Underwriting Memo

Transcription

1 06/13/13 Underwriting Memo Attention: SNMC Underwriters Branch Managers and Quality Control Subject: FHA 203K Streamlines SNMC will no longer underwrite FHA 203K Streamlines in-house or offer the option of having Plaza underwrite them. The in-house underwriting for 203K Streamlines was limited to a couple of SNMC branches. We are approved with three lenders that we can broker full 203K s and 203K Streamlines to and will open this up to all SNMC branches. Kyle Castle is the contact person for lenders that we are approved to broker to. His is [email protected]. Any 203K Streamline loans that are currently in underwriting in our Midvale branch will be completed in-house. 203K loans in process will need to be brokered out to one of these lenders. AFR 203K Streamlines and Full Stearns 203K Streamlines Sunwest Mtg 203K Streamlines and Full

3 SLIDE 2 OUT OF 42 FHA 203K Questions 203k Explained What is the FHA 203(k) Loan Program? What are the program guidelines? What types of improvements are allowed? What are the general contractor guidelines? What is the role of the HUD Consultant How is a 203(k) appraisal different from a regular appraisal? How to fill out the k Maximum Mortgage Worksheet and determine the maximum loan amount? What is the underwriting process? What happens after closing? COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

4 SLIDE 3 OUT OF 42 FHA 203K Loan Program 203k Explained The FHA 203(k) program, enables borrowers to either purchase or refinance their home while financing major rehabilitation and/or improvements in the same loan. The program has a minimum of $5,000 in rehabilitation/improvement work and allows loans amounts up to the FHA county limit. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

5 SLIDE 4 OUT OF 42 Increased Market Opportunity 203k Explained 1. Purchases: Homes in need of major rehabilitation 1. Perfect for HUD REOs, foreclosures, and short sales 2. Improvements to out-dated homes, kitchens, bathrooms, etc. 3. Structural deficiencies 4. Additions and expansions 2. Refinances: Make improvements 1. Improve instead of move 2. Necessary or optional major/structural repairs 3. Both Purchases and Refinances: If unexpectedly, the appraisal is subject to major and/or structural repairs COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

6 SLIDE 5 OUT OF 42 FHA 203K Loan Program 203k Explained At AFR, the same FHA credit and underwriting standards apply. The 203(k) program is an overlay to AFR s Standard ( ) and Premium (660+) products. Standard DTI: fico Purchase ratios 40%/45% with Approve/Eligible Refinance ratios 40%/49.99% with Approve/Eligible Premium DTI: 660+ fico Purchase and Refi s 49.99%/49.99% with Approve/Eligible COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

7 SLIDE 6 OUT OF 42 Improvements Allowed 203k Explained Structural alterations and additions (with upfront approval) Upgrade or modernization of central air/heat, plumbing, and electrical systems Repair or replace well and septic systems Repair termite or moisture damage Elimination of health and safety hazards such as asbestos & lead based paint abatement Basement waterproofing Remodeling of kitchen and baths Install or repair of well or septic systems Roofing, gutters, downspouts Flooring, tiling, and carpeting Interior and exterior painting Siding, windows, doors, and trim work Energy conservation improvements Improvements for disability accessibility New free standing appliances Foundation repair Addition or replacement of exterior decks, patios, and porches Permanent hardscape such as driveways, walkways, retaining walls and fences COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

8 SLIDE 7 OUT OF 42 Improvements NOT Allowed 203k Explained Improvements that are not permanently attached to the property Improvements for business or commercial purposes Landscaping that is not permanent hardscaping such as sod, trees, shrubbery or removal thereof Luxury items are not eligible: landscaping, swimming pools, hot tubs, tennis courts, gazebos, barbecue pits or saunas COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

9 SLIDE 8 OUT OF 42 Eligible Property Types 203k Explained One year completed, primary residences, attached or detached 1-2 Unit Properties (no 3-4 units) Manufactured Homes FHA Approved Condo s PUD s COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

10 SLIDE 9 OUT OF 42 Ineligible Property Types 203k Explained Mixed-use properties Co-ops or non-fha approved condos Investment properties Mobile homes 3-4 Unit Properties COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

11 SLIDE 10 OUT OF 42 AFR 203(k) Overlays 203k Explained High Balance Loans permitted on Premium (660+ Qualifying credit score) ONLY. All applicable Standard and Premium AFR Program overlays apply No razing of homes. No demolition of a home down to its foundation or a portion thereof. No physically relocating a home from one location to another. No Self-Help. The borrower/owner may not be involved whatsoever in any aspect of the construction his or herself. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

12 SLIDE 11 OUT OF (k) Timeline/Overview 203k Explained Follow 1) Borrower signs Purchase Contract or Applies for Refi 2) Borrower interviews GC s, obtains estimates 3) Borrower or lender looks into HUD Consultants These 4) HUD Consultant & GC agree upon scope of work and figures 5) Appraisal is ordered 6) Maximum Mortgage Worksheet based upon all figures Steps 7) Submit to underwriting 8) Close 9) Construction COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

13 SLIDE 12 OUT OF (k) Contractors 203k Explained AFR permits for one contractor. Although obtaining more than one bid is recommended (not required) In situations where more than one contractor is needed, one must be named as the general contractor. The general contractor will carry over all of the subcontractors bids onto his/ her bid. The general contractor will be responsible for overseeing that all repairs are done in a workmanlike and timely manner. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

14 SLIDE 13 OUT OF (k) Contractor 203k Explained The general contractor will also be responsible for disbursing all funds to the subcontractors when funds are released from escrow. The general contractor must carry sufficient insurance equal to the amount of the total rehab amount through a valid general liability insurance declarations page. The contractor must provide a detailed work write up or bid itemizing all the repairs that are to be completed with cost and note if permits are required. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

15 SLIDE 14 OUT OF (k) Contractor 203k Explained The appraiser will review the contractor bid to determine that it falls within the usual and customary range for similar work. Licensing requirements vary in each state/municipality for contractors. If a repair calls for a specialized contractor, such as electrical or plumbing repairs, the contractor must be licensed to do the work. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

17 SLIDE 16 OUT OF (k) Contractor 203k Explained Please advise your borrower not to hire their Cousin Eddie as their GC. Non-arm s length business relationships usually end up in a bad situation. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

18 SLIDE 17 OUT OF 42 AFR 203(k) HUD Consultants 203k Explained All Full 203K loans borrowers must hire an FHA approved HUD Consultant Consultant s fee is POC and usually based upon sliding scale depending on the scope and dollar amount of the estimated work. Fees generally range from $600-$1,000 The HUD Consultant assists and in determining both the required and desired repairs Prepares the itemized budget for the described repairs and determines the estimated cost Works with the GC to confirm and match estimated construction cost totals Consultant is responsible for ongoing and final inspection reports in order to approve disbursements to the General Contractor Adds an extra layer of protection for both the lender and borrower by assisting through the construction process and verifying all work is satisfactorily completed Hyperlink on our website directly to the FHA Connection for the Approved HUD Consultants COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

20 SLIDE 19 OUT OF 42 Appraisal 203k Explained Appraisal is ordered as an FHA 203k appraisal and typically should not be ordered until the Consultant s and GC s estimates match The HUD Consultant s report and the GC Estimate is forwarded to the appraisal company upon the order (for both purchases/refinances) Appraiser does the appraisal subject to the completion repairs/improvements and will give an after improved value based upon the list of repairs Important - The scope of the appraisal is the future value! COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

21 SLIDE 20 OUT OF 42 Appraisal (continued) 203k Explained On purchases the after improved value is the only value necessary. Since the free markets determined the purchase price, this is considered the current or as-is value On refi s, however, the appraiser must provide both the after improved value and the current or as-is value COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

22 SLIDE 21 OUT OF 42 Total Rehab Cost 203k Explained Total rehabilitation cost escrowed include all of the following: cost of construction contingency fee(typically 10% but at the Consultant s & UW s discretion) all interim and final inspection fees up to 6 months mortgage payments if home is uninhabitable during construction title update architectural and engineering fees (if applicable) permits (if applicable) supplemental origination fee (if applicable) COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

23 SLIDE 22 OUT OF 42 Maximum Mortgage Worksheet k The K Maximum Mortgage worksheet must be completed in calculating the max loan amount. The worksheet will determine your highest allowable loan amount and LTV, based upon your scenario Remember to check your calculated base loan amount to make sure it does not exceed the max loan limits for the area! COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

24 SLIDE 23 OUT OF 42 Worksheet for Purchases k On all 203(k)s purchases, there are Section C calculations that must be competed in order to determine the maximum loan amount: C1: The lesser of the Sales Price (A1) or the As-Is Value (A2) which is typically the same unless noted by the appraiser) C2: Total rehabilitation cost (B14) C3: The lesser of C1 + C2 -or- 110% of the After-Improved Value (A4) C4: Base mortgage is C3 x 96.5% COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

29 SLIDE 28 OUT OF 42 Worksheet for Refinances k On all 203(k) refinances, the appraiser provides two values: As is value: value before the repairs are completed. After improved value: value after all of the repairs are completed. For refinances the borrower paid closing costs and pre-paid must be entered into the worksheet No Cash Out: Max cash out permitted to the borrower is $500. No debt (outside of mortgages attached to the property) may be included in the refinance. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

30 SLIDE 29 OUT OF 42 Worksheet for Refinances k On all 203(k)s refinances, there are Section D calculations that must be competed in order to determine the maximum loan amount: D1: The total sum of the mortgage pay off, plus the total rehabilitation amount (line b14 of the worksheet), plus the total closing costs and pre-paid items (minus the MIP refund if paying off an FHA loan). D2: The lesser of the sum of the as-is value, plus the total rehab amount (-OR-) 110% of the after improved value. D3: Take the lesser of D2, then multiply by 97.75%. D4: Base mortgage is the lower of D1 or D3. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

35 SLIDE 34 OUT OF 42 Potential Pitfalls 203k Explained Unsupported initial or as-is value Unsupported after-improved or to be completed value: There are times when the after improved value is not supported with all of the repairs that are completed. Deferred maintenance, such as peeling paint, does not add value! COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

36 SLIDE 35 OUT OF 42 Underwriting/Approval 203k Explained Files registered and uploaded to WebTrac Loans approved by AFR underwriter as typical FHA file After approval, file is forwarded to National Capital Funding for cursory review (NCF will ultimately be our Construction Administrators during the construction phase) NFC review the GC s credentials and estimate, the HUD Consultant Report and the appraisal Please be aware additional conditions may apply upon NCF s findings COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

37 SLIDE 36 OUT OF 42 After Closing/Renovation Period Once the loan funds, the mortgage proceeds will either payoff the existing liens or the seller and the Escrow Account will be established for construction funds Construction can commence immediately and should within 30 days of the closing and the homeowner has up to 6 months to complete the work Unlike the Streamlined K, funds are only released after the work is inspected by the HUD Consultant. No monies are disbursed immediately after closing except only for permits (if required) A maximum of 5 disbursements/draws are allowed Draws are made as work progresses and phases are completed based upon the Consultant s write-up and verified through periodic inspections by the Consultant. Borrowers will make their regular mortgage payments throughout the course of construction unless they are escrowing the them due to home being uninhabitable COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

38 SLIDE 37 OUT OF 42 Draw Requests/Disbursements All draw requests are done directly with NCF as they are the construction administrators Consultants are to their forward draw requests to After work is completed and satisfactory final inspection any unused construction escrow money will be returned to the borrower in the form of mortgage balance reduction COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

39 SLIDE 38 OUT OF 42 AFR s FHA 203(k) Forms (found on Contractor Profile Consumer Renovation Information FHA 203(k) Loan Draw Request Disclosure Important Notice Regarding Contingency Funds Owner/Contractor Agreement Renovation Loan Borrowers Disclosure Renovation Loan Indemnity Agreement Request Changes in Approved Drawing and Specs Disclosure Statement - Texas IRS W9 Form Identity of Interest Form 203K Maximum Mortgage Worksheet - HUD K Borrower's Acknowledgement - HUD 92700a When the work is 100% complete, please have the following forms completed and executed.. Conditional Waiver & Release Mortgagor's Letter of Completion COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

40 SLIDE 39 OUT OF 42 American Financial Resources About Us AFR Wholesale, a division of American Financial Resources, Inc. Nationwide wholesale residential mortgage lender Headquartered in Parsippany, NJ. GNMA approved seller/issuer, FHA Mortgagee and FNMA seller/servicer. Serve thousands of mortgage brokers and lenders throughout the country In business since 1997 Grown to one of the largest FHA lenders in the country. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

41 SLIDE 40 OUT OF 42 American Financial Resources Become an Approved Lender As an approved lending partner, you can be set as: TPO Third Party Origination, TF Table Funded, C Correspondent, and/or CDE Correspondent, Direct Endorsement. COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

42 SLIDE 41 OUT OF 42 How we can help you? We re here to help, whenever you need us. If you are a Mortgage Lender new to AFR Wholesale, we welcome the opportunity to discuss our programs with you. For our current Lending Partners, we want to hear from you. Feel free to contact us directly with your comments and questions. If you have more introduction to make just copy and paste this page in your Online Assistance Call us powerpoint document. Toll Free: You can contact us by using [email protected] Live chat We also offer live chat in our company website COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

43 SLIDE 42 OUT OF 42 THANK YOU If you have more introduction to make just copy and paste this page in your powerpoint document. FOR YOUR BUSINESS COPYRIGHT 2013 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

45 SLIDE 2 OUT OF 48 FHA Streamlined 203(K)s Questions 203(k)s Explained What is the FHA Streamlined 203(k)s Loan Program? What are the program guidelines? What types of improvements are allowed? What are the general contractor guidelines? How is a 203(k)s appraisal different? How to fill out the k Worksheet and determine the maximum loan amount? What happens after closing? What are the most commonly asked questions? COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

46 SLIDE 3 OUT OF 48 FHA Streamlined 203K Loan Program 203(k)s Explained The FHA Streamline 203(k)s program, enables borrowers to either purchase or refinance their home while including minor rehabilitation costs in the same loan. There is no minimum requirement for repairs and there is a maximum total rehabilitation cost of $35,000. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

47 SLIDE 4 OUT OF 48 Increased Market Opportunity 203(k)s 1. Purchases: Homes in need of rehabilitation 1. Perfect for HUD REOs, foreclosures, and short sales 2. Out-dated kitchens, bathrooms, etc. 2. Refinances: Make improvements 1. Improve instead of move 2. Out-dated kitchen, bathrooms, etc. 3. Incomplete renovations 3. Both Purchases and Refinances: If unexpectedly, the appraisal is subject to minor or non-structural repairs COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

48 SLIDE 5 OUT OF 48 FHA Streamlined 203K Loan Program 203(k)s Explained At AFR, the same FHA credit and underwriting standards apply. The 203(k)s streamline program is an overlay to AFR s Standard ( ) and Premium (660+) products. Standard DTI: fico Purchase ratios 40%/45% with Approve/Eligible Refinance ratios 40%/49.99% with Approve/Eligible Premium DTI: 660+ fico Purchases and Refi s 49.99%/49.99% with Approve/Eligible COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

49 SLIDE 6 OUT OF 48 AFR 203(k) Streamline Overlays 203(k)s Explained High Balance Loans permitted on Premium (660+ Qualifying credit score) ONLY All applicable Standard and Premium AFR Program overlays apply No Self-Help COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

50 SLIDE 7 OUT OF 48 Improvements Allowed 203(k)s Explained Minor remodeling that does not involve structural repairs Basement waterproofing Mild mold remediation Heating, ventilation and air conditioning systems Plumbing and electrical systems Existing well and septic repair or replacement Flooring, exterior and interior painting Weatherization, including storm windows and doors, insulation, weather stripping Replacement of window and doors and exterior wall re-siding Appliances, including free-standing ranges, refrigerators, washers and dryers, dishwashers and microwaves Improvements for accessibility for persons with disabilities Lead-based paint stabilization or abatement of lead-based paint hazards Replacement/addition of exterior decks, patios, & porches Roofs, gutters and downspouts COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

