CALIFORNIA DRE. GENERAL INFORMATION 1st Mortgage

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2 CALIFORNIA DRE GENERAL INFORMATION 1st Mortgage ADDITIONAL LENDER FEES Allowed (Bus. & Prof ) ADVERTISING It is unlawful to make false or misleading advertising claims (Bus. & Prof. Code ). All entities advertising the availability of mortgage loans must disclose in any print or broadcast advertising the license under which the loan is made or arrange and the entity supervising the license (Bus & Prof. Code ) For example: Licensed by the Department of Real Estate broker license. # Effective January 1, 2005 the following activities are prohibited: 1. Include a lender's name, trade name, logo, or tagline in a written solicitation for financial services directed to "a consumer who has obtained a loan from the lender" without the lender's consent. No consent is required if the solicitation clearly and conspicuously states that the person making the solicitation is not sponsored by or affiliated with the lender, and the solicitation is not authorized by the lender. 2. Use a lender's name or a similar in any solicitation for financial services directed at consumers if doing so could cause a reasonable preson to be confused, mistaken, or deceived initially or otherwise regarding the lender's (1) sponsorship, affiliation, connection, or association with the person using the name; or (2) approval or endorsement of the person or the person's products or services. 3. Include a consumer's loan number or loan amount in a solicitation for any products or services without the consent of the consumer. This prohibition applies even if the consumer's information is publicly available. However, no consent is required if the solicitation clearly and conspicuosly states that the person is not sponsored by or affiliated with the lender, the solicitation is not authorized by the lender, and the consumer's loan information was not provided by the lender. APPRAISAL FEE Allowed (Bus. & Prof ) BROKER FEES Allowed (Bus. & Prof ) CLOSING COST TO 3RD PARTIES Allowed (Bus. & Prof ) CREDIT REPORT FEE Allowed (Bus. & Prof ) DISCOUNT POINTS Not regulated.

3 CALIFORNIA DRE GENERAL INFORMATION 1st Mortgage IDENTITY THEFT If a borrower gives an initial written notice to a lender that he/she is a victim of identity theft, then the lender must provide a written notice to the borrower of his/her right to have the credit information blocked under subdivision (k) of Section [CA Civil Code Section (f)] VICTIM OF IDENTITY THEFT NOTICE If you have been a "Victim of Identity Theft" you have certain rights under the law. In order to protect yourself you must provide the following to a credit reporting agency: - A copy of a valid police report, or - A valid investigative report made by a Department of Motor Vehicle investigator with peace officer status. The consumer credit reporting agency shall promptly and permantly block reporting information that the consumer alleges appears on his or her credit report as a result of a violation of Seciton of the Penal Code so that the information cannot be reported. The consumer credit reporting agency shall promptly notify the furnisher of the information that the information has been so blocked. Furnishers of information and consumer credit reporting agencies shall ensure that information is unblocked only upon a preponderance of the evidence establishing the facts required under paragraph (1), (2), or (3). The permanently blocked information shall be unblocked only if: 1. The information was blocked due to a material misrepresentation of fact by the consumer fraud, or 2. The consumer agrees that the blocked information, or portions of the blocked information, were blocked in error, or 3. The consumer knowingly obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions or the consumer should have known that he or she obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions. LATE CHARGE FEE 10 days and 6% (Cal. Civ. Code ) MAXIMUM APR No Maximum (Cal. Const., art. XV, 1; Fin. Code 22002, 50005) MAXIMUM INTEREST RATE No Maximum (Cal. Const., art. XV, 1; Fin. Code 22002, 50005) ORIGINATION No Maximum (Cal. Const., art. XV, 1; Fin. Code 22002, 50005)

4 CALIFORNIA DRE GENERAL INFORMATION 1st Mortgage PREPAYMENT PENALTIES Allowed- 6 months interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years (Bus. & Prof. Code ) PROMISSORY NOTE Standard Fannie Mae/Freddie Mac state specific Second Mortgage Note. REBATE OF UNEARNED FINANCE CHARGES Not applicable. RECORD RETENTION A real estate broker must retain copies 10148). A mortgage loan broker, licensed as a real estate broker by the DRE, must maintain copies of the Mortgage Loan Disclosure Statement for three years (Bus. & Prof. Code 10240(a)) SIGNATURES In the event a spouse is not going on the loan, that spouse would need to sign the Deed of Trust, Notice of Right to Cancel, Section 32 (if applicable) and Truthin-Lending disclosure. WET SETTLEMENT Not applicable.

