UNDERWRITING MANUAL

Table of Contents

A. System Login Credentials .................................................................. 1 1. Advisory ........................................................................................... 1 2. Required Applications ......................................................................... 1

B. Digital Signature for Endorsing PDF Documents ............................... 1 1. Advisory ........................................................................................... 1 2. Creating a Digital Signature Image File ................................................ 2 3. Affixing a Digital Signature to a PDF Document ..................................... 2

C. Encompass Loan Origination System ................................................ 4 1. Encompass Icons and Navigation ......................................................... 4 2. Email Signature ................................................................................. 5 3. Loan Numbers................................................................................... 6 4. Milestones ........................................................................................ 6 5. Milestones – Retail ............................................................................ 6 6. Milestones- DPA 2nd .......................................................................... 8 7. Alerts & Messages ............................................................................. 9 8. Milestone Worksheet and Tasks ......................................................... 10 9. Compliance Review Tool (Mavent) ..................................................... 10 10. Mavent for VA IRRRLs ...................................................................... 11

D. Ordering Services in Encompass ..................................................... 12 1. Introduction .................................................................................... 12 2. Procedures for Integrated Services .................................................... 12

a. Ordering an AUS ........................................................................... 12 b. Ordering Appraisals ....................................................................... 12 c. Ordering a Credit Refresh .............................................................. 12 d. Ordering CTI Services.................................................................... 12 e. Ordering FraudGUARD® ................................................................. 12

E. Encompass Pipeline Views and Reports .......................................... 12 1. Pipeline Page: Highlighting ............................................................... 12

a. White .......................................................................................... 13 b. Light Blue .................................................................................... 13 c. Light Gray .................................................................................... 13 d. Dark Gray .................................................................................... 13 e. Pink ............................................................................................ 13

2. Pipeline Page: Toolbar ...................................................................... 13 a. Column Sorting ............................................................................ 13 b. Column Search Fields .................................................................... 13 c. Column Filters .............................................................................. 13

3. Pipeline Page: Underwriter Pipeline Views ........................................... 14 a. UW – NOV Queue.......................................................................... 14 b. UW – NOV Pipeline ........................................................................ 14 c. UW – PTD Queue .......................................................................... 14 d. UW – Post Closing Stips (Corp) ....................................................... 14 e. UW – Report Card ......................................................................... 14 f. UW – Underwriting Pipeline............................................................... 14 g. UW – Underwriting Queue .............................................................. 14 h. UW – Second Sign ........................................................................ 14

4. Reports Tab .................................................................................... 15 5. Reports .......................................................................................... 15

a. Combined NOV ............................................................................. 15 b. Combined Queues ......................................................................... 15 c. Second Sign ................................................................................. 15

F. Loan Programs ................................................................................ 16 1. Naming Convention ......................................................................... 16 2. Checking the Loan Program .............................................................. 16

G. Investors and Investor Overlays ..................................................... 16 1. Eligible Investors for a Loan .............................................................. 16 2. Guidelines ...................................................................................... 17 3. Standard AFN Overlays .................................................................... 17

H. Second Signatures .......................................................................... 18 1. Encompass Underwriter Second Sign Form (Screen) ............................ 18 2. When 2nd Signatures are Required .................................................... 18

a. New Hire...................................................................................... 18 b. Underwriters in Training ................................................................ 18 c. Jumbo Delegated .......................................................................... 18 d. Other .......................................................................................... 18

3. Pipeline View .................................................................................. 19 I. Underwriter Loan Review ................................................................ 19

1. eFolder Documents .......................................................................... 19 2. Mavent ........................................................................................... 21 3. FraudGuard .................................................................................... 21 4. AUS ............................................................................................... 22 5. Credit Package ................................................................................ 22

a. Transmittal Summary/92900LT/VA Loan Analysis ............................. 22 b. Final 1003 .................................................................................... 22 c. Final 92900A/26-1802a ................................................................. 22 d. Picture ID and Social Security Number Verification ............................ 23

e. Credit Report ................................................................................ 23 f. Income .......................................................................................... 23 g. Assets ......................................................................................... 24 h. Appraisal ..................................................................................... 24 i. Flood Notification ............................................................................ 25 j. Purchase Contract ........................................................................... 25 k. Preliminary Title ........................................................................... 25 l. Earnest Money Deposit (EMD) ........................................................... 26 m. Disclosures .................................................................................. 26

J. Completing Encompass Screens ...................................................... 26 1. Introduction .................................................................................... 26 2. Forms Tab ...................................................................................... 26

K. Adding Conditions ........................................................................... 27 1. Condition Sets ................................................................................ 27

L. Clearing Milestones ......................................................................... 28 1. Underwriter Responsibility ................................................................ 28

M. Clearing PTD Conditions .................................................................. 29 1. Underwriting Screen ........................................................................ 29 2. UW PTD Queue (Retail) .................................................................... 29

N. Clearing a Loan for Docs ................................................................. 29 1. Underwriter Requirements ................................................................ 29

O. Completing the QC Report Card ....................................................... 30 1. Underwriter Responsibility ................................................................ 30 2. Report Card Findings ....................................................................... 31

a. Prefunding QC Issues ..................................................................... 31 b. Post Closing Conditions .................................................................. 31 c. Post Closing QC Findings ................................................................ 31 d. HUD/VA Deficiency Letters .............................................................. 31 e. Investor/Agency Audits or Buybacks ................................................ 31

3. Responding to Findings .................................................................... 31

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A. System Login Credentials

1. Advisory Personal login credentials are not to be shared. All Underwriters must safeguard personal login credentials to all systems, as they are unique to the Underwriter and may offer higher levels of access than personnel in other roles.

