MEET JEFF WILSON V I C E P R E S I D E N T O F M I L I TA R Y

MEET JEFF WILSON V I C E P R E S I D E N T O F M I L I TA R Y & VETERAN LENDING A PROVEN LEADER Retired Loan Guaranty Officer over 27 years at Phoenix RLC Retired Army Major over 21 years active and reserve Key Initiatives include: Wholesale/Retail Interface COE & Military document retrieval Military Friendly Brand 2017,2018 & 2019 Nationwide community engagement

MAJOR TOPICS OF INTEREST VA Circular 26-19-5; Cash Out Refinance Loans VA Circular 26-19-22; IRRRL processing VA Circular 26-20-13 (Change 1); COVID-19 Appraisal issues

Overview of Discussion Topics VA Cash Out Refinance Loans IRRRL Policy Guidance 26-16-22 Recoupment Exceptions NTB Factors Seasoning Loan Comparison Statement COVID-19 Appraisals Exterior Only Desktop appraisals Value Limitations Inspections

VA Circular 26-19-5: VA Cash Out Refi What they are why is it important and how do you deal with them? Types of Cash Out Refinance Loans LTV limitations Net Tangible Benefits (NTB) Loan Comparison Statement Home Equity Disclosure Loan Seasoning Fee Recoupment

VA Circular 26-19-5: VA Cash Out Refi If anyone ever sees a Type I refi I want to see it. I doubt anyone will ever do one except if the do a loan for someone that won the lottery. Types of Cash Out Refinance Loans Type I VA to VA loans only Cannot increase the loan balance Type II Any loan to VA Can increase the loan balance

VA Circular 26-19-5: VA Cash Out Refi LTV is a big issue now because your loan is limited to include the funding fee in both types of refinance loans so the funding fee in a Type I must be paid in cash. LTV limitations LTV in both Type I and Type II loans is limited to 100% of the value Type I may require money from the borrower to reduce the PB to 100% or to pay all closing costs Type II is limited to 100% of the value INCLUDING the funding fee Type II over 90% LTV has a LLPA of at least 200bps UNLESS you are doing a true R&T and not taking cash from equity.

VA Circular 26-19-5: VA Cash Out Refi You only need one NTB! If you don’t have any other NTB you may have to resort to a reduction in term to 25 years. Do not promise a 29 year loan because that is not the intent of VA. Do not promise a minor rate reduction either; use at least a 1/8th reduction in rate. Net Tangible Benefits (NTB) There are 8 NTB factors Eliminate MI Reduce term Lower rate Lower P&I Residual is increased Pay off construction loan 90% LTV Arm to Fixed

VA Circular 26-19-5: VA Cash Out Refi This is a must. It must go out as an estimate at the time of disclosures and it must go out again at the time of final docs as an ACCURATE form. Loan Comparison Statement Estimated at the time of initial disclosures Use best available information Do not guess Be realistic Final at the time of closing docs Must be ACCURATE Includes the Home Equity Disclosure See attachment for format

VA Guaranteed Home Loan Cash-Out Refinance Comparison Certification PROPOSED TYPE 2 VA REFINANCE LOAN Sections I through III should be completed within 3 business days of the loan application. Please note that the information provided in these sections represent an estimate of the refinance loan and its impact. Section I – PROPOSED REFINANCE LOAN COMPARISON (This section to be completed by the Lender. Please refer to instructions for more information.) 10/1/2009 Loan Application Date: VA Loan Number (LIN) Loan Balance Monthly Payment Remaining Term (months) Loan Type Interest Rate Total of the Remaining Scheduled Payments Estimated Property Value Loan-to-Value Percentage Home Equity Remaining EXISTING LOAN PROPOSED LOAN 77-77-6-1234567 300,000.00 1,545.39 348 Fixed 4.500% 77-77-6-9876543 309,000.00 1,453.03 360 537,795.72 400,000.00 75% 100,000.00 ESTIMATED IMPACT OF REFINANCE 9,000.00 (92.36) 12 N/A -0.625% (14,704.92) 400,000.00 2% (9,000.00) 3.875% 523,090.80 400,000.00 77% 91,000.00 Section II – NET TANGIBLE BENEFIT FOR PROPOSED REFINANCE LOAN (This section to be completed by the Lender. Please refer to instructions for more information.) Caliber Home Loans To the best of my knowledge, I, , have determined that the proposed refinance loan outlined in Section I meets the following net tangible benefits (check all that apply): The new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty The term of the new loan is shorter than the term of the loan being refinanced The interest rate on the new loan is lower than the interest rate on the loan being refinanced The payment on the new loan is lower than the payment on the loan being refinanced The new loan results in an increase in the borrower’s monthly residual income as explained by 38 CFR The new loan refinances an interim loan to construct, alter, or repair the primary home The new loan amount is equal to or less than 90 percent of the reasonable value of the home The new loan refinances an adjustable rate mortgage to a fixed rate loan Section III – BORROWER CERTIFICATION FOR PROPOSED REFINANCE LOAN I/We hereby certify that I/we understand the estimated effect the proposed refinancing has on my loan balance, payments, interest rate, term, total payback of payments, and remaining equity in my home should I/we accept a refinance loan.