5 CALIFORNIA DRE HIGH COST PROVISIONS 1st Mortgage 5 YEAR LOAN TERM OR LESS May not provide at origination for a payment schedule with regular periodic payments that wen aggregated do not fully amortize the principal balance as of the maturity date of the loan. ABILITY TO REPAY If the lender reasonably believes the consumer or consumers, when considered collectively in the case of multiple consumers, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources, other than the consumer s equity in the dwelling that secures repayment of the loan. Loans that are structured to increase to a specific designated rate, at a specific predetermined date not exceeding 37 months from the date of application, this evaluation shall be based upon the fully indexed rate of the loan calculated at the time of application. APR 8% above the yield on Treasury securities AVOIDING THE PROVISION Structuring a loan transaction as an open-end credit plan for the purpose of evading the provisions of this division when the loan would have been a covered loan if the loan had been structured as a closed end loan is prohibited. Dividing any loan transaction into separate parts for the purpose of evading the provisions of this division is prohibited. Fraud it prohibited. BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business. CALL PROVISION(S) Call provisions that permit the lender, in its sole discretion, to accelerate the indebtedness is not allowed. CONSUMER CAUTION This notice must be provided on all "covered loans" in California. A covered loan is a high cost loan. This disclosure must be provided no later than three business days prior to signing the loan documents and must be signed. CLICK HERE FOR SAMPLE. CONSUMER LOAN Must be secured by real property located in California, owner occupied principal dwelling. Does not include reverse mortgage an open line of credit or a consumer credit transaction that is secured by rental property second homes.

6 COVERED LOAN PREPAYMENT PENALTY DISCLOSURE CALIFORNIA DRE HIGH COST PROVISIONS 1st Mortgage When a "covered loan" as defined in CA Financial Code Section 4970(b)(1) contains a prepayment fee or penalty, borrowers must be given a disclosure at least 3 business days prior to loan consummation. The disclosure is required to include the terms of the prepayment fee or penalty and the rates, points and fees that would be available to the borrower for accepting a covered loan without a prepayment penalty. (CA Financial Code Section 4973(a)(2)(B) CLICK HERE FOR SAMPLE COVERED LOAN(S) Effective 1/1/06, a loan not exceeding the most current conforming loan limit for single-family first mortgage loan established by Fannie Mae in the case of a mortgage or deed of trust. CREDIT LIFE INSURANCE Within 30 days of a consumer loan transaction the following shall not be financed directly or indirectly: credit life, credit disability, credit property, or credit unemployment insurance premiums, debt cancellation or suspension agreement. If you sell any kind of the above insurance please call for additional details. DEBTS Cannot exceed 55% of consumer s monthly gross income, as verified by the credit application, financial statement, a credit report. DEFAULT No provisions allowed that increases the interest rate as a result of default. This does not apply to variable rate loans provided that the change in the interest rate is not triggered by the event of default or the acceleration for the indebtedness. FINANCING OF FEES A covered loan that finances points and fees in excess of $1,000 or 6 percent of the original principal balance (whichever is greater) shall not be financed. HOME IMPROVEMENT CONTRACT(S) Proceeds must be payable to the consumer or jointly to the consumer and the contractor or, at the election of the consumer, to a third party escrow agent for benefit of the contractor in accordance with terms and conditions established in a written escrow agreement signed by the consumer. NEGATIVE AMORTIZATION Only allowed on 1st mortgages and must be disclosed to the borrower that the loan contains a negative amortization provision that may add principal to the balance of the loan. ORIGINAL PRINCIPAL BALANCE The total initial amount the consumer is obligated to repay on the loan. PERIODIC PAYMENTS Not allowed if consolidated and paid in advance from the loan proceeds.