If you believe your login credentials to any app or system have been compromised, use the system’s password reset option, contact personnel responsible for generating and distributing the app’s login credentials, or contact the AFN Help Desk (helpdesk@afncorp.com).

2. Required Applications

Each Underwriter needs login credentials for each of the following applications. Upon receipt of credentials for an app, login to ensure they are working properly.

Application/System Credential/Reset Contact AFN Email Help Desk Collateral Underwriter (CU) Help Desk Condo Project Manager (CPM) Help Desk CTI (for Credit pull/refresh) Help Desk Desktop Underwriter (DU) Automatic* Encompass Joan Tyree/Joshua Montano FHA Connection Help Desk Loan Prospector (LP) Automatic* Paycom (HR App) Human Resources VA Portal Help Desk/David Do Investor Websites Help Desk

* Master login populated in Encompass.

B. Digital Signature for Endorsing PDF Documents

1. Advisory An Underwriter’s signature, which serves to affirm document authenticity, Underwriter review, Underwriter approval, etc., is required on many documents. AFN allows Underwriters to use digital signatures on its forms. The digital signature image file must be treated with great care and safeguarded. All Team AFN members are assigned a secure folder on the server. Underwriters are advised to store their digital signature image file in this secure folder, or contact the AFN Help Desk to ask how to securitize a folder locally.

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B. Digital Signature for Endorsing PDF Documents (Cont’d)

2. Creating a Digital Signature Image File

a. Using a pen with dark ink, place your signature on a sheet of white paper.

b. Scan the signature to create an image file (typically File Type = jpg/jpeg).

c. Save the signature file to a secure folder on your PC or the AFN server (to use now and on future documents).

3. Affixing a Digital Signature to a PDF Document

a. While viewing a document in Adobe Acrobat Reader, click the “Fill & Sign” option in the upper right corner.

b. Click the arrow on the “Place Signature” option to reveal additional options, and select “Change Saved Signature.”

(Continued)

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B. Digital Signature for Endorsing PDF Documents (Cont’d)

3. Affixing a Digital Signature to a PDF Document (Continued)

c. The “Place Signature” dialog box will appear:

1) Click the “Use an image” option.

2) Click the [Browse…] button and navigate to the saved digital signature image file; click the [Open] button to select the file.

d. The digital signature will appear in the “Review Your

Signature” pane of the “Place Signature” dialog box.

(Continued)

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B. Digital Signature for Endorsing PDF Documents (Cont’d)

3. Affixing a Digital Signature to a PDF Document (Continued)

e. If the signature appears as expected (looks like your signature), click the [Accept] button (if it does not, it may be necessary to create a new digital signature image file).

f. Use your mouse to guide the signature stamp to the correct place on the document.

g. To affix your signature on future documents, the steps will be more simple if using the same computer:

3) Click the “Fill & Sign” option.

4) Click the “Place Signature” option.

5) Use your mouse to guide the signature stamp to the correct place on the document.

C. Encompass Loan Origination System

1. Encompass Icons and Navigation

Below is a list of icons used throughout Encompass: Icon Name and Description

Alert – One or more alerts exist for the loan

Message – One or more messages exist for the loan

Add – Add a new record within the current function

Edit – Open the selected item for editing

Duplicate – Create a duplicate of the selected item

Save – Save the currently open item

Delete – Delete the selected item

Reset – Discard changes, restore to previous settings

Refresh – Update data (such as a pipeline view)

Find – Search for stored information

Excel – Export selected data to an Excel spreadsheet

Print – Print selected information or go to the Encompass Print Engine to generate forms

(Continued)

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C. Encompass Loan Origination System (Continued)

1. Encompass Icons and Navigation (Continued)

Icon Name and Description

Copy – Copy the selected item

Cut – Remove an item (will place item on the Windows clipboard so it can be pasted to another location)

Paste – Paste an item from the clipboard to the selected location

Email Conversation Log – Open a conversation log dialog box and MS Outlook for the associated contact

Phone Conversation Log – Open a conversation log for the associated contact

Address Book – Open the Business Contacts address book to copy a contact to the file

Calculation Field Unlocked – Value recalculated if field unlocked and related fields changed

Calculation Field Locked – Value will not recalculate if field locked and related fields changed

Rate Lock – No lock activity on the file

Rate Lock – File is locked (if appears in red, rated lock is expired)

Rate Lock – Initial rate lock requested

Rate Lock – Rate lock extension requested

Rate Lock – Rate lock extension requested on an expired lock

Rate Lock – Rate lock extension pending

Rate Lock – Lock cancelation requested

Rate Lock – Rate lock canceled

2. Email Signature

For users who send information via email directly from Encompass, a personal email signature can be setup similar to the manner in which Outlook signatures are setup. To setup an email signature within Encompass: a. Click the Encompass menu (upper left corner of

Encompass screen) and select “Settings…”. b. Click the “+” next to “Personal Settings” to expand the

menu and select “My Profile.” c. Edit the “Email Signature” pane. d. Click the [Save] icon (upper right corner of page) and then

click the [Close] button.

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C. Encompass Loan Origination System (Continued)

3. Loan Numbers

AFN loan numbers are assigned with the first save of a new file, and are 10 digits long (early loan numbers were 9 digits). The first 4 digits are the branch number of the file starter. For example, if the file starter is assigned to the Corporate office (1001), the files will have a loan number beginning with 1001. The last 6 digits of a loan number are unique to the loan. When referring to or looking up a loan by loan number, you can use the last 6 digits.

If the assigned loan number is tied to the wrong branch (indicated by the first four digits), see AFN Bulletin 14-020 for instructions on how to update the branch ID and loan number.

