referred to as a family trust, a living trust, or a revocable living trust. PHH will accept title vesting in an Inter-Vivos Revocable Trust for a first mortgage that is secured by a one-family primary residence, a second home, or an investment property. The trust must mee Fannie Mae guidelines for Inter-Vivos Revocable Trusts.
Limited Liability Company (LLC)A limited liability company (LLC) is a for-profit company where ownership is divided into shares and where the governing rules are set forth in a contract entered by all the initial shareholders. Shareholders limit their liability exposure to their percentage of ownership or equity interest in the company. When title is vested in the name of a LLC, the loan is qualified based on the income and assets of the individual members, who are required to sign a Personal Guaranty.
Recourse LoanThe PHH LLC Review Checklist is required.
Documentation requirements:
Documents are completed and signed as follows:
Example LLC Signature Requirements:
[Authorized Signatory] may be replaced by a different title as specified in the Member Consent (e.g., Managing Member, Member, etc.).
Sample 1:
Borrower: Acme Investors, LLC by John Smith, Single Member of LLC Note, Security Instrument, and all Riders:
Signature Block
ACME INVESTORS, LLC a [ ] limited liability company
John Smith
By: John Smith
Title: [Authorized Signatory]
Sample 2:
Borrower: Acme Investors, LLC, by John Smith and Jane Smith, two Members of LLC;
Both Members are Authorized Signatories of LLC.
Note, Security Instrument, and all Riders:
Signature Block
ACME INVESTORS, LLC a [ ] limited liability company
John Smith,
By: John Smith
Title: [Authorized Signatory]
and
ACME INVESTORS, LLC a [ ] limited liability company
Jane Smith
By: Jane Smith
Title: [Authorized Signatory]
All aspects of the loan will be evaluated, including the borrower’s willingness and ability to repay the loan in a timely manner. This review will involve, but is not limited to, the borrower’s credit history, asset position, income/cash flow and review of the property used for collateral.
Credit History
A merged in-file credit report including all three national credit reporting repositories is required. A minimum of 2 credit scores are required to be used to determine the qualifying credit score for loan approval. Refer to the individual Product Description to determine the applicable FICO score for the product. Credit reports cannot contain a security freeze and should be resolved prior to an underwriting decision.
Authorized User Accounts
Refer to the individual product description
Housing history
When a VOM / VOR is required, acceptable methods of a Verification are:
Borrowers who do not have a complete 12-month housing history are subject to the following restrictions:
Other Derogatory Credit
Credit Counseling, Collections, Judgements, Liens
Forbearance, deferred payments, modifications
Refer to the product description for restrictions on Forbearance, deferred payments and loan modifications. Examples of mortgage loan modifications are:
Bankruptcy, Short Sale, Deed-in-Lieu and other Significant Adverse Credit
Refer to the individual product matrix for requirements
Tradeline Requirements
Refer to the individual product description
Eligible Assets
The following is a list of liquid assets that are generally eligible for down payment, closing costs, and required reserves, along with the eligible value based on its liquidity.
Refer to the individual Product Description to identify any variations from this list based on the individual product or documentation type:
Verification of Assets
The seller can use any of the following types of documentation for verification:
The statements may be computer generated forms, but must include or state the following:
PHH offers the documentation options listed below. Refer to the individual Product Description for requirements not outlined in the Non-Agency Underwriting Standards.
Verification of Employment - Alternatives
Unscheduled Income
Applicants with unscheduled income are eligible borrowers according to the following guidelines and requirements:
Bonus Income
Overtime Income
Seasonal Employment/Unemployment
Commission Income
Rental Income – Departing Residence
Rental Income – All properties other than departing residence (In the event of a DSCR loan, please review product guidelines)
Housing and Automobile
RSU income – Restricted Stock Units
Interest and Dividend Income
Capital Gains/Losses, Royalties, Notes Receivable, Trust, Lottery Winnings, Contract Income, Alimony and Child Support
Non-taxable Income
Declining or Increasing Income
If income is declining year-over-year, then the lowest income year will be used to qualify the borrower. A letter of explanation detailing the reason for the decline and the possibility of further income deterioration will also be required.
If a borrower’s income has grown at a pace greater than 20% per annum, then an average of the last two years’ income will be used. The lender is responsible for ensuring that that the borrower has the capacity to repay the loan and meet ATR requirements.
Determining Income for Self Employed Borrowers
Business Verification
General Requirements for Self Employed Income (Full Doc)
Cash Flow Analysis for Full Doc
Income Analysis
Business operations |
For example, review an updated business plan.
For example, perform an Internet search or verify through a third-party source.
For example, obtain current business receipts or purchase contracts.
For example, obtain a written explanation from the business owner or confirmation that income is seasonal apart from the event timeline. |
Business Income |
The lender must complete a business income assessment by comparing the year-to-date net business income from the year-to-date profit and loss statement to historical business income calculated using the Cash Flow Analysis (Form 1084)* for a similar timeframe (such as monthly).
Example Historical monthly self-employment income calculated using Form 1084 = $2,000 Current level of stable monthly self-employment income as determined by the lender using details from the year-to-date profit and loss statement and other supplemental documentation = $1,000 The impact of the COVID 19 pandemic on current business income results in a 50% decline from historical levels. See Business Income Calculation Adjustment below for next steps.
|
Business Stability |
A current balance sheet may be used to support the lender’s determination of business stability, in conjunction with the profit loss statement. |
Business Income Calculation Adjustment
When the lender determines current year net business income has been impacted by the COVID-19 pandemic and is:
In all cases, qualifying income must be supported by documentation, including any supplemental documentation obtained by the lender. Please refer to FNMA Guides for specifics and forms.