51 SLIDE 8 OUT OF 48 Improvements NOT Allowed 203(k)s Explained Major structural repairs/rehabilitation Additions to the home Moving or repairing a load bearing wall Repairs requiring detailed plans and specs Any repair taking longer than 3 months Repairs requiring more than 2 draws Luxury items are not eligible Landscaping, swimming pools, hot tubs, tennis courts, gazebos, barbecue pits, saunas or alterations to support commercial use COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

52 SLIDE 9 OUT OF 48 Property Types 203(k)s Explained Owner Occupied Properties Only (FHA) Single Family Residence Manufactured Homes FHA Approved Condo s PUD s 1-2 Unit Properties (no 3-4 units) REO, Short Sale, Foreclosure Ok! COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

53 SLIDE 10 OUT OF 48 Streamlined 203(k) Loan 203(k)s Explained Up to $35,000 in non-structural renovation allowed No HUD Consultant required Must utilize borrower directed licensed contractor No self help allowed 2 Draws Initial draw of up to 50% of repair costs is disbursed at funding Final draw after final inspection COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

54 SLIDE 11 OUT OF (k)s Contractors 203(k)s Explained AFR permits for one contractor. Although obtaining more than one bid is recommended (not required) In situations where more than one contractor is needed, one must be named as the general contractor. The general contractor will carry over all of the subcontractors bids onto his/ her bid. The general contractor will be responsible for overseeing that all repairs are done in a workmanlike and timely manner. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

55 SLIDE 12 OUT OF (k)s Contractor 203(k)s Explained The general contractor will also be responsible for disbursing all funds to the subcontractors when funds are released from escrow. The general contractor must carry sufficient insurance equal to the amount of the total rehab amount through a valid and current e&o or liability insurance declarations page. The contractor must provide a detailed work write up or bid itemizing all the repairs that are to be completed with cost and note if permits are going to be required. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

56 SLIDE 13 OUT OF (k)s Contractor 203(k)s Explained The appraiser will review the contractor bid to determine that it falls within the usual and customary range for similar work. Licensing requirements vary in each state/municipality for contractors. If a repair calls for a specialized contractor, such as electrical or plumbing repairs, the contractor must be licensed to do the work. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

58 SLIDE 15 OUT OF (k)s Contractor 203(k)s Explained Please advise your borrower not to hire their Cousin Eddie as their GC. Non-arm s length business relationships usually end up in a bad situation. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

59 SLIDE 16 OUT OF 48 Appraisal 203(k)s Explained Appraisal is ordered as an FHA 203(k)s appraisal. Make sure the GC Estimate is forwarded to the appraisal company upon the order (for both purchases/refinances). Appraiser does the appraisal subject to the completion repairs/improvements and will give an after improved value based upon the list of repairs. The scope of the appraisal is the future value! COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

60 SLIDE 17 OUT OF 48 Appraisal (continued) 203(k)s Explained On purchases the after improved value is the only value necessary. Since the free markets determined the purchase price, this is considered the current or as-is value On refi s, however, the appraiser must provide both the after improved value and the current or as-is value COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

61 SLIDE 18 OUT OF 48 Total Rehab Cost 203(k)s Explained Rehabilitation cost include all of the following and can not exceed $35,000: cost of rehab (including labor) contingency fee 10% (note this is at the underwriter s discretion) $300 final inspection fees (there are 2 inspections at $150 each) COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

62 SLIDE 19 OUT OF 48 Total Rehab Cost 203(k)s Explained Borrowers may not provide the additional money to escrow if the repairs exceed the $35,000. The actual costs will have to be reduced to include all of the required fees. In order to utilize the maximum amount allowed under the program, the GC s bid may not exceed $31,545 when a contingency fee and final completion reports are being factored. example: $31,545 + $3, (10%) + $300 = $34, COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

63 SLIDE 20 OUT OF 48 Maximum Mortgage Worksheet (k)s The K Maximum Mortgage worksheet must be completed in calculating the max loan amount. The worksheet will determine your highest allowable loan amount and LTV, based upon your scenario Remember to check your calculated base loan amount to make sure it does not exceed the max loan limits for the area! COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

64 SLIDE 21 OUT OF 48 Worksheet for Purchases (k)s On all 203(k)s purchases, there are Section C calculations that must be competed in order to determine the maximum loan amount: C1: The lesser of the Sales Price (A1) or the As-Is Value (A2) which is typically the same unless noted by the appraiser) C2: Total rehabilitation cost (B14) C3: The lesser of C1 + C2 -or- 110% of the After-Improved Value (A4) C4: Base mortgage is C3 x 96.5% COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

69 SLIDE 26 OUT OF 48 Worksheet for Refinances (k)s On all 203(k)s refinances, the appraiser provides two values: As is value: value before the repairs are completed. After improved value: value after all of the repairs are completed. For refinances the borrower paid closing costs and pre-paid must be entered into the worksheet No Cash Out: Max cash out permitted to the borrower is $500. No debt (outside of mortgages attached to the property) may be included in the refinance. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

70 SLIDE 27 OUT OF 48 Worksheet for Refinances k(s) On all 203(k)s refinances, there are Section D calculations that must be competed in order to determine the maximum loan amount: D1: The total sum of the mortgage pay off, plus the total rehabilitation amount (line b14 of the worksheet), plus the total closing costs and pre-paid items (minus the MIP refund if paying off an FHA loan). D2: The lesser of the sum of the as-is value, plus the total rehab amount (-OR-) 110% of the after improved value. D3: Take the lesser of D2, then multiply by 97.75%. D4: Base mortgage is the lower of D1 or D3. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

77 SLIDE 34 OUT OF 48 Potential Pitfalls Unsupported initial or as-is value Unsupported after-improved or to be completed value: There are times when the after improved value is not supported with all of the repairs that are completed. Deferred maintenance, such as peeling paint, does not add value! Bid is out of line and not commensurate with work being proposed COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

78 SLIDE 35 OUT OF 48 After Closing/Renovation Period The GC may receive first draw (up to 50% of repair costs) at closing/funding in order to buy materials and start the renovations The renovation should begin within 30 days of closing Borrowers will make their regular mortgage payments throughout the course of construction Maximum renovation period is 3 months COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

79 SLIDE 36 OUT OF 48 Final Inspection - Completion When the work is complete, GC or borrower sends an requesting final funds to [email protected] Include the Conditional Waiver & Release and the Mortgagor s Letter of Completion (found on our website) Once the documents are received, AFR will order the final inspection from the original appraiser Upon the receipt of the acceptable final inspection, a final disbursement will be made to the contractor All remaining funds in escrow will be made as a principal reduction to the mortgage COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

81 SLIDE 38 OUT OF 48 AFR s FHA Streamlined 203(k) Forms (found on Contractor Profile Consumer Renovation Information Rehabilitation Loan Agreement Homeowner Contractor Agreement Disclosure Statement - Texas IRS W9 Form Identity of Interest Form 203K Maximum Mortgage Worksheet - HUD K Borrower's Acknowledgement - HUD 92700a When the work is 100% complete, please have the following forms completed and executed.. Conditional Waiver & Release Mortgagor's Letter of Completion COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

84 SLIDE 41 OUT OF 48 Frequently Asked Questions (see guidelines for complete details) What are the minimum and maximum amounts for repair costs under this program? There are no minimum repair costs. The maximum total repair costs including the contingency reserve (10%) and costs are $35,000 subject to a maximum loan to value. What FICO score does AFR require for the 203ks Program? There is no FICO requirement, the 203ks Program is simply an overlay to our Standard and Premium Products, FICO score is determined by product Is there a final inspection required to be done once all the work is completed? Yes, an inspection to determine that all listed repairs and or renovations were satisfactorily completed is required regardless of the amount borrowed for the repairs COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

85 SLIDE 42 OUT OF 48 Frequently Asked Questions (see guidelines for complete details) Can this program be used for the purchase of HUD homes? Yes. The Streamlined 203(k) program may be used for singlefamily housing sold by HUD. REO properties that have been designated by FHA's Management and Marketing contractor as "insurable" with repair escrow ($5,000 or less repairs) or "uninsurable" (with more than $5,000 but no more than $35,000 in required repairs) are eligible How much time is permitted to complete the work? The contractor must finish the work within 90 days. If the work is not completed within 90 days of closing, a principal reduction will be made towards the remaining unpaid balance of the mortgage. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

86 SLIDE 43 OUT OF 48 Frequently Asked Questions (see guidelines for complete details) Are there additional costs to the mortgagor? AFR will hold back $300 to be used towards final inspection. Unused inspection fees will be credited against the unpaid principal balance within 30 days of the projects completion. What is the maximum LTV for the 203Ks Program? The maximum LTV is a moving target, it is as determined by the FHA 203k Worksheet Can the Streamline 203(k) program be used for Manufactured Housing? Yes. The program can be used for a loan on a manufactured home however, it cannot be used to permanently affix the home to the foundation. The home must be completely secured to the foundation as evidenced by an engineer's certification and appraisal prior to closing. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

87 SLIDE 44 OUT OF 48 Frequently Asked Questions (see guidelines for complete details) How much is the contingency reserve? The contingency reserve is up to 10% of all repairs or rehabilitation expenses. The amount of reserve is at the underwriters discretion. All funds remaining in the escrow account after final payment to the contractor is made, including any remaining reserve amount will be used as a principle reduction. Where can I go if I have questions or need additional information about the Streamlined 203(k) program Further questions: [email protected] or Chat Icon on our website: COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

88 SLIDE 45OUT OF 48 American Financial Resources About Us AFR Wholesale, a division of American Financial Resources, Inc. Nationwide wholesale residential mortgage lender Headquartered in Parsippany, NJ. GNMA approved seller/issuer, FHA Mortgagee and FNMA seller/servicer. Serve thousands of mortgage brokers and lenders throughout the country In business since 1997 Grown to one of the largest FHA lenders in the country. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

89 SLIDE 46 OUT OF 48 American Financial Resources Become an Approved Lender As an approved lending partner, you can be set as: TPO Third Party Origination, TF Table Funded, C Correspondent, and/or CDE Correspondent, Direct Endorsement. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

90 SLIDE 47 OUT OF 48 How we can help you? We re here to help, whenever you need us. If you are a Mortgage Lender new to AFR Wholesale, we welcome the opportunity to discuss our programs with you. For our current Lending Partners, we want to hear from you. Feel free to contact us directly with your comments and questions. If you have more introduction to make just copy and paste this page in your Online Assistance Call us powerpoint document. Number: x7034 You can contact us by using [email protected] Live chat We also offer live chat in our company website.. COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

91 SLIDE 48 OUT OF 48 THANK YOU If you have more introduction to make just copy and paste this page in your powerpoint document. FOR YOUR TIME AND INTEREST COPYRIGHT 2012 AMERICAN FINANCIAL RESOURCES, INC. ALL RIGHTS RESERVED

92 FHA/HUD 203(K) Guideline Quick Reference Sheet Below Is A Fact Sheet of Standard FHA/HUD Guidelines on 203(K) Loans Loan Purpose Purchase Rate & Term Refinance Amortization Term Fixed Rate: 15 Years and 30 Years Occupancy Owner-occupied properties only Eligible Properties Approval Type Self Employed Subordinate Financing Minimum Borrower Contribution Attached / Detached SFRs PUDs HUD-approved Condos Manufactured Housing (click here for additional guidelines on manufactured housing) 2-4 Units DU Approve/Eligible only. Allowed Allowed 3.5% is required from borrower(s) own funds for FHA 203(K) Jumbo Loan Amount Properties Located in Units Conforming 203K (Maximum Base Loan Amt*) Minimum Base Loan Amt 203K Jumbo Maximum Base Loan Amt* 1 $417,000 $417,001 $729, Contiguous States 2 $533,850 $533,851 $934,200 3 $645,300 $645,301 $1,129,250 4 $801,950 $801,951 $1,403,400 1 $625,500 $625,501 $1,094,625 Alaska and Hawaii 2 $800,775 $800,776 $1,401,300 3 $967,950 $967,951 $1,693,875 4 $1,202,925 $1,202,926 $2,105,100 *Maximum Base Loan Amount is the lesser of amount as per table above or Maximum County Limit (Click Here for County limits) Purchase Transactions mortgage basis, lesser of: As-is value plus rehabilitation cost or purchase price plus rehabilitation cost, OR 110% of after-improved value (100% for condominiums including site-condos) Refinance Transactions mortgage basis, lesser of : Existing debt plus rehabilitation cost plus prepaid and closing cost, OR 97.75% of as-is value plus rehabilitation costs, OR 110% of after-improved value (100% for condominiums including site-condos) LTV / CLTV Loan Purpose LTV CLTV Purchase 96.50% 100% Rate & Term Refinance 97.75% 97.75% Appraiser's Condition and Quality of Construction Down Payment Assistance (DPA) Cash Out on Short Pay-Off Properties with a condition rating of C5, C6 and Q6 are eligible provided that any deficiencies that caused the rating and/or hypothetical condition or impact the safety, soundness and structural integrity of the property are address with the 203(K) rehabilitation escrow repairs. Allowed in conjunction with first mortgage loans with following overlays: The DPA meets all published requirements of FHA; and The first Mortgage sold to SWMC is not subject to any terms or conditions of a bond program; and The DPA does not restrict the transfer of servicing rights of the first Mortgage sold to SWMC. In addition, it may not require prior notification or approval from the sponsoring authority in the event of the transfer of the first mortgage s servicing rights. Not allowed 21

93 Loan Amounts available on a 203(k) loan Requirement of Home Inspection 203(K) Consultant & Contractors 203(K) Self-Help Types of Repairs that are eligible for a 203(k) loan Repairs that are ineligible on a 203(k) loan Exclusions on a 203(k) loan Supplemental Origination Fee Non-Streamline 203(k): Repairs allowed up to 50% of the loan amount. (For repair amount constituting more than 40% of loan amount, max. LTV will be 100% calculated at after improved value.) Streamline 203(k): The maximum rehab amount is $35,000 and will include at least 2 Inspection Fee draws, 2 title updates, and a 15% contingency reserve The Inspector must be approved by The American Society of Home Inspectors ( or National Association of Home Inspectors, Inc. ( A complete home inspection is required for all REO and vacant properties and for properties with repair amounts exceeding $15,000. REO and vacant properties are eligible under streamline 203(k); however, underwriter may advise about requirement of consultant depending on the scope of work. Home inspections are not required for transactions using the services of RenovationReady ( Home inspectors may not be an interested party, including the 203(K) consultant. SWMC must approve the use of all parties involved, including the consultant and contractor as applicable. Not allowed. Non-Streamline 203(k): Roof replacement, health and safety hazard mitigation, landscaping required to mitigate drainage or erosion issues, aesthetic landscaping when appraiser verifies that the value increases the dollar-for-dollar cost, sidewalk/driveway repair necessary for home access, major repair of termite damage, drywall/insulation replacement, most repairs which require permits, finishing basements. Egress window wells for basements will be admissible. Structural and Foundation work will be permitted as long as the Contractors insurance coverage is sufficient (normally general liability insurance coverage of 1,000,000/each occurrence will be acceptable). Streamline 203(k): Cosmetic Repairs such as financing purchase/installation of new appliances; patching holes; replacing doors; painting; lead paint abatement; new counters, cabinets, windows, carpet (subfloor repair requires Non-Streamline 203k); repair/installation of HVAC; weatherization; minor repair of termite damage. The property should be inhabitable at the time of loan closing. Houses never completed or where the certificate of occupancy was issued less than one year ago. SWMC reserves the right to determine if repairs are deemed unacceptable. Streamline 203(k): Upfront draws are only available for documented material costs (with receipts or invoices). If the contractor is bonded, documenting material cost is not required to obtain an upfront material draw. Draws may not exceed 50% of the entire loan amount. If no draw is required, contractor must provide certification that no initial draw is necessary and that he/she has available funds to complete the cost of rehabilitation. Geographic Restrictions: Sun West currently does not offer FHA 203(k) in the state of TX. 1.5% of Rehabilitation Amount or $350, whichever is greater, must be charged. Departure Policy Refer General Policy Requirements section Additional Forms and Work Exhibits Requirements Additional Guidelines Consultant, if applicable Specification of Repairs and Work Write-up exhibits must itemize material and labor costs. Consultant s Identity of Interest Master Draw Request (HUD-9746a) Contractor Work Write-up exhibits must itemize material and labor costs. Completed IRS-W9 License, E&O and/or Liability Insurance valid until rehabilitation is completed Contractor Profile Form Information for Contractors form Homeowner and Contractor Agreement Evidence of Assets or Sufficient Lines of Credit (VOD, Bank Statements, Credit lines etc.) to reasonably cover cost of material for rehabilitation. Draw request time line is taken into consideration. Not required when initial draw is provided on 203(K) streamline, see Exclusion on 203(k) loan section above. Borrower Borrower Identity of Interest Certification must be signed and dated by borrower(s), Consul 203(K) Borrower Acknowledgement must be signed, dated and completed by borrower(s). Conference call with borrower to be completed by SWMC. LandSafe Title is not acceptable as the title company 22