4. Milestones Each channel of business has unique loan milestones to be completed by various personnel. Completing a milestone is typically how a file is passed to the next department or team member.

5. Milestones – Retail

Milestone Milestone Details File Started • Default 1st milestone assigned to each loan

• Loan Officer (LO) assigned • Initial disclosures prepared/sent

App Received • Loan Processor (LP) assigned • Completed by the LO when initial disclosures

are returned signed by the borrower(s) • After completed, loan appears in LP’s pipeline

view and LP moves from Prospects to Pipeline Processing • Completed by LP upon initial review when file

is accepted for processing Submitted • Underwriter (UW) is assigned

• Completed by LP when passing the file to Underwriting

• Loan appears in UW pipeline view Decisioned • Auto-completed when UW approves the loan

• If denied, file remains in Decisioned milestone • If approved, Decisioned and Conditional

Approval milestones are auto-completed • If suspended, milestone remains in Decisioned

milestone Conditional Approval

• Auto-completed when the UW approves the file

PTD Reviews • Completed by the UW when all PTD conditions are reviewed and signed off

(Continued)

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C. Encompass Loan Origination System (Continued)

5. Milestones – Retail (Continued)

Milestone Milestone Details Cleared for Docs • Dry States: Auto-completed when the “PTD

Reviews” milestone is complete AND the Compliance Audit is completed by the Compliance Department

• Wet States: Auto-completed when the “PTD Reviews” milestone is complete AND the Compliance Audit is completed by the Compliance Department AND the QC Audit is completed by the QC Department

Doc Request • Doc Drawer (DD) is assigned • Completed by the LP • Loan appears in DD pipeline view

Docs Out • Funding Assistant (FA) is assigned • Completed by the DD when loan docs have

been drawn and sent • Loan appears in FA pipeline view

Docs Signing • Funder (FD) is assigned • Completed by the FA when loan docs are

signed by the borrower(s) and returned • Loan appears in Funder’s pipeline view

Docs Review • Completed by the FD • Prior to Funding (PTF) conditions are

obtained, reviewed and signed off at this milestone

Funding • Shipper (SH) is assigned • Completed by the FD when loan has funded • Loan appears in SH pipeline view

Shipping • Post Closer (PC) is assigned • Completed by the SH when file has been

shipped to the Investor • Loan appears in PC pipeline view

Purchased • Interim Servicer (IS) is assigned • Completed by the PC when the loan has been

purchased by the investor • Loan appears in IS pipeline view

Reconcile • Trailing Docs (TD) is assigned • Completed by Accounting personnel • Loan appears in TD pipeline view

Completion • Completed by TD when all trailing docs have been received/distributed and no more tasks are required on the file

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C. Encompass Loan Origination System (Continued)

6. Milestones- DPA 2nd

Milestone Milestone Details File Started • Default 1st milestone assigned to each loan

• Loan Officer (LO) assigned • Initial disclosures prepared/sent

App Received • Loan Processor (LP) assigned • Completed by the LO when initial disclosures

are returned signed by the borrower(s) • After completed, loan appears in LP’s pipeline

view and LP moves from Prospects to Pipeline • LP to change “Channel” on AFN Borrower

Summary Origination” screen to “Brokered and click [Save], then the remaining milestones will change according to the Brokered Out channel requirements

Processing • Completed by LP upon initial review when file is accepted for processing

Doc Request • Doc Drawer (DD) is assigned • Completed by the LP • Loan appears in DD pipeline view

Docs Out • Funding Assistant (FA) is assigned • Completed by the DD when loan docs have

been drawn and sent • Loan appears in FA pipeline view

Docs Signing • Funder (FD) is assigned • Completed by the FA when loan docs are

signed by the borrower(s) and returned • Loan appears in Funder’s pipeline view

Docs Review • Completed by the FD • Prior to Funding (PTF) conditions are

obtained, reviewed and signed off at this milestone

Funding • Shipper (SH) is assigned • Completed by the FD when loan has funded • Loan appears in SH pipeline view

Shipping • Post Closer (PC) is assigned • Completed by the SH when file has been

shipped to the Investor • Loan appears in PC pipeline view

Purchased • Interim Servicer (IS) is assigned • Completed by the PC when the loan has been

purchased by the investor • Loan appears in IS pipeline view

(Continued)

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C. Encompass Loan Origination System (Continued)

6. Milestones – DPA 2nd (Continued)

Milestone Milestone Details Reconcile • Trailing Docs (TD) is assigned

• Completed by Accounting personnel • Loan appears in TD pipeline view

Completion • Completed by TD when all trailing docs have been received/distributed and no more tasks are required on the file

7. Alerts & Messages

The Alerts & Messages tab is an important tool that should not be overlooked or ignored. The number of alerts (shown in red) and messages (shown in green) on a file will appear on the tab as well as next to a loan listed in the pipeline view. If no numbers appear, there are no alerts/messages; if, however, there is a number in a red box that means there are alerts on the file that require immediate action.

These alerts notify the user that an event has occurred, is pending or is due (or overdue), and can include items such as the following (this is not an exhaustive list):

• ATR/QM Notifications

• Compliance Review Ordered

• Document Expected or Document Expired

• eFolder Updated

• GFE Expiration

• HUD-1 Tolerance Violated (RESPA)

• Milestone Completed

• Milestone Expected

• Rate Lock Activity

• Re-disclose GFE (APR Change)

• Send Initial Disclosures

When viewing alerts and messages on the “Alerts & Messages” tab, if a red flag appears next to an entry it signifies a compliance (RESPA or MDIA regulation) alert. If there is a number in a green box, it signifies unread file messages. The user can click on any alert or message to view corresponding information in the right pane of the loan window.

For more information, refer to the Alerts and Messages Matrix.