VA Guaranteed Home Loan Cash-Out Refinance Comparison Certification FINAL TYPE 2 VA REFINANCE LOAN Sections IV through VII should be completed at or before the closing of the refinance loan. Section IV – FINAL REFINANCE LOAN COMPARISON (This section to be completed by the Lender. Please refer to instructions for more information.) 10/1/2019 Loan Application Date: EXISTING LOAN VA Loan Number (LIN) Loan Balance Monthly Payment Remaining Term (months) Loan Type Interest Rate Total of the Remaining Scheduled Payments Property Value Loan-to-Value Percentage Home Equity Remaining 300,000.00 1,545.39 348 4.500% 537,795.72 400,000.00 75% 100,000.00 ESTIMATED IMPACT OF REFINANCE NEW LOAN 309,000.00 1,453.03 360 9,000.00 (92.36) 12 N/A -0.625% (14,704.92) 400,000.00 2% (9,000.00) 3.875% 523,090.80 400,000.00 77% 91,000.00 Section V – REFINANCE CLOSING SUMMARY (This section to be completed by the Lender. Please refer to instructions for more information.) Amount of Cash Directly Disbursed to Borrower(s): Payoffs Disbursed, Excluding Mortgages, on Behalf of Borrower(s): Amount of Increase in Total Paid Over Life of Loan: (14,704.92) Section VI – NET TANGIBLE BENEFIT FOR FINAL REFINANCE LOAN (This section to be completed by the Lender. Please refer to instructions for more information.) Caliber Home Loans I, ,have determined that the new refinance loan outlined in Section IV meets the following net tangible benefits (check all that apply): The new loan eliminates monthly mortgage insurance, whether public or private, or monthly guaranty The term of the new loan is shorter than the term of the loan being refinanced The interest rate on the new loan is lower than the interest rate on the loan being refinanced The payment on the new loan is lower than the payment on the loan being refinanced The new loan results in an increase in the borrower’s monthly residual income as explained by 38 CFR The new loan refinances an interim loan to construct, alter, or repair the primary home The new loan amount is equal to or less than 90 percent of the reasonable value of the home The new loan refinances an adjustable rate mortgage to a fixed rate loan Section VII – BORROWER CERTIFICATION FOR FINAL REFINANCE LOAN Home equity of 9000 will be removd from the value of the home as a result of this refinance loan. The removal of home equity may affect my/our ability to sell the home at a later date. Home equity is the difference between the home's reasonable value and the outstanding balance of all liens on the property. I/We hereby certify that I/we understand the effect refinancing has on my loan balance, payments, interest rate, term, total payback of payments, and remaining equity in my home should I/we accept a refinance loan.

