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Portfolio ARM Conforming & Jumbo Product Matrix
GENERAL INFORMATION

This Guide describes Provident Bank program eligibility and underwriting requirements. In addition to the program eligibility and prudent underwriting, Provident Bank requires all loans meet the Ability to Repay (ATR) rules established by the Consumer Financial Protection Bureau (CFPB).

The ATR rule requires that the originator make a reasonable, good-faith determination before or when the loan is consummated and that the consumer has a reasonable ability to repay the loan. The origination lender must consider the eight underwriting factors established by the CFPB and the loan file must be documented accordingly.

  1. The borrower’s current or reasonably expected income or assets;
  2. The borrower’s current employment status;
  3. The borrower’s monthly payment on the covered transaction;
  4. The borrower’s monthly payment on any simultaneous loan;
  5. The borrower’s monthly payment for mortgage-related obligations;
  6. The borrower’s current debt obligations, alimony and child support;
  7. The borrower’s monthly debt-to-income ratio or residual income; and
  8. The borrower’s credit history.

By submitting a loan for purchase, Mortgage loan originator certifies that: (i) Mortgage loan originator has made, or is making its own credit decision with respect to the loan to the Borrower, regardless of whether Provident Bank purchases or declines to purchase the loan;(ii) none of Provident Bank, its directors, officers, employee’s, agents, or contractors, or any of its affiliates has influenced, or will influence Mortgage Loan Originators credit decision with respect to the loan to the Borrower by (a) indicating whether it will purchase the loan if the Mortgage Loan originator, originates and closes the loan, or (b) any other action or statement; and (iii) if the Mortgage Loan Originator has closed, or in the future does close the loan to the Borrower, Mortgage Loan Originator did, or will, fund the closing of the loan with funds from a source other than Provident Bank or any of its affiliates.

*W2 Borrowers Only
Primary Residence: Purchase
Property Type Maximum LTV/CLTV Maximum Loan Amount Minimum Loan Amount Minimum FICO Score Maximum DTI
  • 1-2 Units
  • PUD
  • Condo
80% $1,000,000 PASO56 - $100,000
PASO56J - $548,251
PASO76 - $100,000
PASO76J - $548,251
PASO106 - $100,000
PASO106J - $548,251
6901 43%
75% $1,250,000 700 43%
70% $1,500,000 700 43%
Primary Residence: Rate & Term Refinance
Property Type Maximum LTV/CLTV Maximum Loan Amount Minimum Loan Amount Minimum FICO Score Maximum DTI
  • 1-2 Units
  • PUD
  • Condo
80% $1,000,000 PASO56 - $100,000
PASO56J - $548,251
PASO76 - $100,000
PASO76J - $548,251
PASO106 - $100,000
PASO106J - $548,251
700 43%
75% $1,250,000 700 43%
70% $1,500,000 700 43%
Primary Residence: Cash Out Refinance
Property Type Maximum LTV/CLTV Maximum Loan Amount Minimum Loan Amount Maximum Cash Out Minimum FICO Score Maximum DTI
  • 1 Unit
  • PUD
  • Condo
75% $1,000,000 PASO56 - $100,000
PASO56J - $548,251
PASO76 - $100,000
PASO76J - $548,251
PASO106 - $100,000
PASO106J - $548,251
$250,000 720 43%
70% $1,250,000 $400,000 720 43%
1. Adjustment to price for FICOs below 700 and ALL Exceptions; note there will be an additional cost to either the rate and/or fee for Multiple Exceptions. Contact your Account Executive.

*Borrowers qualifying with only retirement income are considered W-2 Borrowers.

 
Self Employed Borrowers
Primary Residence: Purchase
Property Type Maximum LTV/CLTV Maximum Loan Amount Minimum Loan Amount Minimum FICO Score Maximum DTI
  • 1-2 Units
  • PUD
  • Condo
80% $850,000 PASO56 - $100,000
PASO56J - $548,251
PASO76 - $100,000
PASO76J - $548,251
PASO106 - $100,000
PASO106J - $548,251
6902 43%
75% $1,000,000 6902 43%
70% $1,250,000 700 43%
65% $1,500,000 700 43%
Primary Residence: Rate & Term Refinance
Property Type Maximum LTV/CLTV Maximum Loan Amount Minimum Loan Amount Minimum FICO Score Maximum DTI
  • 1-2 Units
  • PUD
  • Condo
80% $850,000 PASO56 - $100,000
PASO56J - $548,251
PASO76 - $100,000
PASO76J - $548,251
PASO106 - $100,000
PASO106J - $548,251
700 43%
75% $1,000,000 700 43%
70% $1,250,000 700 43%
65% $1,500,000 700 43%
Primary Residence: Cash Out Refinance
Property Type Maximum LTV/CLTV Maximum Loan Amount Minimum Loan Amount Maximum Cash Out Minimum FICO Score Maximum DTI
  • 1 Unit
  • PUD
  • Condo
65% $1,000,000 PASO56 - $100,000
PASO56J - $548,251
PASO76 - $100,000
PASO76J - $548,251
PASO106 - $100,000
PASO106J - $548,251
$250,000 720 43%
2. Adjustment to price for FICO's below 700 and ALL Exceptions; note there will be an additional cost to either the rate and/or fee for Multiple Exceptions. Contact your Account Executive.

 
Products
  • 5/6 SOFR ARM 30-Year Term Fully Amortizing 5 year Fixed
  • 7/6 SOFR ARM 30-Year Term Fully Amortizing 7 year Fixed
  • 10/6 SOFR ARM 30-Year Term Fully Amortizing 10 year Fixed
    • Qualifying Rate
      • 5/6 SOFR ARM Greater of the fully indexed rate* or the Note Rate + 2.0%
        * Fully indexed rate = Index + Margin
  • 7/6 SOFR ARM Note Rate + 1%
    • 7/6 ARM may qualify at the Note Rate with the following requirements:
      • Minimum 730 Credit Score
      • Maximum LTV of 70%
      • No Exceptions
  • 10/6 ARM Qualifying at the Note Rate
  • Ineligible Products/Attributes
    • Interest Only
    • Negative Amortization
    • Graduated Payments
    • Temporary Buy-downs
    • Balloon Payments
    • Loans with Prepayment Penalties
ARM Summary
Interest Rate Adjustment Caps 5/6: 5 Year Fixed
  • Inital: 2% up/down
  • Subsequent: 1% up/down
  • Lifetime: 5% up
7/6: 7 Year Fixed
  • Inital: 5% up/down
  • Subsequent: 1% up/down
  • Lifetime: 5% up
10/6: 10 Year Fixed
  • Inital: 5% up/down
  • Subsequent: 1% up/down
  • Lifetime: 5% up
Margin Refer to Rate Sheet
Index 6 Month SOFR (Secured Overnight Financing Rate)
Interest Rate Floor Margin
Change Dates 5/6 ARM: 5 Year Fixed
  • The first Change Date is the 60th payment due date. Subsequent Change Dates are every six (6) months thereafter.
7/6 ARM: 7 Year Fixed
  • The first Change Date is the 84th payment due date. Subsequent Change Dates are every six (6) months thereafter.
10/6 ARM: 10 Year Fixed
  • The first Change Date is the 120th payment due date. Subsequent Change Dates are every six (6) months thereafter.
Conversion Option None available
Assumption Assumable during ARM period
MI Requirements (LPMI)
  • LPMI Mortgage Insurance will be required from 70.01%- 80.00% LTV thru MGIC Only.
    1. Occupancy: Primary Residence
    2. Loan Purpose: Purchase, Rate/Term
    3. Maximum Loan Amounts/Maximum Coverage
      • Up to $850,000 / 12%
      • 850,001-1,000,000 / 6%
    4. Property type: 1 –Unit Attached, Detached, Condo; 2-unit
    5. Minimum reserves: 6 months
    6. Purchase Minimum Borrower Own Funds: 5%
    7. All other parameters in these guidelines apply.
Documentation
  • Full income and asset verification is required. In an effort to fully document the borrower’s ability to meet their obligations, borrowers should disclose and verify all liquid assets (in addition to minimums required).
Underwriting / Ability to Repay QM
  • ALL loans must be run through Fannie Mae Desktop Underwriter (DU) for the benefit of alerts. DU documentation relief does not apply to Provident Bank Underwriting Guidelines.
  • All loans require a MANUAL UNDERWRITE
  • Credit documentation is based on QM Ability to Repay and the Underwriter’s discretion based on the risk factors of the loan file.
  • Unless otherwise addressed in these guidelines, Fannie Mae underwriting guidelines should be followed.
  • In some cases, exceptions to underwriting guidelines or product eligibility may be acceptable when strong compensating factors exist to directly address the issue and offset the risk.
  • Applying the Re-underwriting Criteria
    • The following steps are required if the borrower discloses or Provident Bank discovers additional debt(s) or reduced income after the underwriting decision was made up to and concurrent with loan closing:
Step Description
1 Provident Bank must document the additional debt(s) and reduced income and apply those changes to the loan to confirm loan eligibility.
2 If there is a new subordinate debt on the subject property, the mortgage loan must be re-underwritten
3 The final loan application signed by the borrower must include all income and debts verified, disclosed, or identified during the mortgage process
Covid-19 Underwriting Requirements
  1. ALL BORROWER(S)
    • Borrower(s) who have requested or are currently in a forbearance plan on any loan i.e. mortgage, auto loans or etc.:
      • Not Allowed
    • Borrower(s) who have completed a forbearance and the loan (mortgage, auto loan or etc.) has been reinstated:
      • The borrower must have paid twelve (12) monthly current consecutive contractual payments on the loan that was in forbearance and meet all other underwriting criteria.
    • If rental income is being used to qualify, the most recent month’s cancelled checks or bank statements verifying the deposit of rents into the borrower’s account.
    • PB must verify with Human Resources that the borrower is currently employed and has not been notified of any layoff, furloughs and/or reduction in income.
  2. W-2 Borrower(s)
    • If IRS transcripts are unavailable we will require:
      • Written VOE from employer and/or ;
      • 12 months cancelled checks/bank statements showing consistent payroll deposits.
  3. Self Employed Borrower(s)
    • 2019 Business tax returns are required to qualify.
      • If 2019 transcripts are unavailable PB will require the entire year of 2019 business bank statements to support gross receipts.
    • PB will require YTD 2020 Consecutive Business bank statements and YTD 2020 P & L and Balance Sheet to support gross receipts.
      • The Business Bank Statements Deposits must not reflect a DECLINE of more than 5% from 2019 business tax returns gross receipts.