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C. Encompass Loan Origination System (Continued)

8. Milestone Worksheet and Tasks

Every milestone has an associated “Worksheet” with areas for Documents, Tasks, Required Fields and Milestone Comments. To access the Worksheet, go to the “Log” tab and click the milestone (i.e. “Submittal”). Tasks are either programmed by the administrator (Corporate) or can be added by a user. Adding tasks can help the user (or others with whom the user will interact while working the file) with required follow-up and other important file activity.

To add a task, click the [Task List] button, and then click the “Add” icon. A Task dialog box will appear. The user is able to give the task High, Normal or Low priority, select the milestone at which it should be completed, indicate number of days to complete, assign follow-up alerts and leave comments.

9. Compliance Review Tool (Mavent)

The Encompass Compliance Review tool (Mavent) is used during the loan process to run a compliance check of the file. This compliance check reviews file data and also runs checks against compliance with TILA, HOEPA, NMLS Licensing, High Cost Loans, Consumer Credit, ATR/QM and various other industry regulations.

To access Mavent, click the “Tools” tab and then select the “Compliance Review” option. Reviews are automatically ordered at certain milestones and can also be manually ordered. When manually ordering, be aware of the two different types of Mavent reports: Preview and Review.

(Continued)

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C. Encompass Loan Origination System (Continued)

9. Compliance Review Tool (Mavent) (Continued)

A Preview report is used to test compliance issues prior to ordering the full Mavent report (Review). Note that Preview results are based on the loan’s current APR and finance charge amounts, not the disclosed values. The Preview report will also include a note across the top of the report indicating it is a Preview (and not a full compliance report).

When either Mavent report is generated a Compliance Review Audit Results window may appear with a list of “fatal” errors and/or warnings. If this occurs, the user should click the “Go to Field” option next to each listed error/warning and correct it.

The following Encompass fields (at a minimum) are required prior to running a Mavent report:

• Loan amount (Field ID 1109)

• GFE Application Date (Field ID 3142) or Application Date (Field ID 745)

• Appraised Value (Field ID 356) or Estimated Appraised Value (Field ID 1821)

• Loan Term (Field ID 1347)

• Note Rate (Field ID 3)

• First Payment Date (Field ID 682)

• If ARM: Index Value (Field ID 688)

• Zip Code (Field ID 15)

Note: To go to a field using the field ID, press [Ctrl] + [G], enter the field ID in the box that appears and press [Enter].

10. Mavent for VA IRRRLs

Run Mavent preview to ensure the file is in compliance with recoupment requirements:

a. Go to the Encompass “Compliance Review” tool.

b. Click the Compliance Service [Preview] button.

c. Review Mavent results to ensure VA IRRRL Recoupment receives a “PASS” (See examples of ALERT and PASS below.).

d. Update Investor eligibility if the loan does not receive a “PASS” but meets AFN Rebuttable Presumption requirements (see AFN Rebuttable Presumption VA IRRRL Policy).

(Continued)

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C. Encompass Loan Origination System (Continued)

10. Mavent for VA IRRRLs (Continued)

Example ALERT Messages (VA IRRRL Recoupment and VA IRRRL Presumption of Compliance):

Example PASS Message (VA IRRRL Recoupment):

D. Ordering Services in Encompass

1. Introduction Services, such as AUS Reports, Appraisal Ordering, Credit Reports/Refreshes, FraudGUARD, and others are available through Encompass Services. These integrated services eliminate duplicate data entry, save time, and offer seamless access to third-party data required to make Underwriting decisions.

2. Procedures for Integrated Services

Refer to the procedures on the AFN Intranet for instructions:

a. Ordering an AUS

b. Ordering Appraisals

c. Ordering a Credit Refresh

d. Ordering CTI Services

e. Ordering FraudGUARD®

E. Encompass Pipeline Views and Reports

1. Pipeline Page: Highlighting

Click the “Pipeline” tab to view the pipeline page. The pipeline is the starting point for originating, viewing, and managing loans. Loans in a pipeline view may be subtly highlighted; below is the meaning of the highlight colors:

(Continued)

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E. Encompass Pipeline Views and Reports (Continued)

1. Pipeline Page: Highlighting (Continued)

a. White

These are active originated loans.

b. Light Blue

This signifies a loan that is currently open by the user on the “Loan” tab.

c. Light Gray

These loans are active, but currently read-only because another user is editing the file.

d. Dark Gray

These loans are currently read-only; this is due to the loan having reached a milestone at which the user is no longer allowed to edit the data.

e. Pink

Loans with a pink highlight have received an Adverse action (such as application denied, withdrawn, or closed).

2. Pipeline Page: Toolbar

The pipeline page toolbar allows the user to filter loans viewed. To see Underwriting pipeline views, click the “Pipeline View” field. Select a view and the loans on the page will change according to the pipeline view’s filters.

a. Column Sorting

Click any column header to sort the pipeline by that column (1 click sorts low to high, a 2nd click sorts high to low).

b. Column Search Fields

Enter data in any white search field (below the column headings) to search for a loan or loans meeting that criteria (for example, enter a branch number in the Loan Number field to see loans for that branch).

c. Column Filters

Click any gray field to see a list of filter options (for example, click “Loan Type” to select Conv, FHA, VA, etc.).