VA Circular 26-19-5: VA Cash Out Refi Initially, all refinance loans required seasoning to be 210 days from the date the first payment was made the law required this. It was recently updated and corrected to allow for the date the first payment was due. Loan Seasoning All Cash Out Refinance loans must be seasoned: 210 days from the date first payment was due 6 consecutive payments must be made VA will tell you that only a VA loan must be seasoned but GNMA requires all refinance loans be seasoned

VA Circular 26-19-5: VA Cash Out Refi Initially, VA required the funding fee to be included in the recoupment calculation as well as some other charges, but changed it this year to follow the law. Fee Recoupment Recoupment must be no more than 36 months not even 36.01 months VA says only Type I loans must recoup in 36 months. Again, GNMA says ALL VA Refinance loans must recoup in 36 months Recoup includes all closing costs except the Funding Fee, amounts in escrow, prepaid expenses, and lender credits (subtracted) Prepaid expenses are taxes, insurance assessments and HOA fees

VA Circular 26-19-22: Policy Guidance for IRRRLs This rule provides guidance regarding section 309 Public Law 115-174: the Economic Grown, Regulatory Relief, and Consumer Protection Act as it affects Interest Rate Reduction Refinance Loans (IRRRLs). Discusses standards imposed by the Act, i.e. fee recoupment, net tangible benefits, seasoning, disclosures, etc. The Circular also supersedes VA Circulars 26-18-1 and 26-18-13 issued in 2018 for guidance on IRRRL transactions. All IRRRL transactions must recoup in 36 months or less Recoup adds all fees EXCEPT interest, taxes, escrow, HOA, and Funding Fee Divide P&I savings into all other fees for recoupment

VA Circular 26-19-22: Policy Guidance for IRRRLs (Cont.) The exceptions in the Circular are confusing but to simplify them, we still have the same exceptions prior to the law regarding recoup for these cases. These are currently listed in 38 CFR 36.4307 and when VA rewrites the CFR (Regulation) the language won’t change too much. EXCEPTION there’s always an exception with the Government If the loan term is reduced (30 – 15) or loan being refinanced is an ARM to a fixed, or the PB is increased due to an EEM or RENO, then you can still do the loan. HOWEVER, you have to detail the reason the loan will not recoup in the borrower disclosure AND!!! You cannot charge the borrower any closing costs!

VA Circular 26-19-22: Policy Guidance for IRRRLs (Cont.) The exceptions in the Circular are confusing but to simplify them, we still have the same exceptions prior to the law regarding recoup for these cases. These are currently listed in 38 CFR 36.4307 and when VA rewrites the CFR (Regulation) the language won’t change too much. (b) For an IRRRL that results in the same or higher monthly PI payment, the Veteran has incurred no fees, closing costs, or expenses (other than taxes, amounts held in escrow, and fees paid under chapter 37 (e.g., VA funding fee collected under 38 U.S.C. § 3729))

VA Circular 26-19-22: Policy Guidance for IRRRLs (Cont.) The NTB factors for an IRRRL are different than from other refinance loans. They deal mostly with the type of loan being refinanced from and to. Fixed to Fixed and Arm to Fixed are treated differently. This is because of the risk involved to the average buyer. Pay close attention to the details that follow regarding when a Valuation (appraisal) is required and when it is not. NTB factors: Fixed rate to Fixed Rate loans Rate must be reduced by .5% or 50bps Discount points can be charged and no appraisal is required Up to 2 discount points can be financed Fixed rate to ARM loans Rate must be reduced by 2% or 200bps Any amount of discount points can be charged and up to 2 points can be financed and not affect LTV but only if the rate is not solely reduced from points

VA Circular 26-19-22: Policy Guidance for IRRRLs (Cont.) Loan Seasoning is important and the Circular provides for some relief from the original language in the law Loan Seasoning: The loan being refinanced must be seasoned as follows: 210 days from the first payment due date 6 consecutive payments have been made on the loan being refinanced

VA Circular 26-19-22: Policy Guidance for IRRRLs (Cont.) Disclosures are very important, both in the timing of delivery and accuracy. Loan Comparison Statement: The initial Comparison Statement for an IRRRL is due within 3 days of a full application The Veteran must acknowledge receipt It must be ACCURATE!!! The Final Comparison Statement is required no less than 3 days prior to closing (with closing package) It must be absolutely accurate!!

VA Circular 26-19-22: Policy Guidance for IRRRLs (Cont.) Disclosures are very important, both in the timing of delivery and accuracy. Loan Comparison Statement (Cont.): VA wants a lender to provide the borrower with 2 recoupment numbers on the Comparison Statement The full cost of recoupment including all fees and charges The statutory cost of recoupment not including per diem interest, taxes, escrows, HOA, and Funding fees. The Veteran must acknowledge receipt of the comparison statement and can be electronically signed in Docusign.

VA Comparison Statement PREVIOUS LOAN: Previous loan number: Loan amount Original term (in years) Monthly payment (P&I) Interest rate Full Recoup 17-17-6-1234567 296,960.00 30 1,549.08 4.750% Guaranty Recoup Original borrowers 17-17-6-1234567 296,960.00 30 1,549.08 4.750% 0 PROPOSED LOAN: New loan number Proposed loan amount Proposed term (in years) Proposed monthly payment (P&I) Interest rate 17-17-6-1251234 292,455.00 30 1,460.18 4.375% Current Borrowers 17-17-6-1251234 288,892.72 30 1,442.40 4.375% 0 TIME TO RECOUP CLOSING COSTS: Monthly decrease in payments VA Funding Fee Escrow Deposits for T&I Prepaid expenses (ins, taxes, HOA) Other closing costs Lender Credits Total closing Costs Months to recoup closing costs 88.90 1,462.28 1,800.00 300.00 1,500.00 1,861.90 3,200.38 36.00 Greater than 36 to 10 decimals 106.69 1,500.00 1,861.90 (361.90) -3.39 I/We hereby certify that I/we understand the effect of the loan payment and interest rate involved in refinancing our home loan. Borrower Date:

MAJOR TOPICS OF INTEREST IN Recent VA Circulars Due to COVID-19 26-20-13 is the most important part of this training! Pay Attention to these slides!

VA Circular 26-20-13 This is the important point!!! 26-20-13 is the most important part of this training! Pay Attention to these slides!

VA Circular 26-20-13 After all of that from 26-20-11, this Circular rescinded it and issued new guidance. Not much changed but this will highlight the guidance provided by VA. Change 1 corrected the effective date to all loans closed on or after 3/13/2020 instead of loans closed on 4/10/2020 Removed the requirement for interior inspections and only requires exterior only or desktop except in cases of a vacant property when allowed by local restrictions Change 1 clarified that exterior only appraisal values are limited to 1.5 times the FHFA county limit

VA Circular 26-20-13 After all of that from 26-20-11, this Circular rescinded it and issued new guidance. Not much changed and most of the Circular restates 26-20-11, but the following slides will highlight the changed guidance provided by VA in this Circular. Desktop appraisal values are limited to FHFA county limit ROV request on purchase transactions are limited to 7% of the appraisers opinion of value or 10,000 which ever is greater (up from 5%) Appraisals for alteration and repair are suspended No pest inspection must be acknowledged by Veteran it is recommended an inspection be completed after the emergency

VA Circular 26-20-13 After all of that from 26-20-11, this Circular rescinded it and issued new guidance. Not much changed and most of the Circular restates 26-20-11, but the following slides will highlight the changed guidance provided by VA in this Circular. If known or visible evidence of termites, a clear inspection must be provided within 1 year of closing Water tests on refinance loans have been temporarily waived if the loan being paid off is VA On purchase and refinance loans in areas where testing is suspended due to COVID-19, the Veteran must acknowledge responsibility to pay for a test within 180 days

VA Circular 26-20-13 After all of that from 26-20-11, this Circular rescinded it and issued new guidance. Not much changed and most of the Circular restates 26-20-11, but the following slides will highlight the changed guidance provided by VA in this Circular. The Veteran must also accept responsibility at their own cost to correct if the water test fails Fees could be assessed after closing by VA to have the appraiser complete post closing information gathering after the fact and the lender would be responsible for the fees

QUESTIONS Thank you all for serving Veterans!!! CONFIDENTIAL INFORMATION The information contained herein is strictly confidential and for the confidential use of only those persons to whom it is transmitted. By accepting delivery of this information, you agree not to make a photocopy or other copy or divulge the contents hereof to any other person without the prior written permission of a representative of Caliber Home Loans.