        • All SBA Loans, PPP/CARES ACT deposits must be deducted from the deposits.
    • If self-employed borrowers pay themselves W-2 wages that cannot be verified by W-2 Transcripts,
      • 12 months of cancelled checks or the borrower’s personal bank statements will be required.
Exceptions
  • Exceptions to these written guidelines may be made by Provident Bank on a case by case basis.
    • NO Exceptions will be granted for DTI EXCEEDING GUIDELINE REQUIREMENTS.
    • Exceptions to any of the above guidelines must be approved by PB Corporate Office.
    • Exceptions on loans requiring MI must be prior approved with the Mortgage Insurance Company.
    • All approved Exceptions may have a Loan Level Price Adjustment (LLPA).
All Rate/Term Refinance Transactions
  • Underwriter to condition for the Borrower(s)" Certificate of Reasonable Tangible Net Benefit for Refinance Loans" Disclosure prior to funding.
  • "Borrower(s) Certificate of Reasonable Tangible Net Benefit for Refinance Loans" disclosure
    • Disclosure is generated with closing package and must be fully completed and executed by the borrower and returned with loan documents.
      • Borrower(s) Benefit Worksheet
    • Underwriter to review the complete/executed "Borrower(s) Certificate of Reasonable Tangible Net Benefit" Disclosure and complete the "Borrower(s) Benefit Worksheet" based on the information provided by the borrower.
    • To be completed by the Underwriter prior to funding.
    • Copy of both executed forms to be placed in LOS 1008 place holder.
    • Forms are located in the Provident Bank Manual under Policy and Procedures in the "Forms" Folder.
Age of Documentation
Type Age of Documentation
Credit Report No more than 60 days from before Note date
Income No more than 60 days from before Note date
Assets No more than 60 days from before Note date
Appraisal No more than 90 days from before Note date
Title Commitment No more than 120 days from before Note date
Borrower Eligibility
  1. ELIGIBLE BORROWERS
    The following are eligible borrowers:
    • US Citizens
    • Inter-Vivos Revocable Trusts
    • The inter vivos revocable trust must be established by one or more natural persons, solely or jointly.
    • The primary beneficiary of the trust must be the individual(s) establishing the trust.
    • The mortgage must be underwritten as if the individual establishing the trust (or at least one of the individuals, if there are two or more) were the borrower (or a co-borrower, if there are additional individuals whose income or assets will be used to qualify for the mortgage).
    • Eligibility Requirements
      • At least one individual establishing the trust must be a borrower on the loan.
      • Occupancy must be as a primary residence
      • The title insurance policy must ensure full title protection and must indicate that title to the subject property is vested in the name of the trustee(s). The policy may not list any exceptions arising from the trust ownership of the property.
      • Full title to the property must be vested either:
        1. Solely in the trustees, or
        2. Jointly in the trustees and in the name of an individual borrower.
    • Permanent Resident Aliens/Non-Permanent Resident Aliens are eligible if they meet the following requirements:
      • Can provide acceptable documentation to verify that a non-U.S. citizen borrower is legally present in this U.S.
      • Must be employed in the United States for the past 24 months.
      • Demonstrate that income and employment for at least 12 months and is likely to continue for at least three (3) years.
    • First time homebuyers: A first-time buyer is defined as anyone who has not owned a home for three (3) years. For loans with more than one (1) borrower where at least one borrower has owned a home in the past three (3) years, first-time homebuyer requirements do not apply. (see loan amount limits and reserve requirements)
    • All borrowers must have a social security number
  2. INELIGIBLE BORROWER
    • Irrevocable trusts
    • Land trusts
    • Limited Partnerships, General Partners, Corporations, and Limited Liability Companies
    • LLC's may be considered by exception only:
      • Require personal guarantees by all parties owning ≥25%.
      • Max LTV 50%
      • Personal guarantors sign the note only.
      • Verify names of LLC’s principals listed on the Articles of Organization through the California Secretary of State’s website and place copy of the print out in file: https://businesssearch.sos.ca.gov/
Non Occupant Borrowers
  • LTV’s must be equal to or less than 70% to be eligible-Non-Occupant Borrowers are credit applicants on a principal residence transaction who:
    • Do not occupy the subject property
    • May or may not have an ownership interest in the subject property as indicated on the title;
    • Sign the mortgage or deed of trust note;
    • Have joint liability for the note with the borrower(s); and
    • Do not have an interest in the property sales transaction, such as the property seller, the builder, or the real estate broker.
  • Down Payment and Qualifying Ratio Requirements
    • If the income of a non-occupant borrower is used for qualifying purposes, the occupying borrower(s) must make the first 5% of the down payment form their own funds unless:
      • The LTV or CLTV ratio is less ≤70%
      • The occupying borrower is purchasing funds, or funds received from an employer to pay for some or all of the borrower’s minimum contribution.
      • Using only the income of the occupying borrower(s) to calculate the DTI ratio, the maximum allowable DTI ratio is 43%.
  • LTV Ratio Requirement
    • If the income of a co-borrower is used for qualifying purposes, and that co-borrower will not occupy the subject property, the maximum LTV, CLTV and HCLTV ratio may not exceed 70%.
Occupancy Types
  • Eligible occupancy types include:
    • Primary residences for 1-2 units properties
  • Ineligible occupancy types include:
    • Primary residences for 3-4 unit properties
    • Second home residences
    • Investment properties
Multiple Properties Financed/Owned
  • The borrower(s) may own a total of ten (10) financed, 1-4 unit residential properties, including the subject property and regardless of occupancy.
  • All financed properties, other than the subject property, require additional four (4) months reserves for each property.
NOTE: 1-4 unit financed properties held in the name of an LLC or other corporation can be excluded from the calculation of number of properties financed only in cases where the borrower is not personally obligated for the mortgage.
Ownership Interest
  • Title must be in the Borrower’s name at time of application for refinance transactions and at time of closing for all transactions. Borrower(s) may hold title as follows:
    • Title must be in the Borrower’s name at time of application for refinance transactions and at time of closing for all transactions. Borrower(s) may hold title as follows:
      • Individual: Individual vesting is an individual Borrower taking sole ownership to a property.
      • Joint Tenants: Joint tenancy is a form of co-ownership giving each tenant equal interest and equal rights in a property, including the right of survivorship.
    • Leasehold Estates: In areas where leasehold estates are commonly accepted, loans secured by leasehold estates are eligible for purchase. The mortgage must be secured by the property improvements and the borrower’s leasehold interest in the land. The leasehold estate and the improvements must constitute real property, must be subject to the mortgage lien, and must be insured by the Provident Bank’s title policy.
Transactions Purchase Transactions
  • A purchase money transaction is one in which the proceeds are used to finance the acquisition of a property or to finance the acquisition and rehabilitation of a property. The table below provides the general requirements for purchase money mortgage transactions. Certain mortgage loans and products may have different eligibility requirements for purchase mortgage transactions. If applicable, the different will be stated in the specific mortgage loan or product topic section.
  • Proceeds from the transaction must be used to:
    • Finance the acquisition of the subject property
    • Finance the acquisition and rehabilitation of the subject property,
    • Convert an interim construction loan or term note into permanent financing, or
    • Pay off the outstanding balance on the installment land contract or contract for deed.
  • Proceeds from the transaction may not be used to give the borrower cash back other than the following:
    • An amount representing reimbursement for the borrower’s overpayment of fees and charges, including refunds that may be required in accordance with certain federal laws or regulations. The settlement statement must clearly indicate the refund, and the loan file must include documentation to support the amount and reason for the refund; and
    • A legitimate pro-rated real estate tax credit in locales where real estate taxes are paid in arrears.
Note: If the borrower receives cash back for a permissible purpose as listed above, the underwriter must confirm that the minimum borrower contribution requirements associated with the selected mortgage product, if any, have been met.
Limited Cash-Out Refinance Transactions
  • Limited cash-out refinance transactions must meet the following requirements:
    • The transaction is being used to pay off an existing first mortgage loan (including an existing HELOC in first-lien position) by obtaining a new first mortgage loan secured by the same property; or for a single-closing construction-to-permanent loan to pay for construction cost to build the home, which may include paying off an existing lot lien.
    • Only subordinate liens used to purchase the property may be paid off and included in the new mortgage, or 2nd TD’s used for significant home improvements (documentation required). Exceptions are allowed for paying off a Property Assessed Clean Energy (PACE) loan or other debt (secured or unsecured) that was solely for energy-related improvements.
    • The subject property must not be currently listed for sale. It must be taken off the market on or before the disbursement date of the new mortgage loan, and the borrowers must confirm their intent to occupy the subject property (for principal residence transactions).
    • The following are acceptable in conjunction with a limited cash-out refinance transaction:
      1. Modifying the interest rate and/or term for existing mortgages
      2. Paying off the unpaid principal balance of the existing first mortgage (including prepayment penalties)
      3. For single-closing construction-to-permanent transactions, paying for construction costs to build a home, which may include paying off an existing lot lien
      4. Financing the payment of closing costs, points, and prepaid items. With the exception of real estate taxes that are more than 60 days delinquent, the borrower can include real estate taxes in the new loan amount as long as an escrow account is established, subject to applicable California law or regulation.
      5. Receiving cash back in an amount that is not more than the lesser of 2% of the new refinance loan amount or $2,000
      6. Buying out a co-owner pursuant to an agreement
      7. Paying off a subordinate mortgage lien (including prepayment penalties) used to purchase the subject property. The underwriter must document that the entire amount of the subordinate financing was used to acquire the property
      8. Paying off a non purchase money second that has had no draws in the last 12 months.
Cash-Out Refinance Transactions
  • Cash-out refinance transactions must meet the following requirements:
    • The transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property or be a new mortgage on a property that does not have a mortgage lien against it.
    • Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.
    • The property must have been purchased (or acquired) by the borrower at least six months prior to the disbursement date of the new mortgage loan except for the following:
      1. There is not waiting period if the underwriter documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).
      2. The delayed financing requirements are met. See Delayed Financing Exception below.
      3. If the property was owned prior to closing by a limited Liability corporation (LLC) that is majority-owned or controlled by the borrower(s), the time it was held by the LLC may be counted towards meeting the borrower’s six month ownership requirement.(In order to close the refinance transaction, ownership must be transferred out of the LLC and into the name of the individual borrower(s).
      4. If the property was owned prior to closing by an Inter Vivos revocable trust, the time held by the trust may be counted towards meeting the borrower’s six month ownership requirement if the borrower is the primary beneficiary of the trust.