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E. Encompass Pipeline Views and Reports (Continued)

3. Pipeline Page: Underwriter Pipeline Views

Pipeline views provide an easy, paperless manner in which to filter the Encompass database and view loans with a common status. Following are some pre-programmed pipeline views developed to assist Underwriters in pipeline management:

a. UW – NOV Queue

This is a list of VA loans with appraisals issued that require a SAR Underwriter’s NOV; these files need to be worked on.

b. UW – NOV Pipeline

This is an expanded list of VA loans that require NOVs, and includes loans not yet assigned to an Underwriter through completed loans.

c. UW – PTD Queue

This is a list of loans submitted for PTD review.

d. UW – Post Closing Stips (Corp)

This view is used by Underwriters to review and work on Post Closing stipulations.

e. UW – Report Card

This view is used to track Post Closing’s Level 3 Findings, Post Closing QC, FHA/VA Deficiency Letters, and Investor/Agency Audits/Buybacks.

f. UW – Underwriting Pipeline

This is a list of loans assigned to the logged in Underwriter that are still in process (have not canceled or funded)

g. UW – Underwriting Queue

This is a list of new loans to be underwritten.

h. UW – Second Sign

This view shows loans for which a second signature is required according to AFN policy that have not been cleared by the AFN Credit Risk Department or an Underwriting Manager.

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E. Encompass Pipeline Views and Reports (Continued)

4. Reports Tab Encompass has a built in report tool that is accessed by clicking the “Reports” tab. To see reports developed for Underwriting:

a. Click the “Reports” tab.

b. Click the “Folder” field and select “Public Reports”

c. Double-click “Underwriting” to see the list of Underwriting reports.

5. Reports Underwriters will typically use Pipeline Views rather than reports for daily pipeline management. There are, however, reports available for Underwriters (as developed by our Database Administrator).

a. Combined NOV

This is a report of all loans with an outstanding NOV.

b. Combined Queues

This is a report that combines new loans to underwrite and loans newly ready for PTD Review.

c. Second Sign

This is a report of all loans for which a second signature is required that have not been cleared by the Credit Risk Department or an Underwriting Manager.

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F. Loan Programs

1. Naming Convention

AFN Loan Program names are developed according to the following formula:

a. 1st letter = loan type (Conv, NonQM, FHA, VA, USDA, etc.)

b. 2nd letter = amortization (Fixed, ARM)

c. Digits = loan term in years (15, 20, 25, 30)

d. Trailing letters are program-specific (DURP = DU Refi Plus, LPOA = LP Open Access, HB = High Balance, etc.)

Examples:

• FF30 = FHA Fixed 30-year Term

• FF30 STRML = FHA Fixed 30-year Term Streamline Refi

• CA5/1L HB = Conv ARM 5/1 Libor High Balance

2. Checking the Loan Program

The Underwriter is required to ensure the Loan Program named on the file is correct. If the Underwriter believes it is incorrect based on the submission, clarify with the Loan Originator or Loan Processor.

G. Investors and Investor Overlays

1. Eligible Investors for a Loan

On the Encompass “AFN - UW Summary - 1” form (screen) the Underwriter indicates investors for which the loan qualifies.

Ensure the locked investor is one of the investors marked eligible (if not, an alert will fire).

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G. Investors and Investor Overlays (Continued)

2. Guidelines AFN has a large assortment of Investors, as well as approvals with Fannie Mae (FNMA), Freddie Mac (FHLMC), and Government National Mortgage Association (GNMA/Ginnie Mae).

The Underwriter is responsible for reviewing the loan against agency guidelines to ensure the loan is compliant with them. The Underwriter is also responsible for reviewing the applicable AFN overlay matrix to ensure the loan meets overlays for our investors. AFN Overlay Matrices are available on the Intranet.

3. Standard AFN Overlays

Below are standard AFN overlays. This is not an exhaustive list, and it could change. Refer to AFN Investor Overlay Matrices for more information.

a. Construction-to-Perm: One-time and two-time closings where construction will not be completed prior to closing is not allowed.

b. Co-ops are not allowed.

c. EEMs are not allowed.

d. Escrow holdbacks require Sr. Management approval, and are only done under extreme circumstances since the loan will not be purchased until repairs are made (This does not include HUD REO Repair Escrows; repairs for this product are allowed without Sr. Mgmt approval, but must be true HUD REO Repair Escrow listed on the purchase contract.).

e. LP AUS is not allowed for FHA transactions.

f. Transferred employment: If the borrower will NOT begin the new job before our loan is funded, Sr. Management approval is required.

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H. Second Signatures

1. Encompass Underwriter Second Sign Form (Screen)

The “Underwriter Second Sign” form must be completed prior to completing the “Decisioned” milestone. Some of the Yes/No questions are automatically populated according to file data; items in red font must be answered by the Underwriter.

2. When 2nd Signatures are Required

a. New Hire

AFN’s Credit Risk Department will work with each new Underwriter’s Underwriting Manager to audit a minimum of 10 loans underwritten by the new Underwriter.

b. Underwriters in Training

Underwriters cleared for underwriting Conventional loans, but not FHA or VA, will require a second signature for those loan types until the “in Training” status is lifted.

c. Jumbo Delegated

All jumbo loans, regardless of the Underwriter’s status, require a second signature.

d. Other

Loans including the following criteria require 2nd signatures:

1) FHA Gift

2) FHA/VA Manual Underwrite

3) FHA 3-4 Unit (self-sufficiency test)

4) FHA Mortgage Credit Rejects

5) Conventional 7—10 Financed Properties

6) Loan Amounts > $625,500

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H. Second Signatures (Continued)

3. Pipeline View

a. Pipeline view “UW - Second Sign” lists loans that require a second signature. See the “Second Sign Status” column for action required, and the “Questions Listed” column for the second signature requirement reason.

b. Second Sign Status Definitions

1) Second Sign Required – Audit required by Credit Risk Dept. or Underwriting Manager.

2) UW Response Required – Underwriter to respond to findings on the Encompass Underwriter second Sign form (screen).

