A. GENERAL INFORMATION

Subordinate financing is permitted on most AmMAC loan programs. There are two types of subordinate financing:

 

Home Equity Line of Credit (HELOC): a mortgage loan that allows the borrower to obtain multiple advances from a line of credit at his/her discretion and that is typically in a subordinate position (CLTV based on total line amount).

 

Closed End Loan: a mortgage providing a single advance of funds at the time of loan closing and that is not eligible for additional draws.

For transactions including subordinate financing, the following requirements apply for both HELOC and Closed End Loans:

 

The subordinate financing must be recorded and clearly subordinate to AmMAC’s first mortgage.

 

The maximum LTV/CLTV/HLTV may not exceed the guideline limits for the product and occupancy type shown in the LTV Matrices. HLTV is calculated based on maximum line amount for any subordinated HELOC(s), regardless of current disbursed balance, and cannot exceed CLTV limits for the product and occupancy type.

 

If there is/will be an outstanding balance at the time of closing, the payment on the subordinate financing must be included in the calculation of the borrower's debt-to-income ratio(s). The payment to use in computing the debt ratio should be that reported on the credit report or account statement for an existing lien, or that indicated in the subordinate financing loan approval in the case of a new lien being subordinated. For either an existing lien or a new lien being subordinated, if the payment amount is not available, it can be imputed at 1% of the line balance, in accordance with these UW Requirements. However, a new lien would have to assume 100% line disbursement if an imputed payment is going to be used.

 

Negative amortization is not allowed; scheduled payments must be sufficient to cover at least the interest due.

 

Equity share or shared appreciation is not allowed.

 

Subordinate financing from the borrower's employer may not include a provision requiring repayment upon termination.

For new closed end subordinate financing the following also apply:

 

Maturity date or amortization basis of the junior lien must not be less than five years after the Note date of the first lien Mortgage, unless the junior lien is fully amortizing

 

The subordinate loan cannot have a balloon or call option within five years of the date of the Note.

 

When a home equity line of credit has been reduced without modifying the note, the original line limit must be used to calculate the HLTV.

Seller Financing or Seller Carry Back (including property seller or other private party carried financing) is eligible as follows:

 

Allowed only after the borrower has made a minimum cash investment / down payment of 20%.

 

Allowed only when the maximum CLTV is less than or equal to the published CLTV limits for the product/program.

 

The terms of the subordinate financing must not be silent (must be recorded).

 

Below market financing: If the rate charged by the Seller is lower than the rate of the corresponding AmMAC 1st lien for the same transaction, the seller financing will be treated as a Sales Concession, requiring a dollar for dollar reduction in the sales price.

 

All other Subordinate Financing requirements in this section must be met.

Acceptable Documentation

The terms of any subordinate financing must be verified. The following sources of verification are acceptable:

 

Existing subordinate loans:

 

A copy of the credit report, or

 

A copy of the Note, or

 

A direct verification from the lender, or

 

A copy of the loan statement

 

New subordinate loans obtained prior to or at closing:

 

A copy of the Note, or

 

A direct verification from the lender, or

 

A copy of the commitment letter from the lender