94 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM SPECIAL PROGRAM NOTES: For credit approvals on or after January 1, 2009: ***Base loan amounts (excluding UFMIP) that exceed the loan amounts below are not permitted there is no High Balance option for 203(k). *** 1 Unit 2 Units 3 Units 4 Units Continental US $417,000 $533,850 $645,300 $801,950 Alaska & Hawaii $625,500 $800,775 $967,950 $1,202,925 REMINDER: FHA PROGRAM DESCRIPTIONS ARE NOT INTENDED TO REPLACE THE 4155 or the 203(k) Handbook and any subsequent mortgagee letters. PLEASE REFER TO HUD HANDBOOKS FOR GUIDELINES THAT DO NOT APPEAR IN THIS DOCUMENT OR FOR FURTHER CLARIFICATION OF GUIDELINES. SECTION 1: PROGRAM CODES: CODING Streamlined 203(k) codes: 30- Year Fixed term: Temporary Buydown codes: Buydown Term Lender Paid Seller Paid 2/1 Buydown 4287L S-06 1/0 Buydown 4288L S-06 Second Lien Program Codes: Not applicable SECTION 2: LTV/CLTV/LOAN AMOUNTS BY DOC TYPE FULL DOCUMENTATION: Purchase Only: LTV* CLTV/HCLTV OCC. PROPERTY 96.50% *** Owner 1-4 Units ** See the Maximum Loan Amount section below for information on determining the maximum loan amount. *** See the Subordinate Financing section below for information on determining the CLTV/HCLTV Rate term Refinance Only: LTV* CLTV/HCLTV OCC. PROPERTY 97.75% 97.75% Owner 1-4 Units ** See the Maximum Loan Amount section below for information on determining the maximum loan amount. New subordinate liens are not permitted behind rate/term refinance first liens. * For case numbers issued on or after September 7, 2010: The maximum combined amount of the 1 st & 2 nd may not exceed 97.75% CLTV/HCLTV. Cash-out Refinance: SECTION 3: MINIMUM LOAN AMT: Not applicable PROGRAM PARAMETERS $50,000 (base loan amount) Minimum rehabilitation amounts: Streamlined 203(k): $5,000 minimum ($35,000 maximum for rehabilitation) STREAMLINE 203(K) Page 1 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

95 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM MAXIMUM LOAN AMOUNT: FHA Loan Limits 1 Unit 2 Units 3 Units 4 Units Floor $271,050 $347,000 $419,400 $521,250 Continental US $417,000 $533,850 $645,300 $801,950 Alaska & Hawaii $625,500 $800,775 $967,950 $1,202,925 The maximum base loan amount may not exceed the statutory limit for each county/msa. See non-occupant co-borrower section below for the maximum loan amount requirement for transactions with non-occupant co-borrowers. Maximum LTV/CLTV 100% for properties in West Virginia. This includes government assistance programs where the combined loan amount may exceed 100% LTV/CLTV. Effective with case numbers issued on or after September 7, 2010: For all refinance transactions, except streamline refinances, the combined amount of the FHA-insured first mortgage and any subordinate lien may not exceed the Applicable FHA loan to value ratio Note: The statutory limit varies by the program and number of units in the dwelling. Each FHA office publishes the limits for each county or city within their jurisdiction. Go to: to look up the maximum loan amount for the number of units in the property for the county or MSA where the property is located. The maximum base loan amount for an FHA 203(k) can not exceed HUD s statutory maximums. The maximum rehabilitation amount on a Streamlined 203(k) cannot exceed $35,000 HUD form should be used to calculate the maximum mortgage amount. The maximum loan amount for a purchase transaction is calculated by applying 96.5% to the lesser of The sales price or as is appraised value plus total rehabilitation costs minus sales concessions, or 110% of the as completed appraised value (100% for condo) An inducement to purchase must result in a dollar-for-dollar reduction to the sales price before applying the LTV ratio. These inducements may include, but are not limited to, decorating allowances, repair allowances, moving costs, gift cards, etc. Personal property such as cars, boats, lawn mowers, furniture, televisions, etc. given by the seller to consummate the sale also must result in a reduction to sales price before applying the LTV ratio. On a purchase transaction, seller/interested party contributions exceeding 6% must be subtracted from the sales price (or value, if less) before applying the down payment percentage multiplier. HUD REO sales with $100 down payment incentive: HUD properties with the $100 down payment incentive will be permitted as follows: o Check availability of incentive programs with HUD. Purchase contract must reference $100 down payment incentive. Incentive may not be currently available. o The Total Loan Amount (including financed UFMIP) for $100 down payment transactions will be limited to 100% of the as-appraised value from the initial HUD REO appraisal report that set the listing price for the subject property. NOTE: this loan to value calculation is different from the standard FHA LTV guideline calculation that is determined by the Base Loan Amount (excluding UFMIP) divided by the sales price or appraised value, whichever is less. o The cost of HUD approved repair escrows may be added to the base loan amount for purchases of HUD REO properties in combination with the low down payment sales o o o o incentive. Repair escrows are permitted as reflected by the repair escrow amount on line 4 of the HUD Sales Contract. The repair escrow amount on line 4 of the HUD Sales Contract may not exceed $5000. Maximum DTI 45% (DTI > 45% must have compensating factors plus a 2 nd signature) regardless of AUS approval. Where a discount on the sales price is being provided, the mortgage amount must be based on the lesser of the as-is value or the discounted sales price, not the contract sales price. Follow 4155 guidance and HUD requirements. See ML for loan amount calculation details STREAMLINE 203(K) Page 2 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

96 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM MAXIMUM LOAN AMOUNT: (cont d) For a rate term refinance the maximum mortgage is the lower of the following two calculations: Sum of existing debt plus total rehabilitation costs plus borrower paid closing costs & prepaids plus discount points on total loan amount minus discount points on repair costs minus FHA MIP refund, or Multiply the lesser of the following by 97.75%: the as is value of the property plus total rehabilitation costs, or 110% of the as completed appraised value (100% for condo) However, if the borrower has owned the property for less than 12 months, and the loan is not already FHA-insured, then the new loan amount is based on the lower of the as is appraised value or borrower s acquisition cost plus debt incurred for rehabilitation since acquisition. For case numbers issued on or after September 7, 2010: the combined amount of any FHA-insured first mortgage and any subordinate lien may NOT exceed 97.75% CLTV. ALLOWABLE TERMS: CASH PROCEEDS: SPECIAL PROGRAM REQUIREMENTS: 30 year fixed term only Not allowed. The loan amount must not exceed the actual cost of rehabilitation, the purchase price or refinance of an existing lien, and reasonable closing costs. Loan proceeds not advanced must be applied to principal. Eligible expenses to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and profit (noted in each work item), fees for inspections, permits, licenses, and lien protection fees for title updates. There will be a supplemental origination fee charged on the portion of the proceeds allocated to the rehabilitation. All contractors must be licensed if required by the state. Stearns will review the following items pursuant to all contractors: Credentials (license, bonding, liability insurance and workers compensation insurance) Work Experience W9s must be completed and signed by every contractor working on the project Total number of contractors that may be used on Streamline 203(k) loan is limited to four (4). If the work requires more than four (4) contractors and/or if the borrower wants more than four (4) contractors, in lieu of the multiple contractors, a General Contractor will be required instead. The general contractor may acquire his own sub-contractors. Credentials are needed only on the General Contractor and not required on the sub-contractors. We will allow for exceptions to the maximum number of contractors, on a case by case basis. Exception requests are to be submitted to Rehab Dept. Rehab Dept Contact Information: Address: [email protected] Phone: Fax: Under some circumstances, self-help arrangements where the borrower performs some or all of the work may be permitted (but are discouraged) unless the borrower s ability to perform the work is self-evident & easily documented. Not allowed for any projects for which permits will be required, unless the borrower is a licensed contractor in the specific field necessary for the rehabilitation. Must meet the following requirements: Must fully understand the 203(k) program and the risks inherent in rehab projects. Must be able to document that the borrower can perform the work in a competent, timely and workmanlike manner and provided explanation of borrower s qualifications and experience that can support borrower s knowledge of work to be done. Must provide a detailed estimate listing the supplies/materials needed, and cost of these. Estimate cannot include charge for labor Must also provide a fully complete estimate(s) from an actual contractor(s) for all the selfhelp work to be completed by borrower. This estimate must include costs for labor. Borrower is required to provide credentials to evidence borrower s Licensing, Bonding, Liability Insurance and Worker s Compensation Insurance (as applicable). Borrower will be required to maintain records documenting actual costs (copies of all receipts required) in the same way a general contractor would. This documentation will be required from borrower upon completion of repairs and to process final reimbursement STREAMLINE 203(K) Page 3 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

97 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM SPECIAL PROGRAM REQUIREMENTS: (cont d) Provide cash reserves/credit (for the entire amount as reflected on estimate from contractor that includes labor), to fund rehab costs. A self-help agreement must be signed, with the borrower s understanding that the work must be completed within 6 months of closing. Not permitted for properties in Texas. The rehabilitation work must begin within 30 days of closing, and all work must be completed within 6 months of closing, or less depending on the rehabilitation complexity. Changes to contractors or previously approved work items on loan after closing: Once the loan has funded, changes and/or any modifications to the previously approved work items are not allowed. However, there may be circumstances where exceptions may be considered for unforeseen additional work required to be completed that is related to the approved repairs. Any exceptions to work items changes/modifications must be approved by Stearns Lending Inc., before the change/modification is made or work is done. Use of contingency account funds is restrictive and limited. An exception for changes/modifications may be requested by submitting the following documentation to Rehab Dept: Detailed written request explaining the actual changes/modifications needed in repairs from what was listed on the original contractor estimate. Detailed written explanation of why the changes/modifications are needed. Provide cost breakdown for the changes/modifications needed. Rehab Dept will review and approve or deny the changes, and communicate the final decision with borrower and contractor. Please contact the Rehab Department if a change in contractor is contemplated. A change in contractor may be required if one of the current contractors decides they do not want to do the proposed work, or have begun the repairs and decide they do not want to finish the work. The Rehab Department will need a new contractor estimate from the different contractor, for the work that had been previously approved, and a fully completed Contractor Profile form on the new contractor. Streamlined 203(k) rehabilitation items can include: Program is limited to $35,000 in rehabilitation amount, so major remodeling, structural repairs, site amenity improvements, and room additions are not eligible. Examples (not all-inclusive) of eligible improvements: o Repair/replacement of roofs, gutters & downspouts o Repair/replacement/upgrade of existing heating, ventilation & air conditioning o Repair/replacement of plumbing & electrical systems o Repair/replacement of flooring o Minor remodeling that does not involve structural repairs o Weatherization, including storm windows & doors, insulation and weather stripping o Purchase & installation of appliances, including free-standing. o Improvements for accessibility for persons with disabilities. o Lead-based paint stabilization or abatement of lead-based paint hazards o Repair/replacement/addition of exterior decks, patios & porches. o Basement finishing & remodeling that does not involve structural repairs o Basement waterproofing o Replacement of windows, doors, and exterior wall re-siding. o o o o Well repair Septic repair or replace Pool repair permitted for functionality, health and safety issues, such as an empty pool on a foreclosure sale, to a maximum of $1,500. Installation of a new pool (or spa) is not permitted. Mold remediation is allowable on a case by case basis. Minor mold remediation will most likely be acceptable, major mold causes and cures will most likely need a full 203K, and this Lender does not participate in the full 203K program STREAMLINE 203(K) Page 4 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

98 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM SPECIAL PROGRAM REQUIREMENTS: (cont d) ARM ADJUSTMENTS: INTEREST ONLY: TEMPORARY BUYDOWNS: PREPAYMENT PENALTY: SECTION 4: FIRST TIME HOMEBUYER: The following FHA options may be combined with the Streamline 203(k) loan program. Combining any one, or multiple of these options with Streamline 203(k) transaction can be a complex process that exceeds standard guidelines. Please contact Corporate Support for assistance. $100 Down Payment Incentive Energy Efficient Mortgage (may include Energy-Related Weatherization and/or Solar Energy Improvements) Good Neighbor Next Door HUD REO with Repair Escrow Not applicable Not applicable NOTE: BUYDOWNS ARE CURRENTLY SUSPENDED UNTIL FURTHER NOTICE Lender and seller paid buydowns are permitted on the 30-year fixed rate term. Allowed on purchases only. Not allowed on refinances. 2/1 & 1/0 buydowns are permitted. Increases cannot exceed 1% per year. Borrowers are qualified based on the note rate. (Not the bought down rate) See coding section above for program codes. Not applicable. BORROWER ELIGIBILITY Allowed, no restrictions. NON-OCCUPANT CO- BORROWER: PERMANENT RESIDENT ALIEN: Permitted on purchase or rate/term refinance transactions to maximum 75% LTV with the following exception: Maximum financing is permitted if the non-occupant borrower is related by blood (parentchild, siblings, uncle-aunt, etc) OR for unrelated persons that can document evidence of a family-type long-standing and substantial relationship not arising out of the loan transaction. If the LTV is >75%, only one-unit properties are permitted. The non-occupant borrower s income may be used for qualifying. The non-occupant borrower cannot be a party to the transaction such as the seller, builder or real estate broker. Properties known as kiddie condos (purchase transaction involving a parent who is buying a home with their child who is a college student) are permitted as follows: Occupant borrower must have sufficient credit for an AUS approval (including minimum 640 credit score), income and ratios may follow AUS findings. Allowed under the same terms as US citizens. Permanent resident aliens must provide proof of their residency (i.e. green card) STREAMLINE 203(K) Page 5 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

99 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM NON-PERMANENT RESIDENT ALIEN: Non-permanent resident aliens are permitted provide they occupy the property as their primary residence, have a valid social security number AND are eligible to work in the US. A legible copy of one of the following acceptable visa types must be submitted in the file: E-1, E-2, H-1B, H-2A, H-2B, H-3, L-1, G series, and NAFTA workers (TN or TC). The following are not acceptable visa types: A-1, A-2, A-3, F-1, F-2, M-1, O-1. For any visa types not listed above, please contact your branch to research acceptability, all visa types may not be listed here. A legible copy of the unexpired passport with I-94 is also required. If an EAD issued by the USCIS is provided, the borrower is eligible to work in the United States and does not need to provide visa, passport or I-94 documentation. If the EAD will expire within one year and a prior history of residency status renewals exists, the lender may assume that continuation will be granted. If there are no prior renewals, the lender must determine the likelihood of renewal, based on information from the USCIS. Borrowers with diplomatic immunity are not permitted. FOREIGN NATIONAL: NON-ARMS LENGTH TRANSACTIONS: NUMBER OF OTHER PROPERTIES: Not eligible On 203K loans, HUD does not permit any identity of interest transactions. In addition, the borrower must sign a certification stating the following, which will be added to the documentation for 203(k) Streamline going forward: "I hereby certify to the Department of Housing and Urban Development (HUD) and (lender), that I/We do not have an identity-of-interest with the seller of the property. I also Certify that I/We do not have a conflict-of-interest with any other party to the transaction, including the realtor, lender, contractor, consultant and/or the appraiser. In addition, I certify that I am not obtaining any source of funds or acting as a "strawbuyer" for another individual, partnership, company or investment club and I/We will/will not occupy the residence I/We are purchasing or refinancing." Number of financed properties Stearns permits: For Owner Occupied properties, there is no limit to the number of financed properties that the borrower may own; however the borrower must certify that they will occupy the subject property. Reminder: HUD has rules regarding ownership in more than 7 rental units - please consult the 4155 if your borrower owns multiple rental units If the transaction is the purchase of a principal residence, but a previous mortgage transaction within the past 12 months was also the purchase of a principal residence, the borrower must provide reasonable documentation to justify the new transaction (e.g. a letter of explanation, or other acceptable documentation). Any address discrepancies or "red flags" must be fully addressed. A borrower purchasing a new primary that is of lesser size or value should be carefully analyzed by the underwriter Relocation and/or extenuating circumstances must be documented and verified Non occupant coborrower/co-signer situations (where the previous owner occ purchase was a cosigned loan) must also be verified and fully documented. Stearns has the right to refuse the occupancy type if it cannot be adequately established. Number of properties HUD will insure: HUD will generally not insure more than one property per borrower. Any person, individually or jointly owning a property insured by HUD, may not purchase another primary residence with FHA mortgage insurance unless one of the following occurs: The borrower is relocating and establishing residency in another area not with in a reasonable commuting distance from their current primary residence. (Generally 50 miles is considered reasonable) The borrower outgrows their present property because of an increase in family size. The borrower also must pay down the outstanding FHA mortgage (secondary liens do not need to be paid off or paid down) on the present property to a 75 percent or lower loan-to-value (LTV) ratio. A current residential appraisal must be used to determine LTV compliance. Tax assessments, market analyses by real estate brokers, etc., are not acceptable as proof of LTV compliance. The borrower vacates a property that will remain occupied by a co-borrower. (I.e. divorce) STREAMLINE 203(K) Page 6 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