3) Manager Review/Close – Manager will review the UW response, discuss with Underwriter, and/or close out the audit.

I. Underwriter Loan Review

1. eFolder Documents

The Encompass eFolder is the paperless system where electronic copies of all file documents are kept. There are document placeholders under which documents are filed.

Underwriters should note the following regarding eFolder documents and document filing:

a. When accessing the eFolder Documents tab, ensure the “Stacking Order” is “*Underwriting View.”

Set and save the view as follows:

1) Select All Documents as the Document Group.

2) Select *Underwriting View in the Stacking Order field.

3) Click the [Save] icon next to the Documents View field; the Save View dialog box will appear.

4) Enter “Underwriter” in the “Save as” field.

(Continued)

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I. Underwriter Loan Review (Continued)

1. eFolder Documents (Continued)

5) Click the “Set as my default view” checkbox. 6) Click the [Save] button.

b. Ensure all documents are filed under correct placeholders so

they will be submitted to agencies/investors as required.

c. To ensure documents are not altered, deleted, or replaced by others after submission to underwriting, lock the documents down as follows at completion of both the “Decisioned” and “PTD Reviews” milestones:

1) Single-click the top document in the list, then press [Ctrl] + [A] keys to select all documents.

2) Click the “Set Document Access” icon ( ) and the “Document Access Rights” dialog box will appear.

(Continued)

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I. Underwriter Loan Review (Continued)

1. eFolder Documents (Continued)

3) Click the checkbox next to the “PROTECT DOCUMENT” role, and then click the [Save] button.

d. To view a document in the list, double-click the document name; a “Document Details” dialog box will appear.

e. As each document is reviewed and deemed acceptable, the Underwriter must mark the document as “Ready to Ship” in the “Tracking” section of the Document Details screen.

This lets the Docs/Funding/Post Closing Departments know the Underwriter has reviewed and approves the document prior to drawing docs, funding and shipping the file.

2. Mavent The Underwriter is responsible for reviewing the Mavent (Compliance Review) report for the following:

a. Higher Price Mortgage Loans (HPMLs) (See AFN Handling HPMLs procedure)

b. VA Recoupment – Should not exceed 60 months; check the figures to ensure they are correct.

c. VA 1% Non-allowable – The Mavent report will notify if these fees are exceeded

3. FraudGuard When reviewing FraudGUARD, the Underwriter is to:

a. Determine the borrower’s risk score, and clear any high impact alerts.

b. Make comments validating cleared borrower risk alerts and note how they are resolved.

c. Determine the value/property risk score, and clear any high alerts.

d. Make comments validating cleared value/property risk alerts and note how they are resolved.

NOTE: All conventional appraisals are reviewed by the Appraisal Review Department, so the Underwriter does not need to address value and eligibility for these transactions.

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I. Underwriter Loan Review (Continued)

4. AUS The Underwriter is to review, and in most cases update, the AUS.

a. Note that all credit documents and appraisals expire at 120 days, regardless of AUS findings.

b. Follow AUS findings and review the applicable AFN Investor Overlay Matrix to ensure the file is properly documented.

c. Read AUS findings; add any unresolved conditions to the Encompass eFolder Underwriting Conditions screen.

d. Access the AUS; make changes/ updates as necessary (see Ordering an AUS procedure).

e. Upload the most recent version of the AUS to the Encompass eFolder; move any previous versions to the eFolder “Trash” repository.

f. Before clearing the file for docs, ensure the AUS matches the information in Encompass and also the information on the 1008/92900LT/VA Loan Analysis.

5. Credit Package

a. Transmittal Summary/92900LT/VA Loan Analysis

The Underwriter must complete this form and upload it to the eFolder before the PTD Review milestone is completed.

b. Final 1003

The Underwriter must make any required changes in Encompass to ensure the final 1003 that is printed with loan docs is correct.

c. Final 92900A/26-1802a

The Underwriter is to make any required changes in Encompass to the final 92900A/26-1802a to ensure the printed form is accurate.

1) 92900A – The Underwriter must print the form and apply a digital signature to page 3 before uploading to the eFolder. The Doc Drawer will print the remaining pages to be sent with loan docs for signatures.

2) 26-1082a – The Doc Drawer will print pages 1 & 2 and send out with loan documents for signatures.

(Continued)

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I. Underwriter Loan Review (Continued)

5. Credit Package (Continued)

d. Picture ID and Social Security Number Verification

AFN requires a valid, current (not expired) picture ID and verification of the borrower’s social security number.

1) Picture ID – State issued Driver’s License is most commonly used picture ID. The ID must be valid, current (not expired) and should be checked for name, DOB, and address accuracy.

2) SSN Verification – If a Social Security Card is provided and there are no FraudGUARD or other alerts or “red flags,” a SSA89 does not need to be processed. If the SS Card is not provided and/or there is an alert or red flag, a processed SSA89 is required for validating the Social Security Number.

e. Credit Report 1) Credit reports are valid for 120 days after the issue date. 2) Review for accuracy of the borrower name(s), address

(current and past), social security number, etc. 3) Review liabilities to determine monthly debts. 4) Request a credit supplement for all mortgage to ensure

they are updated with a current pay history through the funding month.

5) Review for disputed accounts. 6) Review previous addresses and compare to 1003 and

other documents; request LOE for any discrepancy in last 2 years.

7) Review for additional/different SSNs. 8) Review for fraud victim alert. 9) Review inquiries and request LOE for any inquiries that

appear over last 120 days (except mortgage credit pulls).

f. Income 1) Income documentation is valid for 90 days. 2) Complete the “Income Calculation Worksheet” form

(screen), and then use the [Print] button in the upper right corner to generate a document that must be uploaded to the eFolder.