7 CALIFORNIA DRE HIGH COST PROVISIONS 1st Mortgage POINTS & FEES All items required to be disclosed as finance charges under 226.4(a) and 226.4(b) of Regulation Z, including the Official Staff Commentary, except interest. All compensation and fees paid to mortgage brokers. All items listed in 226.4(c)(7) of Regulation Z, only if the person originating the covered loan receives direct compensation in connection with the charge. PREPAYMENT AND ACCELERATION Will not be imposed if the loan is accelerated due to default. PREPAYMENT PENALTIES Not allowed after 36-months. A prepayment penalty may be applied up to the first 36 months after consummation of the loan if: SEASONAL OR IRREGULAR INCOME The consumer is offered a choice of another product without a prepayment fee or penalty The consumer has been disclosed at least three business days prior to loan consummation the terms of the prepayment fee or penalty to the consumer for accepting a covered loan with the prepayment penalty and the rates, points, and fees that would be available to the consumer for accepting a covered loan without a prepayment penalty. The prepayment formula is not to exceed the payment of 6 months advance interest, at the contract rate of interest then in effect, on the amount prepaid in any 12-month period in excess of 20 percent of the original principal amount. CLICK HERE FOR SAMPLE. Total installments in any year shall not exceed the amount of one year s worth of payments on the loan. STATED INCOME Reasonable belief based on the income stated by the consumer, and other information in the possession. A person shall not knowingly or willfully originate a covered loan as a stated income loan with the intent, or effect, of evading the provisions of this subdivision. STEERING Steering, counseling, or directing a prospective consumer to accept a loan product with a risk grade less favorable than the risk grade that the consumer would qualify for based on that person s then current underwriting guidelines, prudently applied, is not allowed. TOTAL POINTS Exceeding 6% of the total loan amount

8 CALIFORNIA DRE GENERAL PRACTICES 1st Mortgage MARITAL DESIGNATION Usually present on the Security Instrument. NOTARY A seal is required for all notary acts. Seal can be an embosser or in stamped. PROPERTY TAX DUE DATES Taxes may be paid annually and are considered delinquent on December 10. They may also be paid in two installments. The first installment considered delinquent on December 10th and the second installment considered delinquent on April 10th. RIGHTS AND INTERESTS Community Property TYPE OF CONVEYANCE Grant Deed TYPE OF ENCUMBRANCE Deed of Trust

9 CALIFORNIA DRE BROKER INFORMATION 1st Mortgage ADVANCE FEES Only licensed real estate brokers acting within the confines of CA Real Estate Law may collect advance fees from the borrower for soliciting lenders on behalf of borrowers or performing services for borrowers in connection with loans to be secured directly or collaterally by a lien on real property or performing any other activities for which a license is required, prior to the borrower becoming obligated to complete the loan. [CA Bus & Prof Code Section ] Credit report and appraisal fees are not considered "advance fees" by the DRE. However, the fees must be maintained in a trust account and the broker may not charge the borrower an amount in excess of the cost charged to the broker for such fees.

10 CALIFORNIA DRE BROKER INFORMATION 1st Mortgage ADVERTISING Blind Advertising is prohibited. "Blind" Advertising is an advertisement used to solicit business that gives only a telephone number, post office or newspaper box number, or name other than that of the licensee. [CA Code Title 10, Section ] [CA Code Title 10, Section 1557] A broker who solicits or attempts to solicit by telephone in response to an inquiry generated by advertisement on behalf of the telephonic seller must comply with Section of the Business & Professions Code of California. This section does not apply if the person soliciting does not complete the sales presentation during the telephone conversation, but completes the sales presentation in a face to face meeting held at a later date or if the institution is a supervised financial institution or parent, subsidiary, or subsidiary of parent, or is a mortgage lender or servicer, licensed under Division 20 of the Financial Code, acting under the authority of the license. [CA Bus & Prof Section ] Effective January 1, 2005 the following activities are prohibited: 1. Include a lender's name, trade name, logo, or tagline in a written solicitation for financial services directed to "a consumer who has obtained a loan from the lender" without the lender's consent. No consent is required if the solicitation clearly and conspicuously states that the person making the solicitation is not sponsored by or affiliated with the lender, and the solicitation is not authorized by the lender. 2. Use a lender's name or a similar in any solicitation for financial services directed at consumers if doing so could cause a reasonable preson to be confused, mistaken, or deceived initially or otherwise regarding the lender's (1) sponsorship, affiliation, connection, or association with the person using the name; or (2) approval or endorsement of the person or the person's products or services. 3. Include a consumer's loan number or loan amount in a solicitation for any products or services without the consent of the consumer. This prohibition applies even if the consumer's information is publicly available. However, no consent is required if the solicitation clearly and conspicuosly states that the person is not sponsored by or affiliated with the lender, the solicitation is not authorized by the lender, and the consumer's loan information was not provided by the lender. BROKER FEES Allowed (Bus. & Prof ) BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business.