  • The following are acceptable uses for cash-out refinance transactions:
    • Paying off the unpaid principal balance of the existing first mortgage:
    • Financing the payment of closing costs, points, and prepaid items. The borrower can include real estate taxes in the new loan amount. Delinquent real estate taxes (taxes past due by more than 60 days) can also be included in the new loan amount, but if they are, an escrow account must be established subject to California law or regulation.
    • Paying off an outstanding subordinate mortgage liens of any age;
    • Taking equity out of the subject property that may be used for any purpose;
    • Financing a short-term refinance mortgage loan that combines a first mortgage and a non-purchase-money mortgage into a new first mortgage or a refinance of the short term refinance loan within six months.
  • The following transactions types are not eligible as cash-out refinances:
    • The subject property was purchased by the borrower within the six months preceding the disbursement date of the new mortgage loan except if delayed financing guidelines are met.
    • For certain transactions on properties that have a Property Assessed Clean Energy (PACE) loan, borrowers who refinance the first mortgage loan and have sufficient equity to pay off the PACE loan but choose not to do so will be ineligible for a Cash-out refinance.
    • Transactions in which a portion of the proceeds of the refinance is used to pay off the outstanding balance on an installment land contract, regardless of the date the installment land contract was executed.
    • The new loan amount includes the financing of the real estate taxes that are more than 60 days delinquent and an escrow account is not established, unless requiring an escrow account is not permitted by the applicable law or regulation.
    • The transaction is not eligible if the subject property is listed for sale at the time of funding of the new mortgage loan.
LTV/CLTV Calculations
  • Purchases Money Transactions
    • Divide the original loan amount by the property value.
      • The property value is the lower of the sales price or the current appraised value.
  • Refinances Transactions
    • Divide the original loan amount by the property value.
      • The property value is the current appraised value.
  • Delayed financing Exception
    • The LTV/CLTV is calculated based on the lesser of the purchase price or appraised value of the subject property.
Non-Arm's Length Transactions
  • Non-arm’s length transactions are purchase transactions in which there is a relationship or business affiliation between the seller and the buyer of the property. Provident Bank allows non-arm’s length transactions for the purchase of existing properties, unless specifically forbidden for the particular transaction, such as delayed financing.
Employee Loans
  • NOT ALLOWED
Subordinate Financing
  • Subordinate liens must be recorded and clearly subordinate to Provident Bank’s first mortgage lien. Disclose the existence of subordinate financing and the subordinate financing repayment terms to the Underwriter, the appraiser, and the mortgage insurer.
  • If a first mortgage is subject to subordinate financing, the underwriter must calculate the LTV/CLTV, and HCLTV ratios.
  • The underwriter must consider any subordinate liens secured by the subject property, regardless of the obligated party, when calculating CLTV and HCLTV ratios. This includes business loans, such as those provided by the Small Business Administration.
  • Acceptable Subordinate Financing Types
    • Variable payment mortgages that comply with the details below.
      • Mortgages with regular payments that cover at least the interest due so that negative amortization does not occur.
      • Mortgages terms that require interest at a market rate.
  • Unacceptable Subordinate Financing Terms
    • Mortgages with negative amortization.
    • Subordinate financing that does not fully amortize under a level monthly payment plan where the maturity or balloon payment date is less than five years after the note date of the new first mortgage.
  • Eligible Variable Payment Terms for Subordinate Financing
    • Provident Bank permits variable payments for subordinate financing if the following provisions are met:
      • With the exception of HELOCs, when the repayment terms provide for a variable interest rate, the monthly payment must remain constant for each 12 month period over the term of the subordinate lien mortgage. (For HELOCs, the monthly payment does not have to remain constant).
      • The monthly payment for all subordinate liens must cover at least the interest due so that negative amortization does not occur.
    • If subordinate financing is left in place in connection with a first mortgage loan refinance transaction, Provident Bank requires execution and recordation of a re-subordination agreement.
  • Defining Refinance Transactions Based on Subordinate Lien Payoff
    • The payoff of a purchase money second with no cash out or no draws in the past 12 months,
      • Limited Cash-out Refinance
Interested Party Contributions
  • Interested party contributions include funds contributed by the property seller, builder, real estate agent/broker, mortgage lender, or their affiliates, or any other party with an interest in the real estate transaction.
  • Interested party contributions may only be used for closing costs and prepaid expenses, and may never be applied to any portion of the down payment or contributed to the borrower’s financial reserve requirements.
  • Interested party contributions are limited according to the CLTV:
CLTV Limit
<70% 9%
≥70% 6%
Sellers Concessions
  • All seller concessions must be addressed in the sales contract, appraisal and Closing Disclosure. A seller concession is defined as any interested party contribution beyond the stated limits, in the above section, or any amounts not being used for closing costs or prepaid expenses (i.e. funds for repairs not completed prior to closing is a seller concession). If a seller concession is present, both the appraised value and sales price must be reduced by the concession amount for purposes of calculating the LTV/CLTV.
Personal Property
  • Any personal property transferred with a property sale must be deemed to have zero transfer value, as indicated by the sales contract and the appraisal. If any value is associated with the personal property, the sales price and appraised value must be reduced by the personal property value for purposes of calculating the LTV/CLTV.
Escrows
  • Impound Accounts:
    • Escrows may be established for funds collected that are required to be paid under the Security Instrument. These funds include, but are not limited to, taxes, insurance (hazard, flood, and mortgage) premiums, special assessments, ground rents, water, sewer, and other governmental impositions.
    • Escrow holdbacks are not allowed unless the holdback has been dispersed and a certification of completion has been issued prior to funding by Provident Bank.
Reserves & Assets
  • Reserve Requirements
    Occupancy Loan Amount Required Reserves
    Purchase, R/T or C/O ≤$650,000 & ≤70% 3 months PITI
    ≤$650,000 & >70% 6 months PITI
    $650,000 - $1,000,000 6 months PITI
    $1,000,001 - $1,500,00 9 months PITI
    • Beyond the minimum reserve requirements and in an effort to fully document the borrowers' ability to meet their obligations, borrowers should disclose and verify all other liquid assets.
    • First time homebuyers (borrower(s) who have not owned a property in the last 3 years) require reserves of 12 months PITIA and are limited to a maximum loan amount of $850,000.
    • All financed properties, other than the subject property, requires an additional four (4) months reserves for each property.
  • Assets Documentation:
    • Checking and Savings Account
      • The two most recent, consecutive months statements for each account are required or 1 month Bank Statement and a VOD covering 60 day average balance
      • Large deposits inconsistent with monthly income or other deposits must be verified and documented
    • Marketable Securities
      • Two most recent, consecutive months stock/securities account statements are required.
      • Full value of stock accounts can be considered in the calculation of assets available for closing cost and reserves.
      • Non-vested accounts are not eligible for use as down payment or reserves
    • Retirement Accounts
      • Most recent retirement account statement covering a minimum two month period.
      • Evidence of liquidation is required when funds are used for down payment or closing costs.
      • 70% of vested value of retirement accounts, after reduction of any outstanding loans, may be considered toward the required reserves if the borrower is of retirement age (over 59.5 years old).
      • 60% of vested value of retirement accounts, after reduction of any outstanding loans, may be considered toward the required reserves if the borrower is not of retirement age (less than 59.5 years old).
      • Proof of liquidation or withdrawal
      • Terms of Withdrawal
      • Retirement accounts that do not allow any type of withdrawal are ineligible for use as reserves.
    • Business Funds
      • Business funds may be used for down payment and/or closing costs, not for purposes of calculating reserves.
      • CPA letter to confirm withdrawal will have no impact on business and Cash flow analysis required using 3 months business bank statements to determine no negative impact to business based on withdrawal of funds.
        1. Borrower must have access to funds
        2. The borrower must be the sole proprietor or 100% owner of the business or all
        3. Borrowers combined own 100%.
  • Restricted stock subject to U.S. Securities and Exchange Commission (SEC) Rule 144
    • Many executives receive a portion of their compensation in the form of company stock. When using vested company stock that is subject to SEC Rule 144 the following documentation is required:
      • When stock is used for down payment, provide proof of liquidation.
      • When stock used for reserves, provide:
      • A letter from the company which includes:
        • Vesting statement
        • Eligibility to liquidate stock
        • Current stock price
        • Addresses any additional restrictions on liquidating stock other than those imposed under SEC Rule 144
    • Refer to SEC Website for the current Trading Volume Formula for calculating eligible value. https://www.sec.gov/reportspubs/investor-publications/investorpubsrule144htm.html
Gift Funds
  • The following applies to Gift Funds
    • For purchase transactions of 1-Unit properties with loan amount ≤$548,250 gift funds may be used (Reserves requirements must still be met)
    • For purchase transactions with loan amounts >$548,250 gift funds may be used once the borrower contributes at least 5% from their own funds. (Reserves requirements must still be met)
    • Gift funds may not be used to meet reserve requirements.
    • Donor must be an immediate family member, future spouse, or domestic partner living with borrower.
    • An executed gift letter with the gift amount, donor’s name, address, and telephone number and relationship is required.
    • Proof of transfer of funds or evidence of receipt must be documented.
  • Acceptable Donors
    • A gift can be provided by:
      • a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or
      • a fiancé’, fiancée, or domestic partner.
    • The donor may not be, or have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction.
LTV, CLTV, or HCLTV Ratio Minimum Borrower Contribution Requirement From Borrower's Own Funds
Less than 70% One-to four-unit principal residence A minimum borrower contribution from the borrower’s own funds is not required. All funds needed to complete the transaction can come from a gift.
  • Gift Funds cannot be used as Reserves.
70% - 80% One-to four-unit principal residence A 5% minimum borrower contribution from the borrower’s own funds is required.
  • Gift Funds cannot be used as Reserves.
  • Documentation Requirements
    • Gifts must be evidenced by a letter signed by the donor, called a gift letter.
    • The gift letter must:
      • Specify the dollar amount of the gift;
      • Specify the date the funds were transferred;
      • Include the donor’s statement that no repayment is expected; and
    • When a gift from a relative or domestic partner is being pooled with the borrower’s funds to make up the required minimum cash down payment, the following items must also be included:
      • A certification from the donor stating that he or she has lived with the borrower for the past 12 months and will continue to do so in the new residence.
      • Documents that demonstrate a history of borrower and donor shared residency. The donor’s address must be the same as the borrower’s address. Examples include but are not limited to a copy of a driver’s license, a bill, or a bank statement.