3) VOEs, Paystubs W2s & other income documentation are all filed in the same placeholder in the eFolder (“Income-VOEs & Paystubs & W2s/1099s & Misc”).

(Continued)

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I. Underwriter Loan Review (Continued)

5. Credit Package (Continued)

Each borrower’s documentation should be filed under a separate placeholder, and documents should be filed in this order:

a) VOE (if required by loan program) b) Paystubs (with most recent on top) c) W2/1099 (with most recent on top) d) Other

4) P&L and/or Balance Sheet: Refer to the AUS or

agency guidelines to determine what is required. 5) Tax returns are only required if the borrower is self

employed or owns rental property; ensure they are properly filed in the eFolder in the same placeholder with the most recent on top.

g. Assets 1) Asset documentation is valid for 90 days. 2) Refer to the AUS for the number of bank statements

required. 3) All assets for one borrower or married couple are placed

in one placeholder with the most recent on top. 4) Review bank statements to ensure all large deposits are

sourced properly according to agency guidelines and investor overlays.

5) Ensure all pages of bank statements are provided; a missing page will delay the purchase of the loan.

h. Appraisal

1) An appraisal is valid for 120 days.

2) Ensure the AIR Policy Certification was completed accurately by the Loan Processor and uploaded to the correct placeholder in the eFolder.

(Continued)

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I. Underwriter Loan Review (Continued)

5. Credit Package (Continued)

3) First generation appraisal is required. (To determine this, open the “Property-Appraisals” document and click the “View in Original Format” button; if the appraisal is searchable using “[Ctrl] + [F]” it is first generation.)

4) Review appraisal to determine if the value is supported; request corrections/updates as needed.

5) If appraisal is “subject to repairs,” condition for a 1004d. 6) FannieMae/FreddieMac conventional appraisals require

UCDP SSRs. 7) FHA loans require EAD SSRs. 8) For FHA appraisals, log the appraisal and sign/upload a

92800 5B to the eFolder. 9) For VA appraisals, condition for a Lender’s Notice of

Value (NOV) if not in the file. The AFN Staff Appraisal Reviewer (SAR) who completes the NOV must add any appraisal-related conditions when the NOV is issued.

i. Flood Notification

Review for accuracy; if property in a flood zone, condition for flood insurance.

j. Purchase Contract 1) Review for accuracy; request addendums if needed. 2) All pages must be supplied; condition for missing pages.

k. Preliminary Title

This is reviewed to assure the property meets requirements of FHA, GSEs, USDA, VA, and any other investor’s guidelines specific to the loan type.

1) eview any judgments or liens on title to assure they are satisfied at or prior to closing.

2) Review the policy for the existence of PACE financing and apply applicable agency guidelines through conditioning.

3) Review the report for the existence of private transfer fees.

a) For Fannie and Freddie loans, if the private transfer fee was created before February 8, 2011 the fee may not meet FHFA 12 CFR Part 1228 requirements.

(Continued)

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I. Underwriter Loan Review (Continued)

5. Credit Package (Continued)

b) FHA loans may not be eligible due to HUD’s assumability required framework.

c) Always check with an Underwriting Team Manager if a private transfer fee exists on the subject property.

l. Earnest Money Deposit (EMD)

Ensure any EMD is documented properly in the file.

m. Disclosures

Underwriters do not have to review most disclosures; they are reviewed by a compliance team prior to submission. Please do not alter, move or rearrange disclosures.

J. Completing Encompass Screens

1. Introduction Screens the Underwriter is required to complete and/or review are located under two tabs on the left navigation bar in Encompass, the Forms tab, and the Tools tab. Conditions are added/reviewed in the eFolder under the Underwriting Conditions tab.

2. Forms Tab Screens for standard forms, such as the 1003, HUD Addendum and other HUD forms, and VA forms are under the Forms tab. There are also other forms Underwriters may need to complete/review; some customized and/or custom built by AFN.

• AFN – UW Summary – 1

• AFN – UW Summary – 2

• Bond/DPA Checklist • FHA Management • FHA Max Mortgage Streamline • FHA Streamline NTB • HPML Checklist • LP Open Access Max Mortgage Worksheet • Residual Income Worksheet • Statement of Denial • Underwriter Comparison • Underwriter Second Sign • Underwriting

(Continued)

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J. Completing Encompass Screens (Continued)

2. Forms Tab (Continued)

• USDA Management • VA Management • VA Residual Income Guideline Table

3. Tools Tab • AUS Tracking • Cash-to-Close • Compliance Review (Mavent) • Net Tangible Benefit • Piggyback Loans • Prequalification • Tasks • Underwriter Summary

K. Adding Conditions

1. Condition Sets

There are standard underwriting condition sets that list conditions common to each loan program type. There are supplemental condition sets, identified with a leading asterisk (*), which are used in conjunction with the standard sets to further ensure all required conditions are applied to the loan. Using these condition sets saves the Underwriter time and helps to ensure all required conditions are added to the file. Following are standard condition sets that must be used:

Be aware, there are similar conditions sets with a leading ”WS” that are used for wholesale loans. Take care not to use wholesale conditions on retail loans.

(Continued)

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K. Adding Conditions (Continued)

1. Condition Sets (Continued)

Be aware, there are similar conditions sets with a leading ”WS” that are used for wholesale loans. Take care not to use wholesale conditions on retail loans.

These are supplemental condition sets to be used in conjunction with the standard sets, as applicable.

Example: If underwriting a conventional purchase in the state of Texas, use standard condition set for Conventional Purchase, and supplemental condition set for *Texas. Note: There are also conditions sets with a leading “(Funding)” that are only to be used by the Funding Department.