Requirements for Corporate Structures
The legal structure of a business determines how income/loss is reported to the IRS, how its taxes are paid and how it accumulates capital. Legal structures also determine the extent of each owner’s liability. The five principal business structures and associated documentation requirements are listed below:
Sole Proprietorship
Business income, expenses and taxable profits are reported on Schedule C of the Individual Tax Return. Required documentation for a Sole Proprietorship include:
Partnership (General or Limited)
Is when two or more owners are joined by contract to conduct business and will share profits and losses according to the partnership agreement. Income taxes are paid by the individuals since the partnership itself is not required to pay taxes. Partnership documentation required:
Limited Liability Company (LLC)
An LLC is a business structure that blends the tax efficiencies of a partnership and the limited liability of a corporation. LLCs report profit/loss on IRS form 1065 and each member-owner’s share of that profit/loss is reported on Schedule K-1. An LLC pays no tax on its income. Each member-owner uses the information on the K-1 to report their share of the LLC’s net profit/loss on their individual IRS Form 1040 (regardless of whether the member-owner receives a cash distribution from the LLC). LLC documentation required:
S Corporation
An S Corp is a legal entity that has a limited number of stockholders that elect not to be taxed as a regular corporation. Business gains and losses are divided among and passed through to stockholders. The stockholders are taxed at their individual tax rate for their proportionate share of ordinary income, capital gains and other taxable items. An S Corp provides many of the benefits of partnership taxation and at the same time provides the owners with limited liability protection.
The ordinary income from an S Corporation’s business is reported on IRS Form 1120S with each shareholder’s share of income reported on Form 1120S’s Schedule K-1. Cash distributions from an S Corp to a borrower will be reviewed and considered when evaluating the cash flow of the S Corp. S Corp documentation required:
C Corporation
A C Corporation is a legal tax paying entity with its own rights privileges and liabilities separate from those of its owners. A C Corporation can sue, be sued, hold, convey, or receive property, enter contracts under its own name and doesn’t dissolve when ownership changes. C Corp documentation required:
NOTE: YTD financials from other entities (whose income is not needed to qualify) are not required if the previous two years tax returns show positive income.
DTI Ratio Calculation
Business Debt
If business debt is reflected on a personal credit report, then the borrower must provide documentation that the borrower’s business is making the payments on these debts. If the business debt is less than 6 months old, then the payments must be included in the debt-to-income ratio. If the business debt is greater than or equal to 6-months old, the debt may be omitted from the debt-to-income ratio if the borrower provides documentation that the borrower’s business is making the payment on these debts.Payment Shock
The maximum payment shock is 300% for FTHBs unless the DTI is < 36%
Payment Shock Calculation - (Proposed Housing Payment / Present Housing payment)–X 100
Refer to the individual product descriptions for property eligibility details.
Condominiums
A condo questionnaire must be provided with the loan package. Maximum project exposure to any borrower for condominiums is the lesser of 3 units, or 10% of the total units in the project. Site Condo maximum project exposure is the lesser of $2MM or 15% of the project.
Warrantable Condos
FNMA eligible projects are allowed.
Non-warrantable Condos
NON-WARRANTABLE CONDOS | |
---|---|
CHARACTERISTIC | REQUIREMENTS |
COMMERCIAL SPACE | Subject unit 100% residential. Commercial space in building/project < 50%. Any commercial must be “typical to the marketplace and have no negative impact on marketability. Commercial % determined by appraiser. Commercial entity cannot control HOA. |
COMPLETION STATUS | The project, or the subject’s legal phase along with other phases, must be complete. All common elements in the project or legal phase must be 100% completed. At least 50% must be sold or under a bona-fide contract. |
CONDOTELS | True Condotels with onsite reservation desks are prohibited. Short-term vacation rental projects will be considered on a case-by-case basis. |
DELINQUENT HOA DUES | No more than 20% of the total units in the project may be 60 days or more past due on the payment of condominium/association fees. |
INVESTOR CONCENTRATION | Investor concentration in project up to 60%. Higher percentages may be considered under the Investment Property Program on a case-by-case basis when an established history of a high percentage of rental units in the condo project can be demonstrated. |
HOA CONTROL | The developer may be in control of the condominium association provided the Master Agreement provides for the homeowners to take control upon either a predetermined percentage of unit sales or within a defined time period. |
HOA RESERVES | HOA Budget must include a dedicated line-item allocation to replacement reserves of at least 8% of the budget. |
LITIGATION | Pending litigation may be accepted on a case-by-case basis. Litigation that involves structural issues, health and safety issues or items that will impact the marketability of the project will not be accepted. |
NEW PROJECTS | The project or the subject’s legal phase along with other phases must be complete. All common areas in the project must be 100% complete. Minimum of 50% of units must be sold or under contract. |
SINGLE ENTITY OWNERSHIP | Single entity ownership in project up to 25%. |
Property Flipping
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 rules below apply. 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) is used.
Allowed with the following restrictions:
Allowed
Standard FNMA documents should be used where one exists. All ARM Notes and Riders should contain ARCC fallback language consistent with Fannie Mae. Refer to the Product Description for requirements to include product-specific forms.
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