Recent Underwriting Changes - FHA and Conventional Summary

Good Morning, Due to the market volatility of the recent months we have seen an inordinate amount of underwriting and product guideline changes. In order to help you better manage these changes, as well as their effective dates and submission deadlines, with your customers, I have compiled the following summary of some of the more significant recent underwriting changes for your review.

SUBJECT AND EFFECTIVE DATE
Effective October 18, 2008, Flagstar Bank is making the following changes to our FHA mortgage loan products:

• For loan applications up to $500,000 submitted to the FHA TOTAL Scorecard that receive either an Approve response from DU or an Accept response from LP the minimum credit score is being increased to 580 (from 550).
• For loan applications up to $500,000 submitted to the FHA TOTAL Scorecard that receive a Refer response from either DU or LP the minimum credit score is being increased to 600 (from 580).
• For streamlined refinance transactions regardless of loan size, other than Flagstar-to-Flagstar transactions, the minimum credit score is being increased to 580 (from 550). Flagstar-to-Flagstar streamlined refinance transactions will continue to have no minimum credit score requirement.
• For cash-out refinance transactions regardless of loan size, the minimum credit score is being increased to 600 (from 580 or 550 depending on LTV and AUS response).
• Manufactured homes will no longer be eligible for FHA financing.
• Loans over $500,000 will continue to have a 600 minimum credit score requirement regardless of the DU/LP response.

All loans falling outside of these revised guidelines must be rate locked and in a Final Approval Clear to Close status by Friday, October 17, 2008. Loans must be closed and funded (Broker transactions) or closed and delivered (Correspondent transactions) within their original lock period; no extensions will be granted after October 17th (other than standard CAD-related extensions for Correspondent transactions).

These changes are for applicable loans submitted under all FHA loan programs: FHA 203(b), 234(c) condominium unit, 203(h) disaster victims, FHA Secure, and FHA $100 HUD Repo programs.
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Fannie Mae Cash Out Properties That Were Listed for Sale Within Six Months of Application (Memo 08187) - Effective 10/10

• Properties listed for sale in the 6 months preceding the application date for new financing are not eligible for cash out refinances.
• Properties that were listed for sale must have been taken off the market on or before the application date.
• Broker loans must be closed and funded by 10/10
• Correspondent Loans must be closed and purchased by 10/10/08

Max Number of Properties (Memo 08187) - Effective 10/10

• Fannie Mae is updating their guideline to limit the number of financed properties to four when the mortgage secured by a second home or investment property
• Broker loans must be closed and funded by 10/10
• Correspondent Loans must be closed and purchased by 10/10/08

Cash Out Seasoning (Memo 08187) - Effective 10/10

• All properties must be owned 6 months prior to the note to be eligible for a cash out refinance transaction.
• Broker loans must be closed and funded by 10/10
• Correspondent Loans must be closed and purchased by 10/10/08

AUS Verbal and Accept+ Responses Will Still Require Income Documentation (Memo 08214) - Effective 10/31

• Flagstar Bank will require income documentation on all Loan Prospector and Desktop Underwriter transactions regardless of the AUS requirements.
• Loans eligible for Accept Plus documentation from LP or “Verbal Only” for DU will require at least a current year to date pay stub for wage earning borrowers and the 2007 tax returns for self employed borrowers.
• If 2007 1040 results are not available, then evidence of an extension will be required along with filed 2006 1040s. Additional conditions may apply based on the income documentation submitted.
• Broker loans must be closed and funded by 10/31/08.
  Correspondent loans must be closed, disbursed and delivered by 10/31/2008.

Drivers License ID (Memo 08214) - Effective 10/31

• Borrowers Driver's License, or other form of photo and signed ID will be required to be included in the loan files for signature authentication.
• Effective for loans received in underwriting after 10/31/2008.
• Broker loans must be closed and funded by 11/28/08
• Correspondent loans must be closed, disbursed and delivered by 11/28/2008.

Eliminated PIW and Drive by Appraisals (Memo 08214) - Effective 10/31

• All appraisals will require an interior inspection.
• This change will not apply to streamline refinance transactions.
• Streamline transactions are still eligible to utilize the original appraisal when applicable
• Effective for loans received in underwriting after 10/31/2008.
• Broker loans must be closed and funded by 11/28/08
• Correspondent loans must be closed, disbursed and delivered by 11/28/2008.

For an update on some of the recent product changes and as well as effective dates and submission deadlines see the new Product and Pricing Update Calendar in Product Central.

Dave Kaznecki

Account Executive - 2007 Silver Award Winner

2000 Glades Road, Suite 200

Boca Raton, FL 33432

Office: (561) 998-6063

Cell: (561) 702-4600

Fax: (800) 886-0148

kaz@flagstar.com

www.flagstar.com