What are credit grades?

A credit grade is a letter grade that IRESE assigns you based on a property owner's credit score, for use solely in the IRESE. IRESE obtains the applicant's credit score from Kroll (www.kroll.com), and assigns one of seven credit grades.

Here is a table that shows the equivalent credit scores for IRESE credit grades:

Property owner credit grades are posted with an auction to help investors plan the bidding. The numerical credit score is never displayed or disclosed to anyone (including the property owner).

What is a debt-to-income ratio?

Debt-to-income ratio (or DTI) is a measurement of the property owner's ability to take on additional debt. This number measures the property owner's monthly debt payments including housing payments relative to their monthly income. The DTI is expressed as a percentage, and is calculated by dividing the property owner's monthly debt by their monthly income. The property owner's monthly debt is derived from the property owner's credit report, and also includes the monthly payment on the Mortgage Financing. The property owner's monthly income is derived from the property owner's stated or verified income. Conventional financing limits are typically have DTI of 36%.

If the DTI is shown as "Not calculated", it may be for one of three reasons:

• First, DTI is not calculated for property owners who indicate to IRESE that they cannot provide documented proof of income.
• Second, DTI is not calculated for self-employed property owners that they cannot provide documented proof of income.
• Third, DTI is not calculated in those rare instances where the property owner's credit report does not provide the property owner's monthly debt burden.

What is a loan-to-value ratio?

The loan-to-value (LTV) ratio is a mathematical calculation which expresses the amount of a first mortgage lien as a percentage of the total appraised value of real property. For instance, if a borrower wants $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000/$150,000 or 87%.

Loan to value is one of the key risk factors that lenders assess when qualifying borrowers for a Mortgage Financing. The risk of default is always at the forefront of lending decisions, and the likelihood of a lender absorbing a loss in the foreclosure process increases as the amount of equity decreases. Therefore, as the LTV ratio of a loan increases, the qualification guidelines for certain mortgage programs become much more strict. Investors can require property owners of high LTV loans to buy Mortgage Financing insurance to protect the investor from the buyer default, which increases the costs of the mortgage.

Low LTV ratios (below 80%) carry with them lower rates for lower-risk borrowers and allow investors to consider higher-risk borrowers, such as those with low credit scores, previous late payments in their mortgage history, high debt-to-income ratios, high loan amounts or cash-out requirements, insufficient reserves and/or no income documentation. Higher LTV ratios are primarily reserved for borrowers with higher credit scores and a satisfactory mortgage history. The full financing, or 100% LTV, is reserved for only the most credit-worthy borrowers.

What is a combined loan-to-value ratio?

Combined Loan To Value ratio (CLTV) is the proportion of loans (secured by a property) in relation to its value.

The term "Combined Loan To Value" adds additional specificity to the basic Loan to Value which simply indicates the ratio between one primary loan and the property value. When "Combined" is added, it indicates that additional loans on the property have been considered in the calculation of the percentage ratio.

The aggregate principal balance(s) of all mortgages on a property divided by its appraised value or Purchase Price, whichever is less. Distinguishing CLTV from LTV serves to identify loan scenarios that involve more than one mortgage. For example, a property valued at $100,000 with a single mortgage of $50,000 has an LTV of 50%. A similar property with a value of $100,000 with a first mortgage of $50,000 and a second mortgage of $25,000 has an aggregate mortgage balance of $75,000. The CLTV is 75%.

Combined Loan to Value is an amount in addition to the Loan to Value, which simply represents the first position mortgage or loan as a percentage of the property's value.

What additional credit data is available?

Registered investors have access to additional credit data, which may give more insight into the reason why a property owner has received a particular credit grade. The following additional data comes from the property owner's credit report:

• Now delinquent: The number of accounts on which the property owner is currently late on a payment. This includes any unpaid charge-offs or other derogatory balances.
• Amount delinquent: Total past due amounts owed by the property owner. This includes accounts included in Chapter 13 bankruptcies, but excludes all other bankruptcies. Charge-offs or other unpaid derogatory balances are included provided the credit grantor has reported an amount past due to the credit bureau. Please note that not all credit grantors will report an amount past due with a charge-off or derogatory status.
• Delinquencies in last 7y: The number of 90+ days past due delinquencies on the property owner's credit report in the last 7 years.
• Public records in last 12m: The number of negative public records on the property owner's credit report over the last 12 months. Negative public records include, among other things, bankruptcies, liens, and judgments.
• Public records in last 10y: The number of negative public records on the property owner's credit report over the last 10 years. Negative public records include, among other things, bankruptcies, liens, and judgments.
• Inquiries in last 6 months: The number of inquiries made by creditors to the property owner's credit report in the last six months.
• First credit line: The month and year the property owner's first recorded credit line was opened. Credit lines may include, among other things, revolving, installment, and mortgage credit.
• Current credit lines: The number of credit lines presently current that have been reported within the last 6 months. These lines can be open or closed.
• Open credit lines: The number of credit lines presently open that have been reported within the last 6 months.
• Total credit lines: The total number of credit lines appearing on the credit report. Credit lines can be open or closed and may include, among other things, revolving, installment, and mortgage credit.
• Revolving credit balance: Sum of outstanding balance on all open revolving credit lines reported within the last 6 months.
• Bankcard utilization: Overall balance/limit ratio on open bankcards reported within the last 6 months. Calculation: (sum of total balances) / (sum of total limits)

What additional employment data is available?

Registered investors have access to additional employment data for each property owner. The following additional employment data, which is self-reported by the property owner and verified by the Broker at the time of listing:

• Employment status: The property owner's employment status. Options include: full-time, part-time, self-employed, retired, and not employed.
• Length of status: The number of months and years that the property owner has had the stated employment status. If employed or self-employed, since when has the property owner held their current job or owned their current business? If retired or not employed, since when have they had this status?
• Occupation: The property owner's current occupation.
• Stated income: The property owner's stated income range, in $25,000 increments, or over $100,000. Stated income is always displayed, even for property owners who indicate they cannot document their income.
• Verified income: The property owner's verified income range, in $25,000 increments, or over $100,000. Verified income is only displayed for property owners who indicate they can document their income.