100 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM NUMBER OF OTHER PROPERTIES: (cont d) SECTION 5: UNDERWRITING: CREDIT SCORES: CREDIT REQUIREMENTS: A non-occupying co-borrower of an FHA mortgage being purchased as a primary residence may have a joint interest in that property as well as a primary residence covered by the FHA loan. Note: properties previously acquired as non-owner are not subject to the restrictions above. Reminder: HUD has rules regarding ownership in more than 7 rental units - please consult the 4155 if your borrower owns multiple rental units Note: The more restrictive of Stearns Policy of HUD policy must be adhered to. CREDIT CRITERIA Branch Authority: The branch must send all files to Corporate Support for the entire process (from disclosure to closing) until they have been released from test cases. Files will be closed by Corporate Support. All loans must be underwritten by DU or LP and receive an approve/ eligible or accept recommendation. AUS Refer & Manual underwriting not permitted. Loans underwritten through DU/FHA Total Scorecard that receive an approve/eligible recommendation may be documented per the AUS findings report. AUS Approve/Eligible transactions where a manual downgrade is required per Total Scorecard User Guide should follow HUD guidelines. Maximum 50% DTI regardless of AUS. Case number assignments must show clear and validated with no warnings or sanctions. A 3 bureau merged in-file report or full credit report (RMCR) must be obtained that contains at least 2, but preferably 3 credit scores for each borrower. A representative score (lower of 2, middle of 3) will be chosen for each borrower on the loan. A minimum 640 credit score is required for all borrowers, regardless of AUS approval. A co-borrower with no score is not permitted. Borrowers with no credit score or who have too few credit trade lines to obtain a credit score are not permitted. Non-traditional credit is not accepted. Non Traditional Credit: Not permitted. Traditional Credit Requirements: Follow DU/LP Total Scorecard credit requirements except where noted below If required by AUS findings, the borrowers housing history must be documented for the last 12 months on a credit report, OR with a verification of rent directly from the landlord, OR with 12 months canceled checks, OR a verification of mortgage from the loan servicer. The borrower s mortgage history must reflect 0x30 in the last 12 months and must be documented as current for the month due, regardless of AUS. AUS Approve/Eligible or Accept recommendations where the credit report or AUS indicates prior bankruptcy, foreclosure or short sale are permitted as long as FHA guidelines are met (3 years since foreclosure or short sale, 2 years since chapter 7 discharge), however the underwriter should verify the data integrity in these instances. Reminder in regards to Chapter 13 bankruptcy with AUS Accept, per FHA: If the Chapter 13 bankruptcy has not been discharged for a minimum period of two years, the loan must be downgraded to a Refer so will not be eligible for this program. Short payoffs or settlements on a mortgage lien are considered the same as a foreclosure so must be seasoned at least 3 years with an AUS Approval. Please note that AUS may not recognize the short sale so this should be analyzed by the underwriter. Borrower may currently be in active consumer credit counseling if: AUS Approval required no Refer or manual downgrade permitted. The borrower has participated in the plan for 1 year with no lates An explanation letter from the borrower regarding the counseling is required If the transaction is a purchase, payment shock > 25% will require a 2 nd signature from corporate support. Major derogatory credit (i.e. judgments, collections, etc.) requires a written explanation. Reminder, TOTAL approvals must be downgraded for any derogatory debt, including, but not limited to, collection accounts, tax liens, charge-offs or judgments discovered during processing but not showing on the credit report STREAMLINE 203(K) Page 7 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

101 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM CREDIT REQUIREMENTS: (cont d) Inquiries: A detailed explanation letter that specifically addresses both the purpose and outcome of each inquiry is required. If additional credit was obtained, a verification of that debt must be obtained and the AUS findings must be updated to include the debt. Court ordered judgments must be paid off before a borrower will be eligible for an FHA loan unless the borrower has agreed to a payment plan with the creditor and has been making timely payments per the payment plan. If the borrower is currently delinquent on any federal debt (i.e. VA loan, title 1 loan, federal student loan, Small Business Administration loan, delinquent federal taxes) or has a lien placed against their property for a debt owed to the Federal government, they are not eligible for FHA insurance until the delinquent account is brought current, paid or otherwise satisfied. Non purchasing spouse credit reminder: A credit report is required on a non-purchasing spouse in a community property state. Although the non-purchasing spouse's credit history is not to be considered a reason for denial, it must be obtained in order to determine the debt-toincome ratio of the borrower. Except for the obligations specifically excluded by State law, the debts of the non-purchasing spouse must be included in the borrower's qualifying ratios if the borrower resides in a community property state or the property to be insured is located in a community property state. Therefore, a judgment in the name of a non-purchasing spouse does need to be paid off for the purchasing spouse to be eligible for an FHA mortgage. Court-ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance endorsement. An exception may be made if the borrower has agreed with the creditor to make regular and timely payments on the judgment and documentation is provided that the payments have been made in accordance with the agreement. If TOTAL Scorecard issues a referral to manual underwriting based on the presence of one or more disputed accounts, lenders should ignore the TOTAL finding to refer the account to manual underwriting in any of the following circumstances: The disputed account has a zero balance The disputed account is marked as paid in full, or resolved The disputed account is both less than $500, and more than 24 months old Loan modifications: Refinances of previously modified loans will be permitted as follows: o Owner occupied properties only o o o Rate/term refinance only, no cash out permitted Maximum refinance amount may not exceed the ORIGINAL BALANCE of the loan. The unpaid principal balance may not exceed the original loan balance, as that may indicate delinquent payments added to the loan. Loan modification may not have any of the following characteristics, which indicate a restructured loan: Forgiveness of a portion of principal and/or interest Application of a principal curtailment to simulate principal forgiveness Conversion of any portion of the original mortgage debt to a subordinate mortgage or Conversion of any portion of the original mortgage from secured to unsecured New purchase transactions where the borrower s previous loan was modified and the property is being retained are allowed, with the following requirements: o 24 months payment history for the modified loan with no delinquent status is required for consideration. o The loan modification documents must be reviewed to ensure that the modification is not invalidated by non-owner occupancy of the property. If this is the case, the borrower must qualify at the higher rate and payment as indicated by the modification agreement QUALIFYING: On loans with buy downs, the borrower is qualified based on the note rate. Installment debt with <10 payments remaining are not included in the DTI unless the payment amount is substantial enough to affect the borrowers DTI ratio. This includes child support or alimony payments. Stearns considers payments >5% of gross income to be substantial. Loans secured by a liquid asset (i.e. 401K) are not included in the debt calculation. Deferred student loans will be included in the DTI unless the borrower can prove that payments will not start for at least 12 months after closing STREAMLINE 203(K) Page 8 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

102 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM QUALIFYING: (cont d) Paying revolving debt off to qualify is permitted provided the borrower has the funds in verified assets to pay the account(s) and the payoff is documented (HUD-1). Lease payments will be included in the DTI regardless of the number of payments remaining in the lease. Co-signed obligations will not be included in the DTI if there is evidence the primary borrower has made payments as agreed for the last 12 months (copies of canceled checks, front and back). A copy of the note must also be provided to show that the person that is making the payments is also an obligor on the note. Being placed on title only is insufficient. Contingent liabilities (i.e. property settlement buy-outs or court-ordered assignment of debt) will not be included in the DTI if there is proof the debt belongs to another person. A copy of a court order, divorce decree or property settlement may provide proof of the contingent debt. Payments on bridge loans will not be included in the debt ratio. Single payment notes (a Note in which the loan, including principal and interest, is due in one lump sum payment) must qualify with at a minimum an interest only payment included in the debt ratio. Post-closing liquidity may not be used to offset payments. Mortgage Credit Certificates may not be used as income or to offset housing payment. Stearns is not participating in any MCC programs at this time. Primary Residence being vacated in favor of another principal residence: The underwriting analysis may not consider any rental income from the property being vacated except under circumstances described below. Exceptions: Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see may be considered in the underwriting analysis under the following circumstances. Relocations: The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of a least one year s duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month s rent was paid to the homeowner. Sufficient Equity in Vacated Property: The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property. The appraisal, in addition to using forms Fannie Mae 1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae 1075/Freddie Mac 466. RATIOS: DTI maximum 50% regardless of AUS recommendation. CALCULATING LTV/CLTV/VALUE: HUD form should be used to calculate the maximum mortgage amount. The maximum loan amount for a purchase transaction is calculated by applying 96.5% to the lesser of The sales price or as is appraised value plus borrower paid repairs minus sales concessions, or 110% of the as completed appraised value (100% for condo) When a 203(k) loan is coupled with an energy efficient mortgage, the base loan amount may exceed the county maximum by up to $8000. An inducement to purchase must result in a dollar-for-dollar reduction to the sales price before applying the LTV ratio. These inducements may include, but are not limited to, decorating allowances, repair allowances, moving costs, gift cards, etc. Personal property such as cars, boats, lawn mowers, furniture, televisions, etc. given by the seller to consummate the sale also must result in a reduction to sales price before applying the LTV ratio. On a purchase transaction, seller/interested party contributions exceeding 6% must be subtracted from the sales price (or value, if less) before applying the down payment percentage multiplier STREAMLINE 203(K) Page 9 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

103 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM CALCULATING LTV/CLTV/VALUE: (cont d) HUD REO sales with $100 down payment incentive: HUD properties with the $100 down payment incentive will be permitted as follows: o Check availability of incentive programs with HUD. Purchase contract must reference $100 down payment incentive. Incentive may not be currently available. o The total base loan amount (including financed UFMIP) for $100 down payment transactions will be limited to 100% of the as-appraised value from the initial HUD REO appraisal report that set the listing price for the subject property. NOTE: this loan to value calculation is different from the standard FHA LTV guideline calculation that is determined by the Base loan amount (excluding UFMIP) divided by the sales price or appraised value, whichever is less. o The cost of HUD approved repair escrows may be added to the base loan amount for purchases of HUD REO properties in combination with the low down payment sales incentive. o Repair escrows are permitted (line 4 of sales contract indicates 203b with Repair Escrow). The maximum amount of allowable repairs is $5000. o Maximum DTI 45% (DTI > 45% must have compensating factors plus a 2 nd signature) regardless of AUS approval. o Where a discount on the sales price is being provided, the mortgage amount must be based on the lesser of the as-is value or the discounted sales price, not the contract sales price. o Follow 4155 guidance and HUD requirements. See ML for loan amount calculation details. Re-negotiated purchase agreement policy: Stearns will not accept re-negotiated purchase agreements that increase the sales price after the appraisal has been completed if: The appraised value is higher than the contracted sales price provided to the appraiser, and The new purchase agreement and/or addendum used to modify the sales price is dated after the appraisal is received, and The only change to the purchase agreement is an increase in sales price. If the purchase agreement is re-negotiated after the completion of the appraisal, the loan to value will be based on the lower of the original purchase price or the appraised value, unless: A re-negotiation of seller paid closing costs and/or pre-paids occurs if customary for the market and supported by comparables, not to exceed standard seller contributions, or An amended purchase agreement for a new construction property is obtained due to improvements that impact the value. In the event of such changes, an updated appraisal must be obtained to verify the value of the modifications. For a rate term refinance the maximum mortgage is the lower of the following two calculations: Sum of existing debt plus rehabilitation costs plus borrower paid closing costs & prepaids plus discount points on total loan amount minus discount points on repair costs minus FHA MIP refund, or Multiply the lesser of the following by 97.75%: the as is value of the property plus rehabilitation costs, or 110% of the as completed appraised value (100% for condo) However, if the borrower has owned the property for less than 12 months, and the loan is not already FHA-insured, then the new loan amount is based on the lower of the as is appraised value or borrower s acquisition cost plus debt incurred for rehabilitation since acquisition. For case numbers issued on or after September 7, 2010: the combined amount of any FHA-insured first mortgage and any subordinate lien may NOT exceed 97.75% CLTV. With HELOC subordinate financing, the CLTV should be calculated from the full amount of the HELOC (whether or not funds have been drawn) STREAMLINE 203(K) Page 10 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

104 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM CALCULATING LTV/CLTV/VALUE: (cont d) Energy Efficient Mortgages: Allowable for purchase or refinance of a principal residence to incorporate the cost of energyefficient improvements into the mortgage. Existing 1-4 unit properties including condos are permitted. New construction is not permitted. Borrower may finance 100% of the total cost of improvements into the mortgage if the total cost of the improvements including maintenance is less than the total present value of the energy saved over their useful life. Appraisal of improvements is not required. Once it is determined that the borrower and the property qualify for an FHA loan, the maximum dollar amount of the cost-effective energy package that can be added to the loan amount will be determined using the energy rating report (HERS) and EEM worksheet. There is also an EEM Calculator embedded in FHA Connection. o The maximum amount for the portion of the EEM for energy improvements is the lesser of: o The actual cost of the improvements OR 5% of The value of the property (FHA appraised value of the property as indicated on the DE statement of appraised value), OR 115% of the median area price of a single family dwelling, OR 150% of the conforming Freddie Mac limit o The calculated amount can be added to the base loan amount to total the final FHA insured loan amount before adding any UFMIP. o For existing properties, energy-related weatherization items (refer to HUD Rev 5, 1-7 (C) (2) for maximum additions to the mortgage amount) may be combined with the EEM, where the maximum dollar amount allowed under an EEM does not cover the cost of the entire energy package. The weatherization amount would be the cost of the improvements not covered by the EEM amount. o The fees charged to the borrower for the home energy rating, including the physical inspection, the HERS report, and any post-installation test, must be customary & reasonable. These fees may be included and financed as part of the energy package if the entire package (including fees) is cost-effective. If not, such fees are in the allowable closing costs. o The FHA maximum loan limit for the area may be exceeded by the cost of the energy efficient improvements to be financed. However, the base loan amount cannot exceed maximum county limits, for the current year loan limits. o FHA has issued several Mortgagee Letters that address requirements that must be met: ML includes underwriting instructions and information regarding HERS that are used to determine the cost of improvements and energy savings. o Note: Appliances may NOT be included in an EEM (only allowable on 203k). EEM Processing/Underwriting Instructions: o o o o o Borrower is qualified using standard underwriting requirements and qualifying ratios. FHA total scorecard may be utilized. UW calculates maximum mortgage amount using existing instructions. (Loan does not need to be rerun through Total Scorecard for the loan amount including EEM) A HERS (Home Energy Rating System) report is required (by a qualified home energy rater) showing the estimated costs of installing the energy efficient improvements (incl. maintenance costs) and annual savings in utility costs that will result from the installation of the energy efficient improvements. The UW must determine that the energy efficient improvements are cost effective by completing the EEM worksheet. EEM Worksheet can be found in J:\Operational Tools\FHA. This is to be placed directly behind the 2900-LT or WS, along with the HERS report. The cost effective energy improvement are then added to the maximum mortgage amount.there is also an EEM Calculator embedded in FHA Connection. The UW will then calculate the UFMIP based on the loan amount with the EEM included, and include in the remarks section of the 2900-LT or WS. The Lender must establish an escrow for the funds, and the improvements are to be completed within 30 days (Stearns policy) of closing. Any funds remaining in the account after construction is over must go to reduce the principal. The borrower cannot be paid for labor on work that they perform, and no cash back STREAMLINE 203(K) Page 11 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

105 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM CALCULATING LTV/CLTV/VALUE: (cont d) o The installation of the energy efficient items may be inspected by HERS qualified person, or a HUD Fee Inspector, and the borrower may be charged an inspection fee. (If fee inspector, they must be supplied with a copy of the EE report.) This additional fee should be included in allowable closing costs. o The branch is responsible for following up with the broker/borrower to ascertain when the work is to be completed, and monitor the progress of the job. Stearns will only allow a 30 day time frame to get this work completed. CIR or HERS inspection is to be forwarded on to loan delivery department upon receipt. o The borrower may be charged for the HERS report. FHA does not set the fees for the Home Energy Rating, including the physical inspection, the HERS Report, and any post-installation tests. The fees charged to the borrower for the Home Energy Rating must be customary and reasonable for the area. These fees may be included and financed as part of the energy package if the entire package, including those fees, is cost-effective. If not, such fees are considered allowable closing costs. Inspection fees are only allowed that are typical and common for the area. o The Lender must execute a Mortgagees Assurance of Completion. ( Hud form ) o o The loan can be insured with the work outstanding. When work is completed, HUD is notified via FHA connection. This is to be done when the escrow account is paid out/cleared. SEASONING: Properties are not eligible for mortgage insurance if the resale date is 90 days following acquisition by the seller. (unless the seller is exempt) See eligible property section below for additional information. Loans with resale dates >90 days up to 12 months may require supplemental documentation, including an additional appraisal. For any sale where the seller has owned the property from 91 to 180 days and the new sales price is 100% or higher than the seller s purchase price, a second appraisal is required to confirm the value (refer to ML ). This 2 nd appraisal fee cannot be charged to the borrower. See eligible properties section for exemptions and waivers of the 90 day flipping rule. REFINANCES: Continuity of obligation: There is no seasoning requirement for rate & term refinances In order to be eligible for a rate & term refinance, borrower must hold legal title to the property; they do not have to be on the existing lien. However, if the borrower has owned the property for less than 12 months, and the loan is not already FHA-insured, then the new loan amount is based on the lower of the as is appraised value or borrower s acquisition cost plus debt incurred for rehabilitation since acquisition. (see the section regarding calculating the LTV/CLTV and loan amount) Per ML , if the borrowers re-occupy their investment properties: If the former investment property has been owner occupied for 12 months or more prior to loan application, maximum financing as owner occupied is permitted. If the former investment property has been owner occupied for less than 12 months prior to the loan application date, only fully qualifying rate/term refinancing is permitted with an LTV not to exceed 85% (no streamline refinance permitted). A rate/term refinance may include: Paying off the outstanding balance of the existing first mortgage, including any prepayment penalty. Paying off any subordinate lien used solely for the acquisition (purchase) of the property. Reminder, if open ended subordinate financing such as a HELOC is being paid off and closed through escrow, documentation of such must be provided as follows: o The borrower must request that the account be frozen (the payoff statement should be marked to have the account blocked to further advances and close the account). o Obtain a statement from the lender that no advances have been made after the issuance of the payoff demand. o Obtain copy of request from borrower (usually held by the closing agent) of their request to pay off and close the account STREAMLINE 203(K) Page 12 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

106 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM REFINANCES: (cont d) Financing of closing costs, including pre-paid items, borrower paid repairs required by the appraisal, and any reasonable discount points. Incidental cash back to the borrower not to exceed $ In the event of excess cash to the borrower, the lender may apply a principal curtailment to bring the loan into compliance with the maximum cash back requirement. The maximum amount of curtailment permitted is the lesser of $2,000 or 2% of the original loan amount. Lender paid transactions only. Any junior liens that have been seasoned for a minimum of 12 months. Pre-paid expenses may include the per diem interest to the end of the month on the new loan, hazard insurance premium deposit, monthly mortgage insurance premiums and real estate tax deposits needed to establish the escrow account regardless of whether the mortgagee refinancing the existing loan is also the servicing lender for the loan. The amount of the existing first lien may include the interest charged by the servicing lender when the payoff will not likely be received on the first day of the month (as is typical for FHA mortgages). They amount also may include any prepayment penalties assessed on a conventional mortgage. The mortgage being refinanced must be documented as current for the month due. (I.e. A refinance of a loan anytime in November must have the October payment made.) New subordinate liens are not permitted. The transaction must benefit the borrower. For case numbers issued on or after September 7, 2010: the combined amount of any FHA-insured first mortgage and any subordinate lien may NOT exceed 97.75% CLTV. NOTE: (if any portion of the funds of an equity line of credit in excess of $1,000 was advanced within the past twelve months and was for purposes other than repairs and rehabilitation of the property, the line of credit is NOT eligible for inclusion in the new mortgage.) SUBORDINATE FINANCING: Secondary Financing by a Family Member: Family members may lend 100% of the borrowers required cash investment (On a secured or unsecured basis) including the down payment, closing costs, prepaid expenses and discount points. The family member providing the secondary financing may not borrower the funds from an interested party to the transactions. (i.e. seller, builder, loan officer or real estate agent) The borrower receiving the funds from a family member may not be on the note used to secure the funds. For example a son and daughter-in-law may not be on the note for the funds borrowed by the parents that in turn lent the money for the down payment. The combined amount of the first and second mortgages do not exceed the applicable LTV ratio and the maximum mortgage limit for the area. Secondary Financing by a Government Agency: The combined amount of the first and second mortgages do not exceed the applicable LTV ratio and the maximum mortgage limit for the area. Federal, state and local government agencies may provide secondary financing for the borrower s entire cash investment. The first mortgage combined with the second mortgage, as well as any other mortgages, grants and so on may not provide cash back to the borrower. The monthly payment under the first and second lien, plus housing expenses and recurring charges, may not exceed the borrower s reasonable ability to pay the debt. The source, amount and repayment terms must be disclosed on the application and the borrowers must acknowledge they agree to the terms. A copy of the subordinate lien note must be in the loan file. Additional Secondary Financing Restrictions: The combined amount of the first and second mortgages do not exceed the applicable LTV ratio and the maximum mortgage limit for the area. Secondary financing from a non-approved charitable organization or non-profit agency is not permitted. The secondary financing must come from an approved FHA charitable organization/non-profit agency. Lenders must determine if the down payment assistance program meets HUD requirements and is approved by HUD STREAMLINE 203(K) Page 13 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

107 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM SUBORDINATE FINANCING: (cont d) Federal tax liens may remain unpaid provided an IRS tax lien is subordinated to the first lien. The borrower s credit worthiness must be assessed and the cause for the tax lien must be documented. Existing subordinate financing may be re-subordinated on a rate/term refinance per guidelines above, the borrower must have 12 months history 0x30 payments, the borrower must benefit from the transaction. Multiple subordinate liens are not permitted. Maximum LTV/CLTV 100% for properties in West Virginia. This includes government assistance programs where the combined loan amount may exceed 100% LTV/CLTV. For case numbers issued on or after September 7, 2010: the combined amount of any FHA-insured first mortgage and any subordinate lien may NOT exceed 97.75% LTV/CLTV for rate/term refinance transactions. With HELOC subordinate financing, the CLTV should be calculated from the full amount of the HELOC (whether or not funds have been drawn). Secondary Financing from other Organizations and Private Individuals (sellers): Other organizations and private individuals may provide secondary financing under the following conditions: The combined amount of the first and second mortgages do not exceed the applicable LTV ratio and the maximum mortgage limit for the area. The repayment terms of the second mortgage must not provide for a balloon payment before ten years (or other such term acceptable to FHA), unless the property is sold or refinanced, and must permit prepayment by the borrower, without penalty, after giving the lender 30 days advance notice. The required monthly payment under both the insured mortgage and the second mortgage or lien, plus other housing expenses and all recurring charges, cannot exceed the borrower's reasonable ability to pay. Any periodic payments due on the second mortgage are due monthly and are essentially the same in dollar amount. EMPLOYMENT/ INCOME: Reminder: Income for each borrower to be obligated for the mortgage debt must be analyzed whether it can reasonably be expected to continue through at least the first 3 years of the mortgage loan. All borrowers must have a valid social security number. Evidence of the social security number must be obtained. Acceptable evidence may include a copy of the social security card OR a pay stub, W-2 or other government-issued card that includes the borrower s social security number. FHA requires validation of Social Security numbers for consistency with the borrower s name, date of birth through FHA Connection and ECHO systems or their equivalent. The borrower s employment/income history must be verified for the most recent 2 years. If the applicant has not been employed with the same employer for the previous 2 years and/or not all conditions immediately above can be met, then the lender must obtain one or combination of for the most recent 2 years to verify the applicant s employment history: W-2(s), VOE(s) or Electronic verification acceptable to FHA School or the military during the most recent two full years, providing evidence supporting this claim such as college transcripts or discharge papers. Overtime and bonus income may be used if the borrower has received the income for at least 24 months and it is likely to continue. A verbal verification of employment is required for salaried and self-employed borrowers. The salaried borrower s employment/income is verified with their current employer. A Verbal Verification of Employment will be performed (for salaried / W2 borrowers) a maximum of 3 days prior to the NOTE date, and will expire after 10 days (from the date on the VOE) if the loan is not funded. The self-employed borrower s employment/income is verified by the most recent 2 years federal tax returns (personal and business required) and YTD P & L. For case numbers issued on or after April 1, 2012: For self employed borrowers, a P&L and Balance Sheet is required if more than a calendar quarter has elapsed since date of most recent calendar or fiscal year-end tax return was filed by the borrower, regardless of AUS approval or refer, with no exceptions. Reminder, requirements state that the lender must analyze the business financial strength, including the source of the business and general economic outlook for similar businesses in the area STREAMLINE 203(K) Page 14 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

108 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM EMPLOYMENT/ INCOME: (cont d) Annual earnings that are stable or increasing are acceptable, while business that show a significant decline in income over the analysis period are not acceptable, even if the current income and debt ratios meet FHA guidelines. Commission earnings also require two years tax returns. Temporary Leave Income: When income from temporary leave is being used to qualify for the mortgage loan, the lender must enter the appropriate qualifying income into DU or LP as follows: If the borrower will return to work as of the first mortgage payment date, the lender can consider the borrower s regular employment income in qualifying and must enter the income into DU or LP using the applicable income type. If the borrower will not return to work as of the first mortgage payment date but is able to qualify using the lesser of the borrower s temporary leave income (if any) or regular employment income, that lesser of income amount must be entered into DU or LP. Entry of the income into DU or LP depends on what was derived as the lesser of figure: When the borrower s temporary leave income is used, enter the income into DU or LP as an Other Monthly Income amount of Other Types of Income. When the borrowers regular employment income is used, enter the income amount in DU or LP using the applicable income type. For the Verbal Verification of Employment requirement, if the employer confirms the borrower is currently on temporary leave, the borrower is considered employed. The borrower must also provide written confirmation of the intent to return to work and the agreed upon date of return as evidenced by documentation provided by the employer. A signed 4506-T will be processed by Stearns regardless of AUS findings 4506T / Tax transcripts: Follow AUS findings for the level of income documentation required. A signed 4506-T will be processed in accordance with AUS findings except as noted. The most recent year s tax transcript is required if income information was used in the underwriting decision regardless of AUS results. If the most current year s tax transcripts are not available the following must be provided: the previous year s transcripts evidence that the extension was filed & IRS payment made / or refund received for the most current year most recent 30 days paystubs & most current W2s For self-employed borrowers the income may be used for qualifying purposes only if the 1040 s can be validated by Tax Transcripts or verification of payment in full or refund has been processed by the IRS; along with a copy of the tax returns and a P&L for the complete year. Business P&L s must be obtained for any tax year that has not yet been validated with tax transcripts including the current YTD if we are more than 3 months into the calendar year. Please note that if income for more than the most current year is used, tax returns and 4506Ts must still be obtained for all years of income used. 4506T must be processed for most current year and show no record" For 3-4 unit properties, property must debt service (i.e. all market rents must exceed PITIA) on purchase and refinance transactions. Mortgage Credit Certificates may not be used as income or to offset housing payment. Stearns is not participating in any MCC programs at this time. ASSETS: Assets must be liquid and or must be readily converted to cash. Assets must be converted to cash without retirement or job termination. Liquid assets include checking accounts, savings accounts, CD s, gifts, money market, mutual funds, stock, trust funds, net equity, bridge loans, bonds, secured borrowed funds, etc. Funds from personal assets that are sold prior to closing are acceptable as long as the individual purchasing the asset is not a party to either the property sale transaction or the mortgage financing transaction. The ownership of the asset and the value of the asset must be documented. The borrower must provide a bill of sale and proof of receipt of funds. Assets such as 401(k), IRS, thrift savings plans etc. may be used for cash reserves up to 60% of value unless the borrower can document a higher percentage may be withdrawn after subtracting any federal income tax and withdrawal penalties. All non-domestic funds (if the source of assets for any portion of the transaction comes from outside the US) must be reviewed by corporate support STREAMLINE 203(K) Page 15 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

109 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM ASSETS: (cont d) Business assets may be used for down payment and closing costs as follows: o The borrower must be the sole proprietor or 100% owner of the business or provide verification from the other owners that the borrower has access to the funds. o The accountant must comment on what impact the withdrawal of the funds will have on the business. If the accountant states that there will be a negative impact, the use of the funds will not be permitted. If using business assets and a CPA letter can not be obtained, the underwriter must include a cash flow analysis to evidence that the use of funds will not have a negative impact on the business. o Business funds are not an eligible source of funds for cash reserves. CASH RESERVES: Cash reserves are not required on 1-2 unit properties. On 3-4 unit properties, 3 months PITI is required for reserves. This includes refinance transactions. Gift funds may not be used for reserves on 3-4 unit properties. Assets such as equity in other properties and the proceeds from a cash-out refinance may not be used for cash reserves. Gift funds may be used for reserves. The gift must come from a family member. Business funds are not an eligible source of funds for cash reserves. GIFTS/ DOWN PAYMENT: On a purchase transaction borrowers must contribute a minimum 3.5% of the lesser of the sales price or appraised value. A minimum down payment is not required on refinance. Closing costs MAY NOT be used to help meet the minimum down payment requirement. A gift can be used for the borrower's total cash investment in the property. Down payment assistance programs are permitted as long as the following requirements are met: The underwriter must make sure the non-profit agency meets HUD requirements. (Mortgagee letter and HUD Handbook 4155) Down payment assistance is not permitted from: The seller or any other person or entity that financially benefits from the transaction OR Any 3 rd party or entity that is reimbursed, directly or indirectly, by the seller or any other interested party to the transaction. If the agency providing the subordinate financing is a Federal, State or Local governmental agency, the underwriter must confirm that the subordinate financing or DAP meets FHA guidelines, including but not limited to repayment term, source of funding, resale restrictions. HUD does not list approved Government Entity DAP providers. If the agency is not a government agency/entity but is a nonprofit organization, the status of the nonprofit must be checked on HUD s website: In addition, documentation of nonprofit entities Section 115 status must be verified with one of the following: 1. a letter from the organization s auditor; or 2. a written statement from the organization s General Counsel, as an official of the organization; or 3. a Letter Ruling issued by the Internal Revenue Service; or 4. an equivalent document evidencing Section 115 status A printed copy of the web site page showing the agency has not had their tax-exempt status terminated by the IRS prior to the date of the sales contract/purchase agreement and all amendments must be included in each loan file: Profits/Exempt-Organizations-Select-Check The Federal tax ID# of the non-profit must be entered in CHUMS. The gift should only be used towards the down payment and closing costs. The file should contain a gift letter stating that no repayment is required. The appraiser must be informed of the gift and dollar amount being used for down payment assistance. The sales price should not be increased to accommodate the down payment assistance. The closing agent must confirm the gift funds have been property deposited in an escrow account and the funds came directly from the non-profit. Gift funds may not be disbursed from the property seller s proceeds at closing. 3 current closed appraisal comparables (within 90 days) OR an AVM OR a field review is required to support value. Note: Discount points, pre-paid expenses, etc. or any portion of these charges may not be used towards the down payment STREAMLINE 203(K) Page 16 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