11 COPIES OF LOAN DOCUMENTS CALIFORNIA DRE BROKER INFORMATION 1st Mortgage A Department of Real Estate (DRE) licensed broker must provide a copy of the appraisal to the lender and borrower, at or prior to closing, if the borrower pays for it and the loan is a "regulated loan" or "covered transaction" for a first lien loan under $30,000 or a junior lien under $20,000. [CA Bus & Prof Code Section ] A broker who retains the services of a licensed or certified appraiser and delivers the appraisal to the lender and borrower has met the requirement for complete disclosure of the estimated fair market value of the property. [CA Bus & Prof Code Section (a).] FAIR LENDING NOTICE The fair lending notice must be displayed openly in every financial institution and a copy must be given to every loan applicant upon receipt of a written loan application. The disclosure must show the name and address of the state agency that regulates the lender. The print of the text must be a minimum of 10- point boldface type. [CA Health & Safety Code Section ] CLICK HERE FOR SAMPLE. GOOD FAITH This form helps eliminate duplicate disclosures that a broker is required to complete in order to be in compliance with federal and state law. DREapproved forms must contain a MLDS approval number if broker does not use the exact form issued by the DRE. [CA Code of Regulations Rules Section ] CLICK HERE FOR SAMPLE. LATE CHARGE FEE 10 days and 6% (Cal. Civ. Code ) PREPAYMENT PENALTIES Allowed- 6 months interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years (Bus. & Prof. Code ) RECORD RETENTION A real estate broker must retain copies 10148). A mortgage loan broker, licensed as a real estate broker by the DRE, must maintain copies of the Mortgage Loan Disclosure Statement for three years (Bus. & Prof. Code 10240(a)) TELEPHONE SOLICITATIONS A broker who solicits or attempts to solicit by telephone in response to an inquiry generated by advertisement on behalf of the telephonic seller must comply with Section of the Business & Professions Code of California. This section does not apply if the person soliciting does not complete the sales presentation during the telephone conversation, but completes the sales presentation in a face to face meeting held at a later date or if the institution is a supervised financial institution or parent, subsidiary, or subsidiary of parent, or is a mortgage lender or servicer, licensed under Division 20 of the Financial Code, acting under the authority of the license. [CA Bus & Prof Section ]