L. Clearing Milestones

1. Underwriter Responsibility

The Underwriter is responsible for completing the following milestones:

a. Decisioned – Once the loan has been fully underwritten, all conditions added, and all Encompass screens completed, mark this milestone as finished.

b. Conditional Approval – When the loan is Decisioned, and the Underwriter enters an approval date on the AFN – UW Summary – 2, this milestone will auto-complete.

c. PTD Review – Once all PTD conditions are signed off, the Underwriter will complete this milestone.

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M. Clearing PTD Conditions

1. Underwriting Screen

There is a screen labeled “Underwriting” on the Encompass Forms tab.

a. This screen is used to log the PTD condition communication between the Loan Processing and Underwriting.

b. There are two sections on the screen: the “Underwriting Review” section, and the “From Processor to Underwriter” section.

c. There is also a hyperlink in the Underwriting Review section heading that leads to an “Underwriting Priority” spreadsheet that lists the Underwriting Department’s priorities for the day, assigning loans to each Underwriter.

2. UW PTD Queue (Retail)

When the Loan Processor has PTD conditions ready for review, the file will be marked by the Loan Processor and the loan will appear in the Underwriter’s PTD Queue.

a. Review PTD Conditions.

b. Go to the Underwriting Screen.

c. Click the “Reviewed” checkbox next to the last “Cond’s submitted to UW” entry.

d. The date/time and Underwriter’s name will auto-populate.

Encompass captures the number of Underwriter touches per file, as well as the length of time a file is in the PTD Queue before marked as Reviewed.

Once all PTD conditions are reviewed and cleared, the Underwriter must complete the PTD Review milestone.

N. Clearing a Loan for Docs

1. Underwriter Requirements

Complete the following prior to clearing a loan for docs: a. All PTD conditions must be signed off. b. All documents in the eFolder must be indexed correctly, and

marked as “Ready to Ship” in the Tracking section of the Document Details screen.

c. Any items found in the Untitled folder must be properly filed or moved to the Trash.

d. The income calculation worksheet must be completed and uploaded to the eFolder.

e. Verify monthly insurance, taxes, and MI are accurate. (Continued)

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N. Clearing a Loan for Docs (Continued)

2. Underwriter Requirements (Continued)

f. Ensure any/all FraudGUARD alerts are addressed. g. Verify mortgage payments are rated through the month of

closing for all mortgages on the credit report. h. Review document expiration dates on AFN-UW Summary-2

for accuracy. i. Pull a credit refresh and make any adjustments if monthly

payments have increased. (See the AFN Ordering a Credit Refresh procedure.)

j. Ensure Encompass and AUS data match. k. Ensure Encompass data and the 1008/92900LT/VA Loan

Analysis in the eFolder match, paying particular attention to the property value, property type, assets, and gift amounts. Rerun the AUS if necessary.

l. Move all except the final AUS to the eFolder TRASH folder. m. Ensure all debts being paid off are listed as a loan condition. n. Complete the final transmittal (1008/92900LT/VA Loan

Analysis), sign if needed, and upload to the eFolder. o. Complete, sign & upload all other forms required based (92800

5B, VA Loan Summary, Max Mortgage Worksheet, etc.). p. Check Compliance Review (Mavent). (See the AFN Handling

HPMLs procedure.) q. Complete the 4506T screen (“Request for Transcript of Tax”

under the Encompass Forms tab). (See AFN Encompass Newsflash #143.)

r. Clear any Underwriting Alerts. (See the Encompass Alert/ Messages Matrix.)

s. Click the “[ ] Finished” button on the PTD Reviews Worksheet complete the PTD Review milestone.

O. Completing the QC Report Card

1. Underwriter Responsibility

The underwriter is responsible for reviewing and responding to the items listed on the Report Card. The “UW – Report Card” pipeline view is used to monitor loans that require an Underwriter response and should be checked daily.

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O. Completing the QC Report Card (Continued)

2. Report Card Findings

a. Prefunding QC Issues A prefunding QC audit is completed on 100% of AFN files, and classifies any issues found as Level 1, Level 2, or Level 3. If any Level 3 issues exist, which will prevent the file from being purchased by an investor, the file will be pushed back to underwriting. These findings are not listed on the Report Card; any disputes should be addressed with the Prefunding QC or Underwriting Manager.

b. Post Closing Conditions These are Level 3 conditions that will delay a loan from being timely purchased. Underwriters must review and respond within 24 hours.

c. Post Closing QC Findings These are Level 3 findings from the AFN monthly post closing QC Audit. Underwriters must review and respond within 72 hours so a mandatory company-wide response can be prepared by the Executive Vice President of Operations.

d. HUD/VA Deficiency Letters These are findings from HUD/VA deficiency letters received. Underwriters must review and respond within 48 hours so our Post Closing QC Manager can draft a response to HUD/VA.

e. Investor/Agency Audits or Buybacks These findings are a result of agency or investor audits, and may require only an explanation, or may require a repurchase. Underwriter must review and respond within 48 hours so Director of Credit Risk/QC Manager can prepare a response.

3. Responding to Findings

a. Go to the UW – Report Card pipeline view; double-click to open a loan to which to respond.

b. Click the “Report Card” option on the Forms tab. c. Click the[Response] button on the title bar of each of the

four sections on the page, starting with Post Closing Conditions (Level 3).

d. Click to Agree or Dispute each item listed. 1) If Underwriter agrees, finding is placed on record and

remains on Underwriter’s history of underwriting errors. 2) If the Underwriter disputes, he/she must provide an

explanation that will be reviewed by a Manager. 3) The Manager will agree or dispute the explanation; if the

Manager disagrees the finding stands and will remain on the Underwriter’s history of underwriting errors.