    • Verifying Donor Availability of Funds and Transfer of Gift Funds
      • The Underwrite must verify that sufficient funds to cover the gift are either in the donor’s account or have been transferred to the borrower’s account. Acceptable documentation includes the following:
        • A copy of the donor’s check and the borrower’s deposit slip,
        • A copy of the donor’s withdrawal slip and the borrower’s deposit slip,
        • A copy of the donor’s check to the closing agent, or
        • A settlement statement showing receipt of the donor’s check.
    • When the funds are not transferred prior to settlement, the Underwriter must document that the donor gave the closing agent the gift funds in the form of a certified check, a cashier’s check, or other official check.
Credit
  • Unless otherwise addressed below, Fannie Mae underwriting guidelines should be followed for evaluating a borrower’s credit history.
Credit Standards
Age of Credit Report 45 days old at time of close.
Representative FICO Score An individual borrower’s representative credit score is determined by the following:
  • If 2 credit bureau scores are reported, the representative credit score will be the lower of the 2.
  • If 3 credit bureau scores are reported, the representative credit score will be the middle of the 3.
When there is more than 1 borrower, the lowest of all borrowers’ representative credit scores will be used.
Trade Lines
  • Minimum 3 open trade lines: (1)
    • One must be open and active for 24 months
    • At least one of the required 3 trade lines must be an installment.
    • Remaining trade lines must be rated for 12 months.
  • Two open trade lines are acceptable for purchase transactions where the borrower(s) have a 24 month history in the past five years.
  1. An exception to the minimum trade line requirement is not required if the borrower’s credit history meets the following:
    • No less than 10 trade lines are reporting.
    • At least one trade line is open and reporting for a minimum 12 months
    • Credit history established for at least 10 years
NOTE: Borrowers not contributing income for qualifying purposes are not subject to the minimum trade line requirement.
Revolving If a revolving account balance is to be paid off at or prior to closing, a monthly payment on the current outstanding balance does not need to be included in the borrower’s longterm debt, i.e. not included in the debt-to-income (DTI) ratio.
  • Such accounts do not need to be closed as condition of excluding the payment from the DTI ratio.
Installment At least one of the required 3 trade lines must be an installment.
Mortgage / Rent 0x30 late payments in the past 12 months
  • Rent – 0 x 30 in the past 12 months evidenced by a Verification of Rents (VOR) OR
  • Credit Supplement and cancelled checks are required if there is a relationship between borrower and landlord.
  • 24 month history MUST be verified (i.e. if you have a 12 mo. mortgage rating a VOR or 12 mos. cancelled checks and credit supplement to cover the 24 mo. history).
  • Applies to all borrowers on the loan
    • If the borrower is living rent free with family provide a detailed Letter of explanation (LOE) signed/dated by the borrower. (This can be considered a RED FLAG.)
NOTE: VOR to be supplied by a Management Company. If the VOR is from a Private Party, borrower will need to furnish bank statements or cancelled checks to cover the 24 month period.
Authorized User Accounts Credit report trade lines that list a borrower as an authorized user cannot be considered in the underwriting decision, except as outlined below.
An authorized user trade line may be considered if:
  • Another borrower in the mortgage transaction is the owner of the trade line; or
  • The borrower can provide written documentation e.g., canceled checks, payment receipts, etc.). that he or she has been actual and sole payer of the monthly payment on the account for at least 12 months preceding the date of the application.
Non-Traditional Credit Not allowed
Bankruptcy 7
Bankruptcy 11
Bankruptcy 13
Foreclosure
None in the last 7 years
Loan Modification None allowed, Unless the modification was lender initiated and documented proof that it was not a distressed situation and no principal balance was forgiven.
Short Sale Deed-in-Lieu None in the last 4 years; Unless there were extenuating circumstances beyond the borrower’s control then a 2 year waiting period.
If an EXCEPTION is made, there will be a LLPA (Loan Level Price Adjustment) Applied.
Debt To Income
  • The Debt-to-Income (DTI) ratio is based on the total of existing monthly liabilities plus any planned future liabilities based on credit inquiries or otherwise disclosed by the borrower, and then divided by the calculated gross monthly income. Liabilities include all housing expenses, revolving debt, installment debts, real estate loans, rent, alimony, child support, and other consistent and recurring expenses.
  • For other properties owned, documentation to confirm the P&I, taxes, insurance, HOA dues, lease payments or other property-related expenses must be provided.
Credit Inquires
  • Provident Bank must review the section of the borrower’s credit report that indicates the presence of creditor inquiries to determine the number and age of the inquiries.
  • Recent inquires may indicate that the borrower has been actively seeking new credit accounts. The presence of a large number of unrelated inquiries represents higher credit risk (whether or not the borrower actually obtained credit as a result of the inquiry.)
  • The presence of many recent inquiries in combination with a significant number of recently opened accounts or delinquent accounts represents a high credit risk.
  • When the credit report indicates that recent inquiries took place, the Underwriter must confirm that the borrower has not obtained any additional credit that is not reflected in the credit report or the mortgage application. If additional credit was obtained, a verification of that debt must be provided and the borrower must be qualified with the monthly payment.
Employment And Income
  • During COVID-19
    • PB must verify with Human Resources that the Borrower is currently employed and has not been notified of any layoffs, furlough and etc.
  • Stability of Employment and Income
    • Stable monthly income is the Borrower’s verified gross monthly income from all acceptable and verifiable sources that can reasonably be expected to continue for at least the next three years. For each income source used to qualify the Borrowers, the Underwriter must determine that both the source and the amount of the income are stable.
    • A two-year history of receiving income is required in order for the income to be considered stable and used for qualifying. When the Borrower has less than a two-year history of receiving income, the Underwriter must provide a written analysis to justify the determination that the income that is used to qualify the Borrower is stable. While the sources of income may vary, the Borrower should have a consistent level of income despite changes in the sources of income.
    • The following is required to establish stability of employment and income for the borrower(s) whose income is used to qualify:
      • A minimum of two (2) years employment and income history
      • Gaps in employment in excess of 30 days during the past two (2) years require a satisfactory letter of explanation.
      • For Borrowers who has less than a two-year employment and income history the Borrower’s income may be used for qualifying income if the Mortgage file contains documentation to support that the Borrower was either attending school or in a training program immediately prior to their current employment history; School transcripts must be provided to document. (Underwriter may call School (Institution) to verify Borrowers Enrollment).
      • For borrowers of retirement age using asset distributions for income, see Section 10.C under Fixed Income for further requirements.
      • Income may not be used for qualification purposes if it comes from any source that cannot be verified, is not stable, or will not continue.
IRS Form 4506-T / Tax Transcripts
  • COVID-19 If Transcripts are unavailable PB will require:
    • W-2 Borrower(s)
      • Written VOE from the employer and/or;
      • 12 months cancelled checks/bank statements showing consistent payroll deposits.
    • Self Employed Borrower(s)
      • If Self Employed borrower(s) pay themselves W-2 wages that cannot be verified by W-2 transcripts, 12 months of cancelled checks or the borrower’s personal bank statements will be required.
    • If the 2019 Business Tax Transcripts are unable to be verified or have not been filed:
      1. Then a copy of the IRS Extension, and
      2. 12 months bank statements for 2019, and
      3. YTD P & L/ Balance Sheet, and
      4. Current consecutive YTD Business Bank Statements to support the business annual gross receipts.
      5. If 2019 If 2019 business Tax Returns have not been filed an exception would be required to use this income. (May result in a Loan Level Price Adjustment)
  • A completed, signed, and dated IRS form 4506-T must be completed for all borrowers whose income is used to qualify for the mortgage.
  • The 4506-T must be processed and tax transcripts obtained (for each year requested) to validate against all income used for qualifying.
  • Tax transcripts must match documentation in the file.
  • In the case where taxes have been filed and the tax transcripts are not available from the IRS, the IRS Response to the request must reflect “No Record Found”. In these cases, an additional prior year’s tax transcript should be obtained and provided. Large increases in income that cannot be validated through a tax transcript may only be considered for qualifying on a case-by-case basis.
  • In cases where the borrower is self-employed an IRS 4506T must be completely filled out, signed and processed for each business tax return used in the loan decision and/or included in the loan file.
Paystubs
  • The paystub must meet the following requirements:
    • Clearly identify the borrower as the employee.
    • Show the borrower’s current pay period and year-to-date earnings.
    • If the borrower is paid hourly, the number of hours must be shown on the paystub.
    • Pay stubs must be computer generated.
    • Pay stubs issued electronically via email or downloaded from the internet must show the URL address, date and time printed, and identifying information on place of origin and/or author of the documentation.
W-2 Forms
  • W-2 forms must be complete and be a copy provided by the employer.
Verification of Employment (VOE), Verbal VOE (VVOE) or Self-Employed Confirmation
  • During COVID-19
    • Borrower must explain in detail how business is deriving income during this time.
    • P & L must reflect Income has not declined.
  • A written Verification of Employment (VOE) may be required for a borrower’s income sourced from commissions, bonus, overtime, or other income when the income detail is not clearly documented on W-2 Forms or paystubs.
    • A verbal verification of employment confirming the borrower’s employment status is required for all borrowers whose income is used for qualification purposes.
    • The VVOE must be completed within 5 business days before the Note date for wage income.
    • Must verify borrower has not received notice of termination by employer.
    • Verification of self-employed businesses by a third-party source is required within 5 calendar days from the Note and again at funding date.
    • The VVOE or verification of self-employed businesses may be completed after the Note date.
    • However, the post-close verification is not allowed if the borrower is no longer employed in the position shown on the loan application.
  • The following standards apply:
    • Written VOE must include:
      • Borrower’s date of employment
      • Borrower’s employment status and job title
      • Name, phone number and title of person completing the VOE
      • Name of employer
      • Base pay amount and frequency
      • Additional salary information, which itemizes bonus, commission, overtime, or other variable income, if applicable
      • VOE must be mailed directly to the employer, attention of the personnel department.
      • The VOE must be returned to the lender’s address
    • VVOE must contain the following information
      • Date of contact
      • Borrower’s date of employment
      • Borrower’s employment status and job title
      • Name, phone number, and title of contact person at employer
      • Name of employer
      • Name and title of person contacting the employer
      • Method and source used to obtain the phone number
      • Must ask if borrower has received any notice of future termination.
    • Self-Employed Confirmation must include
      • Verification of the existence of the borrower’s business from a third party, such as a CPA, regulatory agency, or applicable licensing bureau. A borrower’s website is not acceptable as third party verification.
      • Listing and address of the borrower’s business using a telephone book, internet, or directory assistance.
      • Name and title of the person completing the verification
Tax Returns
  • The following standards apply when using Income Tax Returns to verify income:
    • Personal Income Tax Returns
      • Must be complete with all schedules (W-2 forms, 1099 Forms, K-1 schedules, etc.)
      • Signed and dated
    • Business Income Tax Returns
      • Must be complete with all schedules (K-1 schedules, Form 1065, etc.)
      • Signed and dated
    • For Unfiled Tax Returns for the prior year’s tax return
      • Between Jan 1 and the tax filing date (typically April 15), borrowers must provide:
        • IRS form 1099 and W-2 forms from the previous year
        • Loans closing in January prior to receipt of W-2s may use the prior year year-end paystub. For borrowers using 1099s, evidence of receipt of 1099 income must be provided.
    • Between the tax filing date and the extension expiration date (typically October 15), borrowers must provide (as applicable):
      • Copy of the filed extension
      • W-2 forms for corporations
      • Form 1099 for commission income
      • Current year profit & loss (signed by the borrower)
      • Year-end profit and loss for prior year (signed by the borrower)
      • Balance sheet for prior calendar year if business is a sole proprietorship
    • After the extension expiration date, loan is not eligible without prior year tax returns.
Income Analysis Forms
  • Income Analysis Forms
    • The loan file must include an Income Analysis form detailing income calculations. The Fannie Mae Form 1084, Freddie Mac Form 91 or other equivalent lender form consistently utilized by the Provident Bank is acceptable.
    • Income analysis for borrowers with multiple employers, business or income sources must show income/ (loss) details separately, not in aggregate.
Income Documentation Requirements
  • Various forms of documentation are required depending on the type of income used to quality.
  • Income amounts should be averaged for the time period covered.
  • Unless otherwise stated, when declining income has occurred, the most recent twelve (12) months should be used; in certain cases, average income for a longer period may be used when the decline is related to a one-time capital expenditure.
    • Documentation for the capital expenditure must be provided.
  • The following income documentation must be provided for each borrower whose income is used to qualify:
Type Documentation Requirements
Employment Income
Salaried An earnings trend must be established and documented. Large increases in salary over the previous two years must be explained and documented.
  • W-2 forms or personal tax returns, including all schedules, for prior two years.
  • Year-to-date pay stub up through and including the most current pay period at the time of application and not earlier than 60 days prior to the Note date.
  • If borrower is claiming overtime pay, it must be shown on the YTD pay stub.
Hourly & Variable Income
  • An earnings trend must be established and documented. Stable to increasing income should be average over a minimum two year period. Declining income must be explained by the employer/borrower and a written determination by the underwriter must be provided if declining income is used for qualifying.
    • W-2 forms or personal tax returns, including all schedules
    • W-2 forms or personal tax returns, including all schedules for prior two years.
    • Year-to-date pay stub up through and including the most current pay period at the time of application.
Part-Time Income
  • Borrower must have worked the part time job uninterrupted for the past two years and plans to continue. If part-time income shows a continual decline, written sound rationalization for using the income to qualify must be provided or income should NOT be used.
    • W-2 forms for prior two years.
    • Year-to-date paycheck stub up through and including the most current pay period at the time of application.
Commission
  • Commission income must be averaged over the previous two years. If the commission income shows a continual decline, written sound rationalization for using the income to qualify must be provided or the income should not be used.
    • W-2 forms for prior two years if commissions are less than 25% of the total income.
    • Tax returns, including all schedules and W-2 form from the previous two years if commissions are ≥ 25% of the total income.
    • Unreimbursed business expenses (form 2106), if applicable no longer has to be subtracted from income per Fannie Mae Announcement SEL-2018-09 dated December 04, 2018, which was effective immediately.
    • Year-to-date paycheck stub through and including the most current pay period at the time of application and not earlier than 60 days prior to the Note date.
Overtime & Bonus
  • An earnings trend for bonus and overtime must be established and documented. A period of more than two years must be used in calculating the average overtime and bonus income if the income varies significantly from year to year. If either type of income shows a continual decline, written sound rationalization for using the income to qualify must be provided or income should not be used.
    • W-2 forms or personal tax returns, including all schedules for prior two years.
    • Year-to-date paycheck stub through and including the most current pay period at the time of application and not earlier than 60 days prior to the Note date.
Self-Employed Income
Self Employed
  • Self-employed borrowers are defined as those individuals who have 25% or greater ownership interest or receive a 1099 statement to document income.
    • Borrowers who are employed by a family member are considered to be self-employed, regardless of the percentage of ownership, and self-employed documentation is required.
    • Potential ownership by the borrower must be addressed.
    • A fully completed, signed and Processed IRS 4506T for each business tax return used in the loan decision and/or included in the loan file is required.
  • COVID-19 SELF-EMPLOYED INCOME:
    • Borrower to provide YTD current consecutive Business Bank Statements to verify a deposit (income) trend to support the underwriter’s qualifying income and YTD P & L within a 5% tolerance up or down.
      • Example:
        • YTD Business Bank Statements verifies a monthly average deposit (income) of $100,000.00 = $16,666.66 monthly.
          • A 24 month Average of 2018/2019 1120’s ($15,833.33) was used to qualify.
          • The required P & L and the YTD Business Bank Statements must also support the YTD business Total Revenue (Income) as stated on the P & L
    • If 2019 transcripts are unavailable we will also need 12 months business bank statements for 2019 to support gross receipts on business returns.
    • If borrower(s) pay themselves W-2 earnings and W-2 transcripts are unavailable to verify these earnings 12 months cancelled checks or bank statements will be required to verify the history.
  • Detailed Letter of explanation and/or additional satisfactory documentation is required to verify and document that your Self-Employed business is still open and operating, as outlined in accordance with State of California Governor Newsom’s Executive Order N-33-20 directing all residents immediately to heed current state public health directives to Stay Home, except for permitted work and additional sectors as the State Public Health Officer may designate as critical to protect health and well-being of all Californians.
    • In accordance with this order, the State Public Health Officer has designated the following list of permitted work to help state, local, tribal, and industry partners as they work to protect communities, while ensuring continuity of functions critical to public health and safety, as well as economic and national security.
    • The order went into effect on Thursday, March 19, 2020. The order is in place until further notice. It covers the whole state of California. Provident Bank will continue to monitor California order’s updates and will update the guidelines accordingly.
    • See Link below for essential workforce list.
Sole Proprietorship
  • Current Year to date P & L.
    • Example of date January 31, 2019 – March 31, 2019
  • Balance Sheet
    • Example of date January 31, 2019 – March 31, 2019
  • Personal tax returns, including all schedules, for prior two years.
  • See Tax Returns for additional requirements for unfiled prior year returns.
Partnerships (General, Limited) Limited Liability Companies "S" Corporation Corporations
  • Current Year to date P & L.
    • Example of date January 31, 2019 – March 31, 2019
  • Balance Sheet
    • Example of date January 31, 2019 – March 31, 2019
  • Personal tax returns, including all schedules, for prior two years.
  • K-1s from prior two years, showing ownership percentage. K-1s are not required if the source is reporting positive income and the income is not used for qualification.
  • If K-1s show a loss, they are required, regardless if they are used for qualifying purposes. If using capital gains, interest/dividend or W2 income from this source is used, K-1s are required.
  • Business tax returns (1065/1120), including all schedules, for the prior two years are required if the borrower has an ownership percentage ≥ 25%; they are not required if reporting positive income via a K-1, and the income is not used for qualification purposes.
  • See Tax Returns for unfiled prior year returns for additional requirements.
Schedule K-1 Income
  • For borrowers who have less than 25% ownership of a partnership, S corporation, or limited liability company (LLC), ordinary income, net rental real estate income, and other net rental income reported on IRS Form 1065or IRS Form 1120s, Schedule K-1 may be used in qualifying the borrower provided the Underwriter can confirm the business has adequate liquidity to support the withdrawal of earning. If the Schedule K-1 provides this confirmation, no further documentation of business liquidity is required.
  • The following provides verification of income requirements for Schedule K-1 borrowers with less than 25% ownership of a partnership, an S corporation, or an LLC.
    • If the Schedule K-1 reflects a documented, stable history of receiving cash distributions of income from the business consistent with the level of business income being used to qualify, then no further documentation of access to the income or adequate business liquidity is required. The Schedule K-1 income may then be included in the borrower’s cash flow.
    • If the Schedule K-1 does not reflect a documented, stable history of receiving cash distributions of income from the business consistent with the level of business income being used to qualify, then the Underwriter must confirm the business has adequate liquidity to support the withdrawal of earning. The Underwriter may use discretion in the method used to confirm the business has adequate liquidity.
    • If the borrower has a two year history of receiving "guaranteed payments to the partner" from a partnership or an LLC, these payments can be added to the borrower’s cash flow.
      • An exception to the two-year requirement of receiving "guaranteed payments to the partner" is if a borrow has recently acquired nominal ownership in a professional services partnership (for example, a medical practice or a law firm) after having an established employment history with the partnership. In this situation, the Underwriter may rely on the borrower’s guaranteed compensation. This must be evidenced by the borrower’s partnership agreement and further supported by evidence of current year to date income.
Temporary Leave
  • Temporary leave from work is generally short in duration and for reasons of maternity or parental leave, short-term medical disability, or other temporary leave types that are acceptable by law or the borrower’s employer. Borrowers on temporary leave may or may not be paid during their absence from work.
  • If the Underwriter is made aware that a borrower will be on temporary leave at the time of closing of the mortgage loan and that borrower’s income is needed to qualify for the loan, the Underwriter must determine allowable income and confirm employment per requirements below:
    • The borrower’s employment and income history must meet standard eligibility.
    • The borrower must provide written confirmation of his or her intent to return to work.
    • The Underwriter must document the borrower’s agreed upon date of return by obtaining, either from or directly from the employer (or a designee of the employer when the employer is using the services of third party to administer employee leave), documentation evidencing such date that has been produced by the employer or by a designee of the employer.
      • Example of the documentation may include, but are not limited to, previous correspondence from the employer or designee that specifies the duration or expected return date or a computer printout from an employer or designee’s system of record. (This documentation does not have to comply with the Allowable Age of Credit Document guideline).
    • The Underwriter must receive no evidence or information from the borrower’s employer indicating that the borrower does not have the right to return to work after the leave period.
    • The Underwriter must obtain a verbal verification of employment. If the employer confirms the borrower is currently on temporary leave, the Underwriter must consider the borrower employed.
    • The Underwriter must verify the borrower’s income.
      • The amount and duration of the borrower's "temporary leave income", which may require multiple documents or sources depending on the type and duration of the leave period; and
      • The amount of the "regular employment income" the borrower received prior to the temporary leave. Regular employment income includes, but is not limited to, the income the borrower receives from employment on a regular basis that is eligible for qualifying purposes (for example, base pay, commission, and bonus).
        • Income verification may be provided by the borrower, by the borrower's employer, or by a third party employment verification vendor.
  • Requirements for Calculating Income Used for Qualifying.
    • If the borrower will return to work as of the first mortgage payment date, the Underwriter can consider the borrower’s regular employment income for qualifying.
    • If the borrower will not return to work as of the first mortgage payment date, the Underwriter must use the lesser of the borrower’s temporary leave income (if any) or regular employment income. If the borrower’s temporary leave income is less than his or her regular employment income, the Underwriter may supplement the temporary leave income with available liquid financial reserves.
      • Supplement Income Calculation. Supplemental income amount =available liquid reserves divided by the number of months of supplemental income.
        • Available liquid reserves: subtract any funds needed to complete the transaction (down payment, closing cost, other required debt payoff, escrows, and minimum required reserves) from the total verified liquid asset amount.
        • Number of months of supplemental income: the number of months from the first mortgage payment date to date the borrower will begin receiving his or her employment income, rounded up to the next whole number.
          1. After determining the supplemental income, the Underwriter must calculate the total qualifying income.
            1. Total qualifying income=supplemental income plus the temporary leave income.
          2. The total qualifying income that results may not exceed the borrower’s regular employment income.
          3. Example:
            1. Regular income amount: $6,000 per month.
            2. Temporary leave income: $2,000 per month
            3. Total verified liquid assets: $30,000
            4. Funds needed to complete the transaction: $18,000
            5. Available liquid reserves: $12,000
            6. First payment date: July 1
            7. Date borrower will begin receiving regular employment income: November 1
            8. Supplemental income: $12,000/4=$3,000
            9. Total qualifying income: $3,000 + $2,000= $5,000
  • These requirements apply if the Underwriter becomes award through the employment and income verification process that the borrower is on temporary leave. If a borrower is not currently on temporary leave, the Underwriter must not ask if he or she intends to take a leave in the future.
Rental Income
All Properties
  • During COVID-19
    • Evidence of most recent month’s rent received is required.
  • A current lease;
  • And agreement to lease; or
  • Personal tax returns, including all schedules for prior two years that is free of unexplained gaps greater than 3 months (such gaps could be explained by student, seasonal, or military renters, or property rehabilitation).
  • See section tax returns for unfiled prior year returns for additional requirement.
  • For properties listed on Schedule E of the borrower’s tax returns, net rental income should be calculated as the total of (income + depreciation + interest + taxes + insurance) divided by the applicable months minus the current PITIA.
    • If the subject property is the borrower’s primary residence and generating rental income, the full PITIA must be included in the borrower’s total monthly obligations.
  • If rental income is not available on the borrower’s tax returns, a current executed lease agreement is required. Net rental income should be calculated as the gross monthly rent multiplied by 75%.
  • Positive rental income is considered gross income for qualifying purposes, while Negative income must be treated as recurring liability.
    • Apply the resulting amount to income, if positive, or recurring debts, if negative.
Departing Residence Rental Income
  • Exclusion of Rental Income From Property Being Vacated by the Borrower:
    • Underwriters may not consider rental income from a borrower’s principal residence that is being vacated in favor of another principal residence, except under the conditions described below:
      Notes:
      1. This policy assures that a borrower either has sufficient income to make both mortgage payments without any rental income, or has an equity position not likely to result in defaulting on the mortgage on the property being vacated.
      2. This applies solely to a principal residence being vacated in favor of another principal residence. It does not apply to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).
  • Policy Exceptions Regarding the Exclusion of Rental Income From a Principal Residence Being Vacated by a Borrower.
    • When a borrower vacates a principal residence in favor of another principal residence, the rental income, reduced by the appropriate vacancy factory, may be considered in the underwriting analysis under the circumstances listed in the table below:
      Exception Description
      Relocations
      1. The borrower is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally-recognized commuting distance.
      2. A properly executed lease agreement (that is, a lease signed by the borrower and the lessee) of at least one year’s duration after the loan is closed is required.
      Note: Underwriters should also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the borrower.
      Sufficient Equity in Vacated Property The borrower has a loan to-value ratio of 75 percent or less, as determined either by:
      1. A current (no more than six months old) residential appraisal, or
      2. Comparing the unpaid principal balance to the original sales price of the property.
      Note: The appraisal, in addition to using forms Fannie Mae 1004/Freddie Mac 70, may be an exterior-only appraisal using Fannie Mae/Freddie Mac Form 2055, and for condominium units, form Fannie Mae 1075/Freddie Mac 466
    • Rental Income From Borrower’s Multifamily Occupied Property:
      • The rent for multiple unit property where the consumer resides in one or more units and charges rent to tenants of other units may be used for qualifying purposes.
      • Projected rent for the tenant-occupied units only may:
        • Be considered gross income, only after deducting vacancy and maintenance factors, and
        • Not be used as a direct offset to the mortgage payment.
    • Rental income from roommates or boarders in a single family property occupied as the consumer’s primary residence is acceptable:
      • The rental income may be considered effective if shown on the borrower’s tax return.
      • If not on the tax return, rental income paid by the roommate or boarder may not be used in qualifying.
Fixed Income
Retirement Income (pension, annuity, and IRA distributions) Document regular and continued receipt of the income, as verified by:
  • Letters from the organization providing the income,
  • Copies of retirement award letters,
  • Copies of signed federal income tax returns,
  • IRS W-2 or 1099 forms, or
  • Proof of current receipt
If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account determine whether the income is expected to continue for at least three years after the date of the mortgage application.
  • In Addition:
    • The borrower must have unrestricted access without penalty to the accounts; and
    • If the assets are in the form of stocks, bonds, or mutual funds, 70% of the value (remaining after any applicable costs for the subject transaction) must be used to determine the number of distributions remaining to account for the volatile nature of these assets.
Documentation of asset ownership must be in compliance with the Age of Documentation policy.
Dissipation / Annuitization of Assets Income
  • If the Dissipation/Annuitization of Assets Income is the sole income being used to qualify the Borrower(s) must be of Retirement Age (over 59.5 years old) and have had a history or retirement asset distribution as income.
    • If used along with other income there must be a history of receiving regular annual, semi-annual, quarterly, monthly or semi-monthly disbursements of income coming from an acceptable Asset source.
Social Security Income
  • Social Security income for retirement or long-term disability that the borrower is drawing from his or her own accounts/work record will not have a defined expiration date and must be expected to continue.
    • However, if Social Security benefits are being paid as a benefit for a family member of the benefit owner, that income may be used in qualifying if the underwriter obtains documentation that confirms the remaining term is at least three years from the date of the mortgage application.
    • Document regular receipt of payments, as verified by the following, depending on the type of benefit and the relationship of the beneficiary (self or other) as shown in the table below.
  • Non-taxable social security income may be grossed up by 125%.
Type of Social Security Benefit Borrower is drawing Social Security benefits from own account/work record1 Borrower is drawing Social Security benefits from another person’s account work record2
Retirement
  • Social Security Administrator’s (SSA) Award Letter, or
  • Proof of current receipt.
  • SSA Award letter,
  • Proof of current receipt, AND
  • Three-year continuance (e.g., verification of beneficiary's age)
Disability
Survivor Benefits NA
Supplement Security Income (SSI)
  • SSA Award Letter, and
  • Proof of current receipts
NA
  1. An SSA Award letter may be used to document the income if the borrower is receiving Social Security payments or if the borrower will begin receiving payments on or before the first payment date of the subject mortgage as confirmed by a recently issued award letter.
  2. Examples of how a borrower might draw Social Security benefits from another persons’ account/work record and use the income for qualifying.
    • A borrower may be eligible for benefits from a spouse, ex-spouse, or dependent parents (the benefit is paid to the borrower on behalf of the spouse, etc.); or
    • A borrower may use Social Security income received by a dependent (minor or disabled dependent).
Alimony & Child Support
  • The following verification requirements for alimony or child support.
    • Documentation that the alimony or child support will continue to be paid for at least three years after the date of the mortgage application, as verified by one of the following:
      • A copy of a divorce decree or separation agreement (if the divorce is not final) that indicates payment of the alimony or child support and states the amount of the award and the period of time over which it will be received.
        Note: If a borrower who is separated does not have a separation agreement that specifies alimony or child support payments, the Underwriter should not consider any proposed or voluntary payments as income.
      • Any other type of written legal agreement or court decree describing the payment terms for the alimony or child support.
      • Documentation that verifies any applicable California law that mandates alimony, child support, or separate maintenance payments, which must specify the conditions under which the payments must be made.
  • Check for limitations on the continuance of the payments, such as the age of the children for whom the support is being paid or the duration over which alimony is required to be paid.
  • Document not less than six months of the borrower’s most recent regular receipt of the full payment.
  • Review the payment history to determine its suitability as stable qualifying income. To be considered stable income, full, regular, and timely payments must have been received for six months or longer. Income received for less than six months is considered unstable and may not be used to qualify the borrower for the mortgage. In addition, if full or partial payments are made on an inconsistent or sporadic basis, the income is not acceptable for the purpose of qualifying the borrower.
Automobile Allowance
  • For an automobile allowance to be considered as acceptable stable income, the borrower must have received payments for at least two years. The Underwriter must add the full amount of the allowance to the borrower’s monthly income, and the full amount of the lease or financing expenditure to the borrower’s monthly debt obligations.
Boarder Income
  • Income from a boarders in the borrower’s principal residence or second home is not considered acceptable stable income with the exception of the following:
    • When a borrower with disabilities receives rental income from a live-in personal assistant, whether or not the individual is a relative of the borrower, the rental payments can be considered as acceptable stable income in an amount up to 30% of the total gross income that is used to qualify the borrower for the mortgage loan.
    • Personal assistants typically are paid by the Medicaid waiver funds and include room and board, from which rental payments are made to the borrower.
    • The following are verifications requirements for income from boarders:
      • Obtain documentation of the boarder’s history of shared residency (such as a copy of a driver’s license, bill, bank statements, or W-2 forms) that shows the boarder’s address as being the same as the borrower’s address.
      • Obtain documentation of the boarder’s rental payments for the most recent 12 months.