12 CALIFORNIA DRE BROKER INFORMATION 1st Mortgage TRUST ACCOUNT Funds accepted by the broker belonging to others in connection with a transaction must be deposited into a trust fund account maintained by the broker in a bank or recognized depository in the state of California or they must be placed in a neutral escrow depository or into the hands of the broker's principal. [CA Bus & Prof Code Section 10145(a)(1).] Should the broker collect payments or perform services for an investor or note owner in connection with a loan secured by a first lien on real property, the broker may deposit the funds in a trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, as long as the investor or note owner is one of the following: A. Fannie Mae, Freddie Mac, FHA, VA, or GNMA; B. a bank, banking holding company, savings bank, savings and loan association, trust company, savings bank or savings association holding company, credit union, insurance company, industrial bank, industrial loan company or the subsidiary of any bank, bank holding company, savings and loan association, savings bank or savings association holding company doing business under the authority of and in accordance with, the laws of California, another state, or the United States relating to banks, trust companies, savings or savings associations, credit unions, industrial banks or industrial loan companies, or charter issued by the United State or a state, district, territory, or commonwealth of the United States; or C. California Housing Finance Agency (CHFA) or local housing finance agency organized under the Health and Safety Code. TRUST ACCOUNT The broker may at the request of the owner of the trust funds or of the principals to a transaction or series of transactions, deposit the funds into an interestbearing account that is insured by the Federal Deposit Insurance Corporation located in a bank, savings and loan association, credit union, or industrial loan company. There are certain conditions that must be met: 1. The name on the account is the broker as trustee for the specified beneficiary or specified principal of the transaction or series of transactions; 2. the account funds are kept separate, distinct, and apart from the broker's funds and any funds the broker holds in trust for other persons; 3. the account is insured by an agency of the federal government; 4. interest on the account must not inure directly or indirectly to the benefit of the broker or any person licensed to the broker; 5. the broker must disclose to the parties involved how the interest will be calculated, the nature of the account, whether there will be service charges, and how they will be paid and to whom will they be paid; how the interest earned will be disbursed; and the requirements for early withdrawal and any penalties involved; and 6. loan contract is to specify to whom interest earned on the funds is to be paid or credited. [CA Bus & Prof Code Section 10145(a)(3)(d).] The broker is not under any obligation to place funds into an interest ratebearing account unless he is requested to do so. [CA Bus & Prof Code Section 10145(a)(3)(e).]

13 ADDITIONAL LENDER FEES Allowed CALIFORNIA RML GENERAL INFORMATION 1st Mortgage As soon as is practical after a borrower request that a licensee performs brokerage services for the borrower, the licensee and borrower must enter into a written loan brokerage agreement (Cal Fin Code 50701). The borrower must receive a copy of the agreement either upon execution or within three business days after execution. ADVERTISING Unlawful for any person to make false advertising claims [Cal Bus & Prof Code ] If advertising interest rates d charges, the advertisement must state the rates and charges in a complete and clear manner designated to provide adequate information to prospective borrowers. If the rates or charges do not apply to all loans made by the licensee, the advertisement must clearly indicate such. An advertisement, which complies with the federal Truth-in- Lending Act and Regulation Z, are presumed to satisfy these requirements (Cal Fin Code ) Must maintain a file of all advertisements it has used for at least 90 days from the date of use. (Cal Fin Code ) A licensee is prohibited form Advertising that it or any of its employees are bonded, supervised by, regulated by, audited by, or examined by the State of California or any of its agencies (Cal Code Regs tit 10, ). A residential Mortgage Lender or loan servicer shall refer to its licensure in any written or printed communications or any communication by means of recorded telephone messages, telephonic or electronic media, or media communication, only by the following statement Licensed by the Department of Corporations under the California Residential Mortgage Lending Act APPRAISAL FEE Allowed (Platt 2-18, 6/2001) BROKER FEES Allowed CLOSING COST TO 3RD PARTIES All credit reports and appraisal fees must be actual charge and have supporting documentation proving the fee that was charged to the borrower. As soon as is practical after a borrower request that a licensee performs brokerage services for the borrower, the licensee and borrower must enter into a written loan brokerage agreement (Cal Fin Code 50701). The borrower must receive a copy of the agreement either upon execution or within three business days after execution. Actual charges (Platt 2-18, 6/2001)