110 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM GIFTS/DOWN PAYMENT: (cont d) Gifts are permitted as follows: Gifts must come from a relative, domestic partner or fiancé. Gifts may also be obtained from the borrower s employer or labor union. Cash on hand is not an acceptable source of gift funds. Gifts must be documented per FHA guidelines as follows: If the gift funds Then the lender must. Are in the borrower s Obtain a copy of the withdrawal documents account showing the funds were from the donor s account. and the borrower s deposit slip and bank statement Are to be provided at closing, and are in the form of a certified check from the donor s account showing the deposit Obtain the bank statement showing the withdrawal from the donor s account, and a copy of the certified check. Are to be provided at closing, and are in the form of a cashier s check, money order, official check or other type of bank check Are to be provided at closing, and are in the form of an electronic wire transfer to the closing agent. Are being borrowed by the donor, and documentation from the bank or other savings account is NOT available Have the donor provide a withdrawal documents or cancelled check for the amount of the gift, showing that the funds came from the donor s personal account. Have the donor provide documentation of the wire transfer. Have the donor provide written evidence that the funds were borrowed from an acceptable source, not from a party to the transaction, including the lender. DOCUMENTATION REQUIREMENTS: Loan applications on this program must be fully documented. Income, employment and assets are fully verified. A Verbal Verification of Employment will be performed (for salaried / W2 borrowers) a maximum of 3 days prior to the NOTE date, and will expire after 10 days (from the date on the VOE) if the loan is not funded. 4506T / Tax transcripts: Follow AUS findings for the level of income documentation required. A signed 4506-T will be processed in accordance with AUS findings except as noted. The most recent year s tax transcript is required if income information was used in the underwriting decision regardless of AUS results. If the most current year s tax transcripts are not available the following must be provided: the previous year s transcripts evidence that the extension was filed & IRS payment made / or refund received for the most current year most recent 30 days paystubs & most current W2s For self-employed borrowers the income may be used for qualifying purposes only if the 1040 s can be validated by Tax Transcripts or verification of payment in full or refund has been processed by the IRS; along with a copy of the tax returns and a P&L for the complete year. Business P&L s must be obtained for any tax year that has not yet been validated with tax transcripts including the current YTD if we are more than 3 months into the calendar year. Please note that if income for more than the most current year is used, tax returns and 4506Ts must still be obtained for all years of income used. 4506T must be processed for most current year and show no record" Special documentation requirements apply (see A for full details): o HUD 92700: Maximum Mortgage Worksheet o HUD A: Borrower Acknowledgement o FHA Rehabilitation Loan Agreement o FHA Homeowner/Contractor Agreement STREAMLINE 203(K) Page 17 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

111 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM DOCUMENTATION REQUIREMENTS: (cont d) SECTION 6: ELIGIBLE PROPERTIES: o o FHA Notice to Borrower Regarding Rehabilitation Loan FHA Rehabilitation Escrow Account & Fees Acknowledgement Age of credit documentation: The maximum age of all credit documents (including credit report, employment, income and asset documents) is 90 days for existing construction, 120 days for new construction. The age of documents is measured at the date that the NOTE is signed. No exceptions will be permitted. PROPERTY/APPRAISALS Eligible Properties are attached & detached SFR, 2-4 units, FHA approved condo projects and PUD The maximum acreage for properties in all areas is 40 acres. Property must be completed for at least 1 year. Properties that have never been completed are not eligible. A recorded notice of completion may be required if in doubt of final completion. Condition of Property: The appraisal must reflect that the property is at a minimum in average condition as completed. Properties that are to be fully demolished are not permitted. The appraisal must reflect all utilities were on at time of appraisal inspection (no exceptions) and appraiser to comment on the working condition of utilities. This guideline does NOT apply to HUD REO. On HUD REO properties, acquire a copy of the Property Inspection Report completed by HUD M&M Contractors that reflect the utilities were on at time of inspection, and cannot require utilities to be turned on for the appraisal. The appraisal is to be completed with utilities off on HUD REO properties as long as we have the Property Inspection Report. Modular Housing is acceptable. Modular housing is prefabricated, panelized or sectional housing that assumes the characteristics of a site built home, meets all local and state building codes, is permanently affixed to the land and is legally classified as real estate. At least one comparable sale must be of a modular home. Listed Properties/Refinance Transactions: Properties may not be currently listed at the time of application. The property listing agreement must be cancelled a minimum of 1 day prior to the application date. A copy of the cancelled/expired listing must be included in the file. Appraiser must note that the property is not currently listed. For owner occupied transactions, the borrower must confirm the intent to occupy the property. Legal-non conforming use: Follow FHA guidance. Non-permitted additions: Any existing non-permitted living spaces must be cured by the work performed with the 203K funds. No structural work is allowed. SFR with Accessory Unit: Accessory unit must be incidental to the overall value and appearance of the subject property (for example, a unit above an attached garage, a guest apartment, or a basement unit). Accessory units that contribute significant value and size compared to the main unit may be required to be considered a 2nd unit regardless of zoning. Other considerations may be a combination of separate addresses, separate metering, rent collection, or multiple bedrooms, living spaces. The underwriter will make the determination if the property needs to be considered as a 2 unit. Property must conform to the subject neighborhood and the market Comparable sales must include at least one property with an accessory unit Value must be based on the contributory value of the accessory unit No rental income from the accessory unit may be used to qualify If the property is going to be considered a 2 unit property instead of SFR with accessory unit, the Prelim/title must be amended to reflect the change. Properties are not eligible for mortgage insurance if the resale date is 90 days following acquisition by the seller unless the seller is exempt or the property is eligible under the temporary waiver. Loans with resale dates >90 days up to 12 months may require supplemental documentation, including an additional appraisal STREAMLINE 203(K) Page 18 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

112 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM ELIGIBLE PROPERTIES: (cont d) Notes: When the property is being sold by someone other than the mortgage holder (or by their subsidiaries or by vendors to whom they have transferred titles to properties for that purpose) the FHA guidelines per Mortgagee Letter apply, i.e. the purchase contract must be dated at least 91 days from the date the seller took ownership. For any sale where the seller has owned the property from 91 to 180 days and the new sales price is 100% or higher than the seller s purchase price, a second appraisal is required to confirm the value. This 2 nd appraisal fee cannot be charged to the borrower. HUD has issued a waiver of the 90 day rule effective February 1, At this time, we can accept properties if the contract of sale for purchase is executed within 90 days of the prior acquisition by the seller under the following circumstances: The transaction must be arms-length with no identity of interest between the buyer and the seller or other parties in the sales transaction. The seller must hold title to the property at the time of the purchase contract. LLCs, corporations or trusts that are serving as sellers must be established and operated in accordance with applicable state & Federal law. No pattern of previous flipping activity exists for the subject property, as evidenced by multiple title transfers within a 12 month time frame. The property must be marketed openly and fairly via MLS, auction, FSBO offering or developer marketing (any sales contracts that refer to an assignment of contract of sale which represents a special arrangement between seller and buyer may be a red flag). The sales price of the property must be less than 20% above the seller s purchase price. We are not accepting the additional HUD waiver conditions for increases of 20% or more at this time. HUD has clarified that the list of regulatory exemptions is still applicable, and exempt sales do not have limitations or documentation requirements based on the sales price increase over the seller s purchase price: FHA REO properties sold by HUD Resale of properties purchased by an employer or a relocation agency in connection with employee relocation. What FHA intents to exempt is bona fide relocation agencies that contract with employers to handle relocations of their employees. A relocation agency does NOT include individual real estate agents that advertise themselves as relocation experts and who purchase properties from persons who are relocating from the area. Property inherited by the seller. The seller is not required to hold title to the property for 90 days prior to sale; they must still be the owner of record. Also since there was no previous sale of the property, the second appraisal requirement would not be triggered. Underwriter must include documentation evidencing the inheritance in the file. Sales by other US government agencies pursuant to programs operated by these agencies. Sales of properties by nonprofits approved to purchase HUD owned single family properties at a discount. Sales of properties by state and federally chartered financial institutions and government sponsored entities (Fannie Mae & Freddie Mac). Note: MI companies are not considered a state or federally chartered institution and are not qualified as government sponsored enterprise. Sales of properties by local and state government agencies Sales of properties within Presidentially-declared disaster area (upon FHA s announcement of eligibility in a mortgagee letter specific to said disaster) INELIGIBLE PROPERTIES: Ineligible properties: second homes, non-owner occupied properties, condotels, timeshares, cooperatives, log homes, homes that have never been completed, homes that have been completely demolished including the foundation, earth homes, properties on stilts, posts or piers, commercial properties, unimproved land, commercial properties, manufactured homes, properties with deed restrictions, properties on Indian leased land, New construction located in a flood zone unless LOMA, LOMR or Elevation Cert is obtained, condo projects deemed ineligible by HUD, properties located in Coastal Barrier Resource System (CBRS), properties with > 40 acres STREAMLINE 203(K) Page 19 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

113 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM INELIGIBLE PROPERTIES (cont d) STATE RESTRICTIONS: Properties with unexpired redemption period are ineligible: Certain state laws provide for a redemption period after a foreclosure or tax sale has occurred, during which time the prior owner may reclaim the property upon payment of all amounts owed. Unexpired redemption periods create an unacceptable title defect on the subject property, and do not conform to the existing policy that requires the property to have good and marketable title. The purchase of additional insurance, a redemption bond or similar coverage during the redemption period does not remedy the title defect. Please consult state lending guidance and review the prelim for title defects especially on purchases of foreclosed properties. Properties with title exceptions or addendums for water purification system escrow and maintenance agreements or solar lease agreements are not acceptable due to escrow and maintenance requirements that remain after foreclosure. Re-negotiated purchase agreement policy: Stearns will not accept re-negotiated purchase agreements that increase the sales price after the appraisal has been completed if: The appraised value is higher than the contracted sales price provided to the appraiser, and The new purchase agreement and/or addendum used to modify the sales price is dated after the appraisal is received, and The only change to the purchase agreement is an increase in sales price. If the purchase agreement is re-negotiated after the completion of the appraisal, the loan to value will be based on the lower of the original purchase price or the appraised value, unless: A re-negotiation of seller paid closing costs and/or pre-paids occurs if customary for the market and supported by comparables, not to exceed standard seller contributions, or An amended purchase agreement for a new construction property is obtained due to improvements that impact the value. In the event of such changes, an updated appraisal must be obtained to verify the value of the modifications. Stearns may make FHA loans in all the states they have lending licenses or exemptions in. Properties in Texas are not permitted under this program. Maximum LTV/CLTV 100% for properties in West Virginia. This includes government assistance programs where the combined loan amount may exceed 100% LTV/CLTV. CONSTRUCTION/ PERM: Not applicable APPRAISAL: A full appraisal from an FHA approved appraiser is required. All appraisals require Form 1004MC Market Conditions Addendum to the Appraisal Report All FHA appraisers must be state-certified. Effective with case numbers assigned on or after January 1, 2012, and for all appraisals performed on HUD REO and PFS properties with an effective date on or after January 1, 2012, appraisals must be compliant with the Uniform Appraisal Dataset (UAD). o FHA Roster appraisers and lenders are reminded to continue performing the necessary research and due diligence to produce a credible and accurate appraisal report. The UAD field-specific requirements are not a substitute for and do not exempt FHA Roster appraisers from the requirement to provide adequate explanations in the addendum of the reporting form regarding methodology, anomalies, property deficiencies and other conditions that may have an impact upon the value of a property and its marketability. In all cases, a property s compliance with MPR and MPS must be thoroughly addressed by the appraiser. Age of appraisals: Appraisals are valid for up to 120 days on all appraisals including existing or proposed construction. An extension is available as long as the property is not in a soft or declining market, at the underwriter's discretion STREAMLINE 203(K) Page 20 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

114 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM APPRAISAL: (cont d) If an extension is required on a purchase transaction, the sales contract must have been executed prior to the expiration date of the appraisal. If an extension is required on a refinance transaction, the underwriter may extend the appraisal for an additional 30 days as long as the appraisal is not expired at the time the underwriter issues the approval. The underwriter should note the extension using HUD form LT or B. Appraisal Update Report (ML ), Fannie Mae Form 1004D/Freddie Mac Form 442, Part A, Appraisal Update Report may be used to extend the validity period for the original appraisal report, in lieu of ordering a new appraisal report The Update Report may not be used if the property value has declined. The Appraisal Update Report may only be used one time to extend the validity period of the original appraisal report. The Appraisal Update Report must be ordered and performed prior to the expiration date of the original appraisal report. The FHA appraiser who performed the original appraisal must perform the appraisal update and the appraiser must be in good standing with FHA at the time the Appraisal Update is performed. The appraiser must use the Market Conditions Addendum, Fannie Mae 1004MC, to update their research and analysis of the current market data to validate the subject property has not declined in value. The appraiser must certify there has been no decline in value on the Update Report form. The appraiser must be able to observe from the street or a public way the subject property's improvements that contribute value to the property. An exterior inspection of the property must not indicate any significant changes or deficiencies that were not observed at the time of the original appraisal report's effective date. If the original appraisal report was transferred to a new lender, the appraiser must attach the original appraisal report to the Appraisal Update Report instead of referencing the report. This is a USPAP requirement. The appraiser must provide a photo of the subject property from the street and photos from as many angles visible from a public way If a lender does not use the Appraisal Update Report to extend the validity period of the original report, then the FHA loan must close within 150 days of the original appraisal report date. If a borrower signs a valid contract of sale within 120 days of the original appraisal date, the lender has the option to extend the appraisal for 30 days to accommodate the closing of the loan. If a lender does use the Appraisal Update Form, the loan must close within 240 days of the effective date of the original appraisal report. The 30-day extension is not permitted Appraiser independence requirements outlined in ML must be met. Appraisal portability guidelines outlined in ML : When a borrower switches from one lender to another, the first lender must, at the borrower's request, transfer the case to the second lender. Transferring the case requires the first lender to: Transfer the FHA case number to the second lender using the Case Transfer functionality within FHA Connection. Provide the second lender with a copy of the appraisal report ordered by and completed for the first lender. A second appraisal should only be ordered if there are material deficiencies, the appraiser is on the second lender s exclusionary appraiser list, or the first lender has failed to provide a copy of the appraisal to the second lender in a timely matter. In these cases, a new case number should not be ordered and the remaining mortgagee letter requirements must be followed. Note: the underwriter must verify with the transferring lender whether an appraisal has been ordered, and we must validate that the appraisal submitted is the same appraiser that is tied to the loan in FHA Connection. If an appraisal is completed by an appraiser other than the appraiser listed in FHA connection, a letter from the original appraiser is required stating that the appraisal assignment was not completed. Appraisal inspection date can not precede the case number assignment date STREAMLINE 203(K) Page 21 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

115 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM APPRAISAL: (cont d) Appraisal requirements for 203(k) loans: The appraisal must reflect all utilities were on at time of appraisal inspection (no exceptions) and appraiser to comment on the working condition of utilities. This guideline does NOT apply to HUD REO properties. On HUD REO properties, acquire a copy of the Property Inspection Report completed by HUD M&M Contractors that reflect the utilities were on at time of inspection, and cannot require utilities to be turned on for the appraisal. The appraisal is to be completed with utilities off on HUD REO properties as long as we have the Property Inspection Report. Properties in less than average condition on the after improved value by the appraiser are ineligible. (corresponding UAD condition codes C1-C4 and quality codes Q1-Q5) The appraisal report must be completed Subject To repairs and must provide an as completed appraised value that estimates the value of the property after completion of the rehabilitation work. The borrower s or cost consultant s work write up must be available for the appraiser to use in order to determine the as completed value. In order to determine a maximum loan amount, the value to be used for the As Is value on the HUD Maximum Mortgage Worksheet will be as follows: Purchase Transaction On a purchase transaction an As Is value is not required; therefore the appraisal does not need to provide an As Is. The contract sales price will be used as the As Is value on HUD Refinance Transaction On a refinance transaction an As Is value is required; therefore the appraisal must provide the As Is value within the comments section of the appraisal. For a HUD-owned property, an as is appraisal is not required; the HUD field office should release the outstanding HUD property disposition appraisal to establish the maximum mortgage for the property. The HUD appraisal is required and will be accepted for use if: It is not over 120 days old prior to big acceptance from HUD, and The sales contract price plus the cost of rehabilitation does not exceed 110% of the as repaired value shown on the HUD appraisal. As completed/after rehabilitation value: The expected market value of the property based on the proposed rehabilitation and/or improvements. The appraiser must be provided with the borrower s or cost consultant s work write up to determine the improvements. The cost approach is no longer required on all appraisals, but the site value must be completed. Properties in declining markets have additional appraisal reporting requirements per ML as follows: The appraiser must: o include a minimum of at least 2 comparable sales that closed within 90 days. o include a minimum of two active listings or pending sales on the appraisal grid in comparable 4-6 position or higher in addition to the 3 settled sales. o insure that active listings and pending sales are market tested and have reasonable market exposure to avoid the use of over priced properties as comparables. Reasonable market exposure is reflected by typical marketing times for the neighborhood. The comparable listings must be truly comparable and the appraiser should bracket the listings using both dwelling size and sales price whenever possible. o adjust active listings to reflect list to sale price ratios for the market. o Include the original list price, any revised list prices, and total days on the market Note: If the LSRM (Loan Safe Risk Manager) Collateral Risk Score is < 700, additional comps or further appraisal review is only required at the underwriter's discretion. For loans where the LSRM Collateral Risk Score is > 700, the underwriter must pull additional comps if there are more than 2 comparable sales older than 90 days from the date of the appraisal, or if there are more than 2 comparable sales located > 1 mile from the subject property for urban & suburban properties and > 5 miles away from rural properties. If the comps do not support the appraised value, an AVM must be obtained. If the AVM is not within 10% of the appraised value, a desk review may be needed to support the appraised value. A 2nd opinion of value from an underwriting manager or operations manager should be obtained prior to ordering any desk review. While we discourage the use of field reviews, these may be required due to the unique nature of a particular property and if value is an issue, may be obtained at the underwriter's discretion STREAMLINE 203(K) Page 22 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

116 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM APPRAISAL: (cont d) If the appraised value is reduced by the underwriter, an underwriting certification on form# must be completed and retained in the file on top of the appraisal. If the loan approval has expired, comparables should be verified to ensure that they are within 90 days of the new approval date, otherwise the underwriter needs to obtain new comparables to verify that the value is still supported. Note: If there are NO additional comps available: If comps are > 90 days to 6 months old, no additional reviews will be required. If the comps are > 6 months old, the appraisal must include time adjustments. CONDO PROJECTS: Condos are processed under Section 203(b) of the Act. Condo projects are only eligible for 203K if individual buildings within the project do not contain more than 4 units (ML 95-40). Approval procedures outlined in ML and the accompanying Condominium Project Approval and Processing Guide (6/30/11), as well as temporary approval provisions outlined in ML (announced September 13, 2012 and effective until August 31, 2014), must be followed. Stearns will be using the HRAP process and will not be participating in the DELRAP process. o If the project is already APPROVED (HRAP or DELRAP) in FHA Connection the project is acceptable (see FHA Condo procedures for certification/documentation requirements.) Any special instructions given for the project in FHA Connection must be followed (i.e. project must be 51% owner occupied, only lots 1-6 in phase 2 acceptable, etc.) o If the project is not showing in FHA Connection OR the project is showing as expired, the project documents must be gathered and sent to the appropriate jurisdictional HOC office (see FHA Condo procedures.) We do NOT recertify expired DELRAP projects or approve new projects under DELRAP. Spot condo approvals are not permitted. The FHA approved project list may be accessed through FHA Connection or ECHO systems. Site condos (single family dwellings encumbered by condo ownership) are eligible as long as the project consists of detached SFRs and have no common improvements other than greenbelts, private streets and parking areas. Shared garages or any other attached buildings are not permitted. Condominium rider is required. Project eligibility requirements are outlined in ML and the accompanying Condominium Project Approval and Processing Guide (6/30/11). Temporary approval provisions are outlined in ML (announced September 13, 2012 and effective until August 31, 2014). Ineligible projects: Condo-hotels, timeshares, segmented ownership projects, houseboat projects, multi-dwelling condominiums (i.e. more than one dwelling per condominium unit), projects not deemed primarily as residential. FHA will not insure any mortgages in an approved project if 50 percent or more of the units are FHA-insured. FHA will not issue new case numbers once the 50 percent concentration level (plus a small tolerance to accommodate for some fall-out) has been reached in any particular development. HO-6 walls in policy is required in cases where the master policy does not include interior unit coverage, including replacement of interior improvements and betterment coverage to insure improvements that the borrower may have made to the unit. Condo projects are eligible in Florida HRAP approved only. Certain condo project approvals expired with FHA on December 7, o FHA condo projects with expiration dates of December 7, 2010 will convert to Expired status as of that date. FHA case numbers will not be issued on projects with Expired status. o Loans with case numbers assigned prior to December 7, 2010 will not require project recertification. FHA condo projects that expire December 7, 2010 must have case numbers assigned prior to the expiration date. o Lender certification that the project meets FHA minimum of 51% owner occupancy is still required on all loans. o Projects may be recertified beginning 6 months prior to approval expiration date or within 6 months after the approval expiration date. Projects not recertified within 6 months of the expiration date will require full project approval. o Recertification must be processed by HUD using the HUD Review and Approval Process (HRAP). Improvements are only allowed within the unit walls. Unit must be owned fee simple, and there must be no restrictive covenants or provisions restricting the conveyance of the unit STREAMLINE 203(K) Page 23 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

117 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM SECTION 7: MORTGAGE INSURANCE: INSURANCE FHA has issued updates to ANNUAL MI premiums effective for case numbers issued on or after June 3, 2013: Annual MIP is now required for Terms < = 15 years and LTV < = 78% UPFRONT AND ANNUAL MIP for case numbers issued on or after June 3, 2013 Terms > 15 Years Terms 15 years Base Loan Amount & LTV UFMIP Annual Base Loan Amount & LTV UFMIP Annual < = 625,500 >95% < = 625,500 < = 95% > 625,500 > 95% > 625,500 < = 95% 1.75% 1.35% < = 625,500 >90% 1.75% 1.30% < = 625,500 > 78% & < = 90% 1.75% 1.55% > 625,500 >90% 1.75% 1.50% > 625,500 > 78% & < = 90% 1.75%.70% 1.75%.45% 1.75%.95% 1.75%.70% < = 78% 1.75%.45% UPFRONT AND ANNUAL MIP for case numbers issued on or after APRIL 1, 2013 and BEFORE June 3, 2013 Terms > 15 Years Terms 15 years Base Loan UFMIP Annual Base Loan UFMIP Annual Amount & LTV Amount & LTV < = 625, % 1.35% < = 625, %.70% >95% < = 625,500 < = 95% >90% 1.75% 1.30% < = 625,500 > 78% & < = 90% 1.75%.45% > 625,500 > 95% > 625,500 < = 95% 1.75% 1.55% > 625,500 >90% 1.75%.95% 1.75% 1.50% > 625, %.70% > 78% & < = 90% < = 78% 1.75% None UPFRONT AND ANNUAL MIP for case numbers issued on or after June 11, 2012 and BEFORE April 1, 2013 Terms > 15 Years Terms 15 years Base Loan UFMIP Annual Base Loan UFMIP Annual Amount & LTV Amount & LTV < = 625, % 1.25% < = 625, %.60% >95% < = 625,500 < = 95% > 625,500 > 95% > 625,500 < = 95% >90% 1.75% 1.20% < = 625,500 > 78% & < = 90% 1.75% 1.50% > 625,500 >90% 1.75% 1.45% > 625,500 > 78% & < = 90% 1.75%.35% 1.75%.85% 1.75%.60% < = 78% 1.75% None STREAMLINE 203(K) Page 24 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

118 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM MORTGAGE INSURANCE: Reminder: The upfront MI may either be fully financed or fully paid in cash. It may not be partially funded or partially paid in cash. Monthly mortgage insurance is automatically cancelled by HUD once the principal loan balance reaches 78% of the lower of the initial sales price or the appraised value based on the initial amortization rate provided the borrower has paid the annual MIP for at least 5 years. Effective with case numbers issued on or after June 3, 2013, MI will no longer be automatically cancelled after 5 years or at 78% LTV. FHA will collect the annual MIP for the duration permitted by statute as follows: For all mortgage regardless of amortization term, any mortgage with an original principal obligation of 90% LTV or less, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the term, whichever occurs first. For all mortgages involving an original principal obligation of greater than 90% LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 30 years of the term, whichever occurs first. SELF-INSURED OPTION: Not applicable HAZARD INSURANCE: Hazard insurance is required for each property. The amount of hazard insurance coverage must be the lesser of 100% of the insurable value of the improvements as established by the property insurer OR the unpaid principal balance as long as it equals at least 80% of the insurable value of the improvements. For properties located in California, lenders may not require hazard insurance in an amount exceeding the replacement value of the improvements on the property. The maximum deductible may be up to 5% of the amount of the policy. For refinance transactions, the current policy must have at least 60 days remaining coverage after closing. FLOOD INSURANCE: A flood hazard determination is required for all loans. Flood insurance is required if the property is located in a special flood hazard area or flood zone. Flood insurance is required on properties located within the following special flood hazard area zones: A, AE, AH, AO, A1-30, A-99, V, VE, V1-30 Properties located in Coastal Barrier Resource System (CBRS) are not eligible. The minimum amount of flood insurance required is the lowest of: 100% of the replacement cost of the dwelling, calculated as appraised value minus land value OR the unpaid principal balance of the mortgage OR the maximum insurance available under the National Flood insurance program. (Currently $250,000 per dwelling.) The deductible for 1-4 unit properties may not exceed a maximum of $5,000 unless a higher Maximum is required by state law. For refinance transactions, the current policy must have at least 60 days remaining coverage after closing. RENT LOSS INSURANCE: IMPOUNDS: SECTION 8: TITLE DOCUMENTATION: Not applicable Required for all properties regardless of LTV TITLE/CLOSING AGENTS Title History Review Policy: The preliminary title report must reflect a minimum 6-month title history. Title Insurance: A full ALTA title policy is required. ALTA 14.1 endorsement required A Short Form Residential Loan Policy is also acceptable, except for leasehold properties, and except for properties in Texas and Oregon. Short form title polices provide the same amount of coverage as a standard policy but in a shorter format. The policy references the loan specifics (insured amount, date of policy, property address, borrowers, etc.) and refers to general documents for all coverage. Limited Coverage Policies are not acceptable STREAMLINE 203(K) Page 25 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

119 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM TITLE DOCUMENTATION: (cont d) For example: it automatically provides the Environmental Protection Lien Endorsement (ALTA 8.1) Condo and PUD endorsements and all other standard endorsements without actually providing copies of these endorsements. It also provides affirmative coverage for property specific exceptions such as restrictions, encroachments, etc with general statements in the policy text. PLAT/SURVEYS: Surveys are required in some areas. See Stearns state lending information for survey requirements. If surveys are not commonly required in the area where the property is located an ALTA 9 endorsement or its equivalent should be provided. If it is not customary to supply either a survey or an endorsement, the title policy must not have a survey exception. INTER VIVOS REVOCABLE TRUSTS: POWER OF ATTORNEY: Not eligible A Specific (or Limited) power of attorney must meet the following requirements: Clearly reference the subject property (if a legal description is referenced, it must be stated or attached accordingly) Authorize the attorney-in-fact to enter into a real estate transaction and to mortgage the property (for refinance transactions, must specify the terms of the transaction) Indicate clearly that the mortgagor is appointing an attorney-in-fact Precisely identify who is being appointed Identically match the legal name(s) on the POA to the typed name(s) and signature(s) for the Borrower and POA. If the legal signature differs from the typed name, a notarized Signature/Name Affidavit is required. Must be signed and dated by the borrower (aka principal) Must be notarized (notary must be complete, contain a valid date, and no blank fields) Must be recorded prior to, or concurrent with, the date of the security instrument. May not contain any blank fields. Must be acceptable to the title company issuing the title policy. General POA s are not acceptable. Durable POAs and Military POAs are acceptable as long as they are specific to the transaction. In all states, documents executed by the attorney-in-fact must include the principal's name, the agent's name, and the agent's capacity (attorney-in-fact) in the signature. The agent's capacity (attorney-in-fact) must be written out in its entirety as abbreviations (AIF, POA, etc) are not acceptable. The same information must be typed on the documents. SECTION 9: FEES/MISCELLANEOUS FEE LIMITATIONS: Points and fees include origination fee, underwriting fees, broker fees, finder s fees and any other fees that the lender charges as a condition of making the loan whether they are paid to the lender or a 3 rd party. A Supplemental Origination Fee calculated as 1.5% of the portion of the mortgage allocated to rehabilitation, or $350, whichever is greater is charged. Bona fide discount points (points used to lower the interest rate), fees paid for actual services performed to make the loan (i.e. attorney fees, notary fees, appraisal, credit reports, surveys title exams, flood and tax certifications, home inspections, cost of MI, title policies, hazard insurance, flood insurance, transfer taxes and fees, escrow deposits for tax and insurance premiums) AND other miscellaneous fees that in total do not exceed.25% of the loan amount are not included in the points and fees calculation. Discount points may only be financed on the rehabilitation portion (not allowed in Texas) and may not exceed the amount of discount on the non-rehabilitation portion of the mortgage. On a purchase transaction, discount points above the rehabilitation may be charged but may not be financed. Points and fees that exceed state high cost thresholds are not eligible for financing. Loans where the points and fees or annual percentage rate exceed the maximum thresholds described under HOEPA (Section 32) or state high cost test, whichever is more restrictive, are not eligible for purchase STREAMLINE 203(K) Page 26 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

120 FHA FIXED RATE STREAMLINE 203(k) REHABILITATION PROGRAM FEE LIMITATIONS: (cont d) The HOEPA restrictions apply to all types of mortgages (Purchases and refinances). Reminder: Section 32 (HOEPA) thresholds are: APR that exceeds the yield on the Treasury securities for the same term of the loan by >10% OR the total points and fees paid by the borrower exceeds the greater of 8% or the maximum dollar amount set annually by the Federal Reserve. See the applicable Lending Information for state high cost thresholds. For a purchase transaction the maximum real estate commission cannot exceed 8% of the sales price. Broker compensation is limited to 4% of the loan amount. Lenders may pay borrower closing costs and/or prepaid items through premium pricing. Closing costs paid in this manner are not included as part of the six percent seller contribution limit since they are not paid by the seller, but paid by the borrower through the premium pricing. The funds derived from a premium priced mortgage: May not be used for any portion of the borrower's down payment or payment of debts, collection accounts, escrow shortages, missed mortgage payments, or judgments. Must be disclosed on the Good-Faith Estimate (GFE) and the HUD-1 Settlement Statement in compliance with RESPA. The amount paid on the borrower's behalf for each item may not exceed the reasonable and customary costs to close the mortgage Must be used to reduce the principal balance if the premium pricing credit exceeds the actual closing costs/ prepaid expenses (e.g., may not result in cash proceeds to the borrower from the premium pricing yield). Principal reductions are only allowed to accommodate updated payoffs and other re-calculated loan amounts. Principal reductions using YSP/rebate are not allowed when pre-planned by the originator. Reminder: UFMIP must either be paid upfront as a closing cost, or financed into the loan amount. It cannot be partially paid and partially financed. SELLER/INTERESTED PARTY CONTRIBUTIONS: Maximum 6% seller/interested party contributions. Seller/interested party contributions exceeding 6% must be subtracted from the sales price (or value, if less) before applying the down payment percentage multiplier. Note: Seller/interested party contributions may be used for closing costs and pre-paids. HOA subsidies paid through interested party contributions are permitted to a maximum of 12 months. Note that the borrower must still qualify with the monthly HOA payment. MISCELLANEOUS: Stearns will disburse up to 50% at closing as initial disbursement. This disbursement must be shown on closing docs STREAMLINE 203(K) Page 27 of 27 5/3/13 This information is subject to change at any time without notice. Please contact your account manager for current information.

121 How to Navigate Approved Brokers workbook 1 -Tabs: MS Excel has 'Tabs' on the bottom of the page to navigate between the spreadsheets 2 -Links: Some lenders have provided a niche sheet for the products they offer. Click on the links and it will take you to the corresponding tab for that lender. Lender tab Link Tabs

122 Home Tab Link

123 Approved Lenders SecurityNational Mortgage Company Retail Approved Brokers As of 19-Mar-2013 Lender Highlights 5/3rd Bank Lender Paid Compensation 2% Freddie open access Mike Koesters DU refi Plus Conf 640 Use of local Rep allowed User Admin: Keith L. No CA borrowers Each branch must be setup Niche Sheet Advancial Mortgage Lender Paid Compensation 2% Condotel's Daniel Halpin Max $15,000 Jumbo's Non-warrantable condo's Nationwide Rep User Admin: Rep All 50 States Niche Sheet American Financial Resources Lender Paid Compensation 2% FHA One Time Close Construction loan Anna-Cristina Dennin Borrower Paid Max at 2% Manufactured 97.75% $10.00 Fee (only Fee) FHA Streamlines No Appraisal Nationwide Rep DU Refi EA 1, 2, & 3 DU Refi, no LTV cap for 30 yr User Admin: Keith L. Rural 620 Each branch must be setup No Hawaii loans 203k Streamline American Southwest MTG Lender Paid Compensation 2.75% FHA One Time Close Mark Lemons LPC MAX $,10,000; Min $1,000 USDA Rural [email protected] Borrower Paid Max at 3% FHA Below 640 FICO Nationwide Rep FHA OTC in: CO, IA, ID, IL, IN, KS, KY, LA, MN, MO, MS, NE, NM, NC, OK, OR, TN, TX, WA, WI NO Lending: AK, AR, CA, FL, GA, HI, MI, NV, OH, PA Each branch must be setup User Admin: Rep Bank of Internet Lender Paid Compensation 1.0% Foreign Nationals to 50% LTV Tisha Hamari (cannot change LPC BoI set for everyone) Super Jumbo up to $5 Million [email protected] Borrower Paid Max 2% High Rise Condo's Nationwide Rep Condotel's Min Loan amt $300K User Admin: Keith Max LTV 65% Each branch must be setup CMG Financial Lender Paid Compensation 2.5% HAPR 2.0 Aaron Biglow Lender paid minimum: $1, % cash out on VA [email protected] LPC to be 3.0% Effective HomePath Nationwide rep. FHA & VA 51.9% DTI User Admin: Keith LP Open Access Lend in: AL, AK, AZ, AR, CA, CO, CT, FL, HI, ID, IL, IN, IA, KS, KY, ME, MD, MI, MN, MS, MO, MT, NE, NV, NM, NC, OH, OK, OR, TX, UT, VA, WA, WI, WY Each branch must be setup Crescent Mortgage Mini Correspondent Relationship Lender Paid Compensation 2.0% HomePath Dawn Cooley Lender paid minimum: $1,000 FHA Stream down to 640 w 55% DTI [email protected] DTI's to 50% with a 640 Condo's Loan Managers: Angelo Jones [email protected] Jennifer Heppe [email protected] User Admin: Keith HARP up to 150% with restrictions They Draw Doc's We Fund Niche Sheet Not in CA, NV, AZ, NM First Mortgage Corp Lender Paid Compensation 2.5% CHF Access Andrea Hanna x 108 Borrower Paid Max 3.5% FHA under 620 [email protected] User Admin: Rep FHA Manufactured Homes FHA Flips < 90 days > 20% SNMC Broker # for FMC: VA under 620 Niche Sheet Freedom Mortgage NORMAL BROKER RELATIONSHIP Lender Paid Compensation 2.25% One Day Off Market Stacy Smocovich DU REFI plus 110% CLTV [email protected] VA IRRRL 115% LTV Nationwide Rep NO USDA as mini corr, must broker User Admin: Rep Each branch must be setup

124 Genworth Fin. Home Access Reverse Mortgages Jamiee Lee User Admin: Kyle Castle Manufacture Home GSF Funding Lender Paid Compensation 2.0% Debbie Beier % DTI Conf Rural Nationwide Rep User Admin: Rep FHA Streamline w/o Appraisal VA, IRRLS Each branch must be setup DU Refi Guild Mortgage Lender Paid Compensation 2.5% 620 FHA/ VA Steve Brown Max comp / loan $15,000 Manufactured homes [email protected] User Admin: Rep / website No DTI overlays with DU Approval Nationwide Rep 1X30 MTG late OK Lends in: WA, OR, CA, ID, NV, UT, AZ, Each branch must be setup, NOT ALL BRANCHES ARE APPROVED CO, NM, TX, HI Impac Mortgage Lender Paid Compensation 3.0% Karen Amorati HARP 2.0 w/o appraisal [email protected] Unlimited LTV FICO 680+ on HARP Rep HAPR EA 1,2 and 3 Can use local rep User Admin: Rep Each branch must be setup, NOT ALL BRANCHES ARE APPROVED JMAC Lending Lender Paid Compensation 2.0% Conventional, 1 day off of market Michael Guerrero (714) x 230 Min: $1,500 - Max $12,500 Super jumbo [email protected] Freddie Mac's High Balance Nationwide Rep (no UT) M & T Bank Lender Paid Compensation 2% FHA & VA Jason Summers Office Only Approved for the West Conv, FHA, VA [email protected] Cell Rural, SNMC Broker ID# 3607 User Admin: Rep LP Open Access Each branch must be setup Nationstar Mortgage Lender Paid Compensation 3% FHA,VA Frank Seidman FNMA Home Path [email protected] 620 FHA 1 Day off Market for Conv only Each branch must be setup Niche Sheet HAPR 125% LTV Normandy Construction Lender Paid Compensation 1.5% Ralph Felice Borrower Paid Max 2.0% Nation-wide construction Except UT, TX and a few other states username and password: broker Oaktree Wholesale Lender Paid Compensation 2.75% Unlimited LTV HARP David Eisenberg User Admin: Keith L. FHA loans down to 580 [email protected] 203K full or streamline Will lend in: CA, AZ, FL, OR, CO, UT, NV, NM, TX, IN. Regions Bank (formally Magna Mtg) Mini Correspondent Relationship Condotel's Jim Luck Jumbo, super jumbo [email protected] Home w/ excess land Nationwide Rep User Admin: Rep Unique Properties No lending in: AZ, CA, MA, NV, and a few others Reverse IT No set comp plan Reverse Loans Ryan Menerey [email protected] User names: Rep Sierra Lending Group (TX only) Lender Paid Compensation 2.00% Foreign National's Brad Slepicka x 205 Zero Credit score [email protected] Jumbo TEXAS ONLY TEXAS ONLY Stearns Lending Lender Paid Compensation 2.5% + $500 fee FHA "High Ratio", Rural housing Tracy Evans Borrower Paid Max 4% 203(k) streamline [email protected] User Admin: Keith L. Nationwide Rep Each branch must be setup Niche Sheet

125 Sun West Mortgage Co. Lender Paid Compensation 2.00% Reverse MTG Amanda Miranda VA IRRL's w/o appraisal up to 125% LTV FHA Section 184 Indian Home Lending Nationwide Rep User Admin: Keith L. 203k Full & streamline SECCNM-000 FHA Streamline no Appraisal All Branches setup FHA & VA Manufactured TCF Bank Lender Paid Compensation 0.5% of total Line of Credit Joseph Hartman Min: $ HELOC's ONLY Max: $ NO Texas Loans May use local Rep User Admin: none No other fee's can be charged All Branches setup and Approved U.S. Bank Lender Paid Compensation STATE SPECIFIC <620 Portfolio loans Mark Smith x 30 late allowed [email protected] NO MI Can use Local rep No Borrower Paid Transactions!! Manufacture, condo Jumbo Each branch must be setup Washington Federal Lender Paid Compensation 2.0% Manufacture Tim Hughes M Borrower Paid Max 2% 1 time close construction [email protected] O asset driven conventional loans Nationwide Rep UT, TX, AZ, NV, ID, WA, OR, NM go to wholesale lending username :partner ; password: rentrap Niche Sheet

126 Product Overview Home Screen Conforming: Minimum score per AUS findings unless running through DU then a 620 minimum score is required Max DTI per AUS findings Non-occupant co-borrower s allowed up to 95% LTV We can do any term between 10 years and 30 years (i.e. 22 year term) No minimum loan amount on owner occupied properties Acceptable findings Approved/eligible or EA-I/eligible Chapter5_Conformingfixedandarm pdf Conforming Jumbo: Must be ran through LP Acceptable findings: Accept/ineligible (due to loan amount) Max DTI per AUS findings Minimum score per AUS findings Max loan amount is based on the county the property is located in Chapter11_agencysuperconforming pdf Non-Agency Jumbos: Maximum loan amount is 1 million Max DTI of 40% (45% if LTV is 5% below max) Minimum score of 700 Acceptable findings: DU - Approved/Ineligible* or LP - Accept/Ineligible* (*Ineligible due to loan amount) Loan amounts over 650k are manual underwrites and findings are required but not utilized nonagencyjumbo.11_2_10.pdf

127 Fannie Mae DU Refi Plus: Max LTV is 125%, unlimited CLTV Loan must be owned by Fannie (Must have been delivered to Fannie by 2/28/09 to be eligible) We cannot accept loans that currently have MI; they will need to go back through the current servicer Acceptable findings: Approved/eligible, EA-I/eligible, or EA-II/eligible Max DTI per AUS findings Minimum score per AUS findings Second mortgages have to be subordinated Freddie Mac Open Access: Max LTV is 125%, unlimited CLTV Loan must be owned by Freddie (Must have been delivered to Freddie by 5/31/09 to be eligible) We cannot accept loans that currently have MI; they will need to go back through the current servicer Acceptable findings: Accept/eligible or Accept/Ineligible (due to loan amount only) Max DTI per by AUS findings Minimum score required is 620 Second mortgages have to be subordinated FHA: Minimum credit score 640, unless the property is in FL or IL then the minimum score is 660 No minimum score on 5/3rd to 5/3rd streamlines No rate/ysp adjustments for FHA jumbo loans No minimum loan amount Acceptable findings: Total scorecard Accept

128 Home Screen

129 WHY? HOW? WHAT? WHY Most Community Banks Use Crescent Online/paperless website for processing, submitting and locking your loans DU AND LP $645 lender fee (less if you draw/fund) Locks good to signing, not funding Limited review condos (even in resort areas) 2x close construction (perm loan) using appraised value 5-10 financed properties (if primary, no max!) HOMEPATH 2075 and PIW allowed FHA down to 620 DTIs to 50% or 55% (with a 640+) with AU accept HOW Our Community Banks Submit Loans Export your file to fnma 3.2 format Register your loan (this scrubs for any overlays except dti) If closing in Crescent name, upload; 1003, 1008, gfe, itemization and til under imaging then upload document using the category of early til then disclosures@crescentmortgage,net for early til Use checklist to ensure minimum requirements are met for submission Run your automated findings, collect all documentation, please review my helpful hints to ensure the least possible conditions Upload your complete package in as few scans as possible under imaging and upload document using the category of credit package VERY IMPORTANT LAST STEP.go to actions and final the loan. If you do not do this, we will not know you are ready for us to process the file. FORMS Used By Community Banks To Do Business With Us CHANGE IN CIRCUMSTANCES MORTGAGE BROKER FEE AGREEMENT CRESCENT QUICK REFERENCE GUIDE 10 STEP ROAD MAP FOR FHA SPONSORED ORIGINATOR LOAN PROPERTY INSPECTION WAIVER BULLETIN WITH DISCLOSURE TANGIBLE NET BENEFIT WORKSHEET REQUIRED ON ALL REFINANCES

130 Introducing. First Mortgage Corporation Niche s Call your AE for details today! Home Screen Programs Available CHF Access % Down Payment Assistance - Exclusive to First Mortgage Corp. - CA Properties Only FHA Under 620 FICO 30yr Fixed FHA Under 620 FICO 5/1 ARM FHA Over 620 FICO with High DTI & DU Approval FHA Streamline with No Credit Scores FHA Streamline 5/1 ARM with No Credit Scores FHA Manufactured Homes up to 90% FHA Flips under 90 days and over 20% appreciation FHA with No FICO FHA with 1 FICO FHA Alternative Credit follow FHA guidelines FHA 203(k) down to 580 FICO Both Full and Streamline HUD $100 Down & Good Neighbor Next Door VA Under 620 FICO VA Manufactured Homes FNMA Manufactured Homes FNMA Over 4 properties

131 Just a few of Nationstar Products... Home Screen FHA- 620 (no limit on cash out to an 85ltv) Excludes Texas We now have 3/1, 5/1, 7/1, and 10/1 Fannie/Freddie available!! FHA Streamline- 640 Conventional Cash-out loans to a mid 620 Nationwide! (Texas Only- no cash-out hit if currently refinancing a cash-out and taking no cash) Also, no minimum cash out to an 80ltv! We can do DU or LP down to 620 score at 80% ltv or less... WE now Offer FNMA DU Refi Plus! information is now available on-line. FNMA HOMEPATH is Available!! Did you know... Current turn around times are: Underwriting 3 to 4 business days Conditions 3 business days Docs 1 business day Funding 1 business day You can up Load your Fannie Mae 3.2 into Xpress Qual, pull credit (credco) at no cost, or up load your current bureau and pull findings. You can sign up to receive daily rates; go to my website at click on "pricing and fees, click on "need password?" enter only information with astrict and you will begin receiving daily rates directly from Nationstar Mortgage Nationstar accepts HVCC Appraisal Transfers

132 FNMA Conforming High LTV % Home Screen Program highlights are as follows: o Fixed rate only o Owner occupied purchase, SFR only o Minimum LTV 95.01, maximum LTV 97% o Minimum 720 credit score o Maximum DTI 41% o 3% minimum down payment is required from the borrower s own funds. Subordinate financing and gifts/grants are not permitted. o Borrowers may not own any other properties at the time of closing. Programs that help you CLOSE MORE LOANS!! MORE PMI OPTIONS financed MI, seller paid MI, single premium MI, split edge MI up to 95 ltv PAYOFF OF DEBT TO QUALIFY allowed for both conventional and government (when paying off revolving debt on conventional, use $10/mo for qualifying purposes) HOMEPATH Fannie Mae REOs, no appraisal, no MI STREAMLINES - $199 fee DU REFI PLUS Great Rates! MORE than 4 FINANCED PROPERTIES Allowed on Stearns Portfolio Program HUD $100 down allowed VA, FHA, USDA, conventional, Portfolio Transferred conventional appraisals allowed on Portfolio ONE DAY OFF MLS for r/t refi! Conventional and FHA!

133 Let the Power of Washington Federal and portfolio lending find a solution for your borrowers Investor loans with up to 10 financed properties Custom construction (True one time close) & major remodel construction loans Jumbo loans to $1.5 million at competitive pricing. (30 year fixed or balloon loans) Bridge loans (eliminate contingent purchase contract offers) Non-occupant co borrowers 1 Day off the MLS Non-conforming Condos Mini- rehab loans Professionals recently graduated from school Free 2% buy down for 2 years (Great Start) Business Entity closings Flexible Underwriting Washington Federal is able to use common sense underwriting, since we do not sell our loans on the secondary market. The following are examples of our flexibility. Use of alternative credit No tax transcripts requires No HVCC restrictions Deferred student loans not included in ratios Ability to offset high DTI rations with compensating factors Local knowledge of market conditions Self employed less than 2 years Home Screen