Employment Offers of Contracts
  • If the borrower is scheduled to begin employment after the loan closes, the Underwriter may use one of the options outlined below:
    • Loan funded After the Borrower Starts Employment:
      • The underwriter must obtain a paystub from the borrower that includes sufficient information to support the income used to qualify the borrower based on the offer or contract. The paystub must be retained in the mortgage loan file.
    • Loans Funded Prior to Borrower Starting Employment:
      • Purchase transaction
      • Principal residence
      • One-unit property,
      • The borrower is not employed by a family member or by an interested party to the transaction, and
      • The borrower is qualified using only fixed based income.
  • The Underwriter must obtain and review the borrower’s offer or contract for future employment. The employment offer or contract must.
    • Clearly identify the employer and the borrower, be signed by the employer, and be accepted and signed by the borrower.
    • Clearly identify the terms of employment, including position, type and rate of pay, and start date; and
    • Be non-contingent. Note: If conditions of employment exist, the Underwriter must confirm prior to closing that all conditions of employment are satisfied either by verbal verification or written documentation. This confirmation must be noted in the mortgage loan file.
  • Also note that for a union member who works in an occupation that results in a series of short-term job assignments (such as a skilled construction worker, longshoreman, or stagehand), the union may provide the executed employment offer or contract for future employment.
  • The employment start date as shown on the employment offer or contract must be within 90 days of the note date.
  • The Underwriter must document, in addition to the amount of reserves required by the transaction, one of the following:
    • Financial reserves sufficient to cover principal, interest, taxes, insurance, and association dues (PITIA) for the subject property for six months; or
    • Financial reserves or current income sufficient to cover the monthly liabilities included in the debt-to-income ratio, including the PITIA for the subject property, for the number of months between the note date and the employment start date, plus one.
    • Current income refers to income that is currently being received by the borrower (or co-borrower), may or may not be used for qualifying, and may not continue after the borrower starts employment under the offer or contract.
    • Current income may be used in lieu of or in addition to financial reserves.
    • For this purpose, the Underwriter may use the amount of income the borrower is expected to receive between the not date and the employment start date. If the current income is not being used for qualifying purposes, it can be documented by the underwriter using income documentation, such as a paystub, no verification of employment is required. For calculation purposes, consider any portion of a month as full month.
Foster-Care Income
  • Income received from a state or county sponsored organization for providing temporary care for one or more children may be considered acceptable stable income if the following requirements are met:
    • Verify the foster-care income with letters of verification from the organizations providing the income.
    • Document that the borrower has a two year history of providing foster-care services. If the borrower has not been receiving this type of income for two full years, the income may still be counted as stable if:
      • The borrower has at least 12-month history of providing foster-care services, and
      • The income does not represent more than 30% of the total gross income that is used to qualify for the mortgage loan.
Capital Gains Income
  • Income received from capital gains is generally a one-time transaction; therefore, it should not be considered as part of the borrower’s stable monthly income. However, if the borrower needs to rely on income from capital gains to qualify, the income must be verified as stated below:
    • Document a two-year history of capital gains income by obtaining copies of the borrower’s signed federal income tax returns for the most recent two years, including IRS Form 104, Schedule D.
      • Develop an average income from the last two years, and use the averaged amount as part of the borrower's qualifying income as long as the borrower provides current evidence that he or she owns additional property or assets that can be sold if extra income is needed to make future mortgage loan payments. Note: Capital losses identified on IRS Form 1040, Schedule D, do not have to be considered when calculating income or liabilities, even if the losses are recurring.
        • Due to the nature of this income, current receipt of the income is not required to comply with the Allowable Age of Credit Documents policy. However, documentation of the asset ownership must be in compliance with the Allowable Age of Credit Documents policy.
Dividend/Interest
  • The following are verification requirements for interest and dividends income.
    • Verify the borrower’s ownership of the assets on which the interest and dividend income was earned. Documentation of asset ownership must be in compliance with the Allowable Age of Credit Documents.
  • Document a two-year history of the income, as verified by
    • Copies of the borrower’s signed federal income tax returns, or
    • Copies of account statements.
  • Develop an average of the income received for the most two years.
  • Subtract any assets used for down payment or closing costs from the borrower’s total assets before calculating expected future interest or dividend income.
Disability Income-Long Term
  • The following are verification requirements for long-term disability income. It does not apply to disability income that is received from the Social Security Administration.
    • Obtain a copy of the borrower’s disability policy or benefits statement from the benefits payer (insurance company, employer, or other qualified disinterested party to determine.
      • The borrower’s current eligibility for the disability benefits.
      • The amount and frequency of the disability payments, and
      • If there is a contractually established termination or modification date.
  • Generally, long-term disability will not have a defined expiration date and must be expected to continue. The requirement for re-evaluation of benefits is not considered a defined expiration date.
    • If a borrower is currently receiving shorty-term disability payment that will decrease to a lesser amount within the next three years because they are being converted to longterm benefits must be used as income to qualify the borrower.
Housing or Parsonage
  • Housing or parsonage income may be considered qualifying income if there is documentation that the income has been received for the most recent 12 months and the allowance is likely to continue for the next three years.
  • The housing allowance may be added to income but may not be used to offset the monthly housing payment.
Note Income
  • The following verification requirements for notes receivable income.
    • Verify the income can be expected to continue for a minimum of three years from the date of the mortgage application.
    • Obtain a copy of the note to establish the amount and length of payments.
    • Document regular receipt of income for the most recent 12 months.
      • Payments on a note executed within the past 12 months, regardless of the duration, may not be used as stable income.
Trust Income
  • The following verification requirements for Trust income.
    • Confirm the trust income by obtaining a copy of the trust agreement or the trustee’s statement confirming the amount, frequency, and duration of payments.
    • Verify that the trust income will continue for at least three years from the date of the mortgage application.
      • Unless this income is received monthly, documentation of current receipt of the income is not required to comply with the Allowable Age of Credit Documents policy.
Foreign Income
  • Foreign Income is income that is earned by a borrower who is employed by a foreign corporation or a foreign government and is paid in foreign currency. Borrowers may use foreign income to qualify if the following requirements are met:
    • Copies of his or her signed federal income tax returns for the most recent two years that include foreign income.
    • All income must be translated to U.S. dollars. If the borrower is not a U.S. Citizen.
Royalty Payment Income
  • The following provides verification requirement for royalty income:
    • Obtain copies of the following:
      • Royalty contract, agreement, or statement confirming amount, frequency, and duration of the income; and
      • Borrower(s) most recent signed federal income tax return, including the related IRS Form 1040, Schedule E.
  • Confirm that the borrow has received royalty payments for at least 12 months and the payments will continue for a minimum of three years after the date of the mortgage application.
Trailing Co-borrowers
  • Income from trailing co-borrowers will not be considered.
Non Taxable Income
  • The amount of continuing tax savings attributed to regular income not subject to Federal taxes may be added to the borrower’s gross income.
  • The percentage of non-taxable income that may be added cannot exceed the appropriate tax rate for the income amount.
  • Additional allowances for dependents are not acceptable.
    • Documentation Requirements:
      • Must document and support the amount of income grossed up for any nontaxable Income source; and
      • Should use the same tax rate the borrower used to calculate his/her income tax from the previous year.
Note: If the borrower is not required to file a Federal Tax Return, the grossed up tax rate to use is 25%
Unacceptable Income
  • Unacceptable income sources include, but are not limited to, the following:
    • Any unverified source
    • Income that is temporary or a one-time occurrence
    • Rental income received from the borrower’s single family primary residence or second home.
    • Retained earnings
    • Education benefits
    • Allowance income
Property
  • Eligible Property Types
    • 1-2 Unit Owner Occupied Properties
    • Low/Mid/High-Rise Condominiums, Fannie Mae Warrantable
      • Warrantable Types S, T or U
      • New condominium projects (Type R) with Condo Project Manager (“CPM”) approval
      • Site (detached) Condos
    • Planned Unit Development (PUDs)
    • Properties with ≤ 10 acres
      • Maximum 35% land to value
      • No income producing attributes
  • Ineligible Property Types
    • 3-4 Unit Owner Occupied Properties
    • Second Homes
    • Unwarrantable or Limited Review Condominiums
    • Manufactured/Mobile homes/ Modular Homes
    • Condo-hotel units
    • Cooperatives (CO-OPs)
    • Unique properties
    • Log homes
    • Working farms, ranches or orchards
    • Mixed Use Properties
    • Properties subject to oil or gas leases
    • Properties with > 10 acres if property has acreage, appraiser must indicate total acreage. It is not acceptable to have property appraised with only 10 acres in order to meet eligibility.
Appraisal Requirements
First Lien Loan Amount Appraisal Requirement
Purchase Transactions Purchase Transactions
≤$1,000,000 One (1) Full appraisal
>$1,000,000 One (1) Full appraisal + Field Review1
Refinance Transactions Refinance Transactions
≤$1,000,000 One (1) Full appraisal
>$1,000,000 One (1) Full appraisal + Field Review1
  1. Field reviews that come in lower than the Full Appraisal will require a second full appraisal completed by the field reviewer. (Lowest value will be used to base LTV). Field reviews must be ordered Provident Bank Appraisal Department.
  • For properties purchased by seller of the property within 90 days of the fully executed purchase contract, additional requirements apply.
    • Second appraisal required
    • Property seller on the purchase contract is the owner of record
    • Increases in value should be documented with commentary from the appraiser recent paired sales.
  • In addition to the following, refer to Fannie Mae guidelines for appraisal requirements:
    • Appraisals should not include comparables greater than six (6) months old at the time of underwriting review.
    • Properties with values significantly in excess of the predominant value of the subject property’s market area may be ineligible.
    • Fannie Mae/Freddie Mac Forms 1004/70, 1025/72, 1073/465 or 2090 must be used.
    • Appraisals must be dated within 90 days of the Note date. After a 90 day period, a new appraisal is required (re-certification of value is not acceptable).
    • Escrow holdbacks are not allowed unless the holdback has been dispersed and a certification of completion has been issued prior to close by Provident Bank.
    • Appraisal(s) require evidence subject property is equipped with working carbon monoxide detectors.
    • When two appraisals are required, the following apply:
      • Appraisals must be completed by two independent companies.
      • The LTV will be determined by the lower of the two appraised values as long as the lower appraisal supports the value conclusion. The final inspection and/or recertification of value must be for the appraisal with the lower value.
      • The underwriter must review both appraisal reports and address any inconsistencies between the two reports and all discrepancies must be reconciled.
Properties Affected by Disaster Areas
  • The FEMA Declared Disaster Area Policy applies to all areas eligible for Individual and/or Public Assistance due to a federal government disaster declaration.
    • Effective Date of Disaster Policy
    • The disaster-area policy becomes effective as of the incident period end date for the disaster/event. FEMA publishes the incident period along with the declaration date once the area is presidentially declared.
      • For example, refer to the following dates to understand when property re-inspection requirements apply:
        • Disaster Incident Period:
          • Begin Date: January 15
          • End Date: January 17
        • Disaster Declaration Date: February 2
        • Effective Date for Disaster Procedures: January 17
      • Based on the dates noted in the above example, all appraisals performed on or before January 17 would require the appropriate re-inspection or review. Appraisals performed after January 17 would continue to require written certification by the appraiser that indicated whether the property was free from damage and whether the disaster had any effect on value or marketability. If there was damage, the extent of that damage needs to be addressed.
      • Appraisal and Re-Inspection Requirements
        • To ensure the property value has not been impacted by the disaster, a post disaster property re-inspections is required
        • Property is free from damage and the disaster had no effect on value or marketability.
        • If the re-inspection indicates damage, the extent of the damage must be addressed.
        • Completion of repairs is required as evidenced by Form 1004D/442, Appraisal Update and/or Completion Report, or other post disaster inspection report, with photos of interior, exterior, and neighborhood.
  • Standard Appraisal Performed After Incident Period End Date for Disaster
    • Appraisal must include written certification by the appraiser that:
      • Property is free from damage and the disaster had no effect on value or marketability.
      • If the appraisal indicates damage, the extent of the damage must be addressed.
        • Completion of repairs is required as evidenced by Form 1004D/442, Appraisal Update and/or Completion Report, with photos of interior and exterior.
      • The appraisal must include a minimum of three comparable sales, post-disaster.
  • NOTE: That FEMA makes updates to their state lists, so Underwriter should closely monitor FEMA’s online reference at https://www.fema.gov/disasters
Hero / Pace
  • HERO/PACE loans must be paid off prior to close or at closing.
Solar Panels
  • All Solar Leases and Power Purchase Agreements must be reviewed by the Underwriter
    • If the property owner is the owner of the solar panels, standard eligibility requirements apply (for example, appraisal, insurance and title
    • If the solar panels are leased from or owned by a third party under a power purchase agreement or other similar arrangement, the following requirements apply:
      • The solar panels may not be included in the appraised value of the property.
      • The property must maintain access to an alternate source of electric power that meets community standards. For example, properties utilizing leased solar panels must also remain connected to traditional electrical power services to ensure uninterrupted access to electricity in the event the solar panels become non-functioning or are removed.
      • The monthly lease payment must be included in the debt-to-income (DTI) ratio calculation unless the lease is structured to:
        • Provide delivery of a specific amount of energy at a fixed payment during a given period, and
      • In the event of foreclosure:
        • Provident Bank may terminate the lease/agreement and require the third-party owner to remove the equipment;
        • Provident Bank has the right to become the beneficiary of the borrower’s lease/agreement with third party without charge; or
        • Provident Bank has the right, but not the obligation, to enter into a new lease/agreement with the third party, under terms no less favorable than the prior owner
  • Note: Any lease/agreement in which Provident Bank is a party in connection with a foreclosure (whether as beneficiary or direct party), must also be assignable to a subsequent purchaser of the realty from Provident Bank. In addition, Provident Bank must also have the right to terminate the lease/agreement and require removal of the equipment (for example, if the third party places restrictions on the assignment to a purchaser.
    • Title exceptions with respect to the solar panels (for example, easements, notice of contract) may be present on the title provided the interest is not superior to first lien position
    • The title cannot reflect any liens related to the ownership or maintenance of the solar panels that will result in a lien superior to first lien position.
Title and Closing
  • Title Requirements:
    • The title insurance coverage must include an environmental protection lien endorsement (ALTA Endorsement 8.1-06 or equivalent state form provides the required coverage).
    • Applicable Endorsements Different property types (i.e. condos, PUDs) as well as different mortgage types (i.e. lease-holds) may require additional title policy endorsements.
  • Title Exceptions:
    • Provident Bank will not accept a mortgage secured by property that has an unacceptable title impediment, including unpaid real estate taxes and survey exceptions.
    • If surveys are not commonly required in particular jurisdictions, provide an ALTA 9 Endorsement.
    • If it is not customary in a particular area to supply either the survey or an endorsement, the title policy must not have a survey exception.
Inter Vivos Revocable Trust Closing Instructions
  • Each trustee and each individual establishing an Inter Vivos Revocable Trust whose income and assets are used to qualify for the mortgage must separately execute the note and any necessary addendum.
  • Security instrument
    • The trustee(s) of the inter vivos revocable trust also must execute the security instrument and any applicable rider (if used).
    • Each individual establishing the trust whose income and assets are used to qualify for the mortgage must acknowledge all of the terms and covenants in the security instrument and any necessary rider (if used), and must agree to be bound thereby, by placing his or her signature after a statement of acknowledgment on such documents.
    • Any other party that Fannie Mae requires to sign either the promissory note or the security instrument also must execute the applicable document(s).
  • Revocable Trust Rider
    • The use of a revocable trust rider avoids ambiguities for mortgages made to inter vivos revocable trusts by clarifying who is considered to be “the borrower” with respect to any given covenant in the security instrument.
    • If the mortgage is secured by a California property, the Underwriter should use Fannie Mae’s sample rider.
    • If the mortgage is secured by property located in another state, the Underwriter should use a rider that has been appropriately modified to reflect the requirements of that state (unless the Underwriter determines that use of Fannie Mae’s sample Revocable Trust Rider is appropriate for the specific state).
    • In lieu of a Revocable Trust Rider the Underwriter may either:
      • Amend the security instrument to include appropriate definitions and language similar in substance to Fannie Mae’s sample rider, or
      • Use the standard security instrument without such an amendment or the rider.
  • Hold Harmless
    • For a mortgage secured by a property located in a state other than California, or in the case of a California property where the rider was not used, the Seller must hold RRAC harmless should foreclosure proceedings later have to be initiated to acquire the property and RRAC suffers a loss that relates either to the modifications the Seller made (or the inappropriate use of the FNMA sample rider) or to any ambiguity in the application of the covenants in the security instrument.
    • In such cases, the Seller must either repurchase the mortgage or the acquired property or make RRAC whole.
  • Signature Requirements
    • Signature Requirements for Notes and Mortgages involving Inter Vivos Revocable Trusts can be found in the FNMA or FHLMC Seller Guides. These include the form of signature for the trustee(s) and the statement of acknowledgment for each individual establishing the trust whose income or assets are used to qualify for the mortgage.
    • If vesting is held in the name of an inter vivos revocable trust, a Trust Rider applicable to the state of origination should be executed by the designated trustee and acknowledged by each individual establishing the trust whose income and assets are used to qualify for the mortgage (i.e. the borrowers(s).
Power of Attorney Per Fannie Mae Guidelines
  • Overview
    • Except as provided below, an attorney-in-fact or agent under a power of attorney may sign the security instrument and/or note, as long as the lender obtains a copy of the applicable power of attorney. In jurisdictions where a power of attorney used for a signature on a security instrument must be recorded with the security instrument, the lender must ensure that recordation has been effected. The name(s) on the power of attorney must match the name(s) of the person on the affected loan document, and the power of attorney must be dated such that it was valid at the time the affected loan document was executed.
    • The power of attorney must be notarized and, unless otherwise required by applicable law, must reference the address of the subject property. If applicable law requires an original power of attorney for enforcement or foreclosure purposes, an original (rather than a copy) must be forwarded to the document custodian.
  • Allowable Attorneys-in-Fact or Agents Under a Power of Attorney
    • Except as otherwise required by applicable law, or unless they are the borrower’s relative, none of the following persons connected to the transaction shall sign the security instrument or note as the attorney-in-fact or agent under a power of attorney:
      • the lender;
      • any affiliate of the lender;
      • any employee of the lender or any other affiliate of the lender;
      • the loan originator;
      • the employer of the loan originator;
      • any employee of the employer of the loan originator;
      • the title insurance company providing the title insurance policy or any affiliate of such title insurance company (including,
      • but not limited to, the title agency closing the loan), or any employee of either such title insurance company or any
      • such affiliate; or
      • any real estate agent with a financial interest in the transaction or any person affiliated with such real estate agent.
  • As used herein, the borrower’s relative includes any person defined as a relative in this Guide, or a person who is a fiancé, fiancée, or domestic partner of the borrower.
  • For refinance transactions, an individual who would otherwise be prohibited from serving as an attorney-in-fact or agent under the restrictions above may execute the required loan documents on behalf of the borrower(s), provided all of the following conditions are met:
    • The attorney-in-fact or agent is not an employee of the lender.
    • The power of attorney expressly states an intention to secure a loan not to exceed a stated amount from a named lender on a specific property.
    • The power of attorney expressly authorizes the attorney-in-fact or agent to execute the required loan documents on behalf of a borrower only if the borrower has, to the satisfaction of the attorney-in fact or agent in a recorded, interactive session conducted via the Internet, both
      • confirmed his or her identity; and
      • re-affirmed, after an opportunity to review the required loan documents, his or her agreement to the terms and conditions of the required loan documents evidencing such transaction and to the execution of such required loan by such attorney-in-fact or agent.
  • Restrictions on the Use of a Power of Attorney
    • Except as required by applicable law, a power of attorney may not be utilized to sign a security instrument or note if either (or both) of the following applies:
      • No other borrower executes such loan document in person in the presence of a notary public. Exceptions: A power of attorney may be utilized to sign such loan document for each borrower:
        • as permitted in connection with a refinance transaction conducted in a recorded, interactive session on the Internet
        • as described above in Allowable Attorneys-in-Fact or Agents Under a Power of Attorney; or as long as the attorney-in-fact or agent under the power of attorney is either the borrower’s attorney-at-law or the borrower’s relative.
  • Additional Requirements:
    • If a power of attorney is used because the lender determines such use is required by applicable law, the lender must include in the mortgage loan file a written statement that explains the circumstances. Such statement must be provided to the document custodian with the power of attorney.
Recasting Policy
  • Once recorded and the first payment has been made, the loan may be eligible for recasting (re-amortizing) based on the loan specific scenario, including but not limited to the following characteristics:
    • Additional principal amount of $20,000 or more
    • Provident Bank must be the current mortgage servicer and owner of the loan
    • The borrower is required to wait a minimum of 90 days after the loan has recorded.
    • The mortgage must be current with no outstanding past-due payments
    • Provident Bank Servicing Department may charge a fee.
Revised 02/08/2021