14 CALIFORNIA RML GENERAL INFORMATION 1st Mortgage CREDIT REPORT FEE Allowed (Platt 2-18, 6/2001) DISCOUNT POINTS Not regulated. All credit reports and appraisal fees must be actual charge and have supporting documentation proving the fee that was charged to the borrower. IDENTITY THEFT If a borrower gives an initial written notice to a lender that he/she is a victim of identity theft, then the lender must provide a written notice to the borrower of his/her right to have the credit information blocked under subdivision (k) of Section [CA Civil Code Section (f)] VICTIM OF IDENTITY THEFT NOTICE If you have been a "Victim of Identity Theft" you have certain rights under the law. In order to protect yourself you must provide the following to a credit reporting agency: - A copy of a valid police report, or - A valid investigative report made by a Department of Motor Vehicle investigator with peace officer status. The consumer credit reporting agency shall promptly and permantly block reporting information that the consumer alleges appears on his or her credit report as a result of a violation of Seciton of the Penal Code so that the information cannot be reported. The consumer credit reporting agency shall promptly notify the furnisher of the information that the information has been so blocked. Furnishers of information and consumer credit reporting agencies shall ensure that information is unblocked only upon a preponderance of the evidence establishing the facts required under paragraph (1), (2), or (3). The permanently blocked information shall be unblocked only if: 1. The information was blocked due to a material misrepresentation of fact by the consumer fraud, or 2. The consumer agrees that the blocked information, or portions of the blocked information, were blocked in error, or 3. The consumer knowingly obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions or the consumer should have known that he or she obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions.

15 LATE CHARGE FEE 10 days <6% or $5.00. (Cal Civ Code ) CALIFORNIA RML GENERAL INFORMATION 1st Mortgage MAXIMUM APR No maximum (DIDMCA 12 USCA 1735f-7) MAXIMUM INTEREST RATE No maximum (DIDMCA 12 USCA 1735f-7) ORIGINATION Allowed As soon as is practical after a borrower request that a licensee performs brokerage services for the borrower, the licensee and borrower must enter into a written loan brokerage agreement (Cal Fin Code 50701). The borrower must receive a copy of the agreement either upon execution or within three business days after execution. PREPAYMENT PENALTIES Allowed-6 month s interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years. (Platt 2-28, 6/2001) PROMISSORY NOTE Standard Fannie Mae/Freddie Mac state specific First Mortgage Note. REBATE OF UNEARNED FINANCE CHARGES Not applicable. RECORD RETENTION 36 months from last transaction. SIGNATURES In the event a spouse is not going on the loan, that spouse would need to sign the Deed of Trust, Notice of Right to Cancel, Section 32 and Truth in Lending disclosure. WET SETTLEMENT Not applicable.

16 CALIFORNIA RML HIGH COST PROVISIONS 1st Mortgage 5 YEAR LOAN TERM OR LESS May not provide at origination for a payment schedule with regular periodic payments that wen aggregated do not fully amortize the principal balance as of the maturity date of the loan. ABILITY TO REPAY If the lender reasonably believes the consumer or consumers, when considered collectively in the case of multiple consumers, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources, other than the consumer s equity in the dwelling that secures repayment of the loan. Loans that are structured to increase to a specific designated rate, at a specific predetermined date not exceeding 37 months from the date of application, this evaluation shall be based upon the fully indexed rate of the loan calculated at the time of application. APR 8% above the yield on Treasury securities AVOIDING THE PROVISION Structuring a loan transaction as an open-end credit plan for the purpose of evading the provisions of this division when the loan would have been a covered loan if the loan had been structured as a closed end loan is prohibited. Dividing any loan transaction into separate parts for the purpose of evading the provisions of this division is prohibited. Fraud it prohibited. BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business. CALL PROVISION(S) Call provisions that permit the lender, in its sole discretion, to accelerate the indebtedness is not allowed. CONSUMER CAUTION AND HOME OWNERSHIP COUNSELING NOTICE This notice must be provided on all covered loans in California. A covered loan is a high cost loan. This disclosure must be provided no later than three business days prior to signing the loan documents and must be signed. CLICK HERE FOR SAMPLE. CONSUMER LOAN Must be secured by real property located in California, owner occupied principal dwelling. Does not include reverse mortgage an open line of credit or a consumer credit transaction that is secured by rental property second homes.

17 COVERED LOAN PREPAYMENT PENALTY DISCLOSURE CALIFORNIA RML HIGH COST PROVISIONS 1st Mortgage When a "covered loan" as defined in CA Financial Code Section 4970(b)(1) contains a prepayment fee or penalty, borrowers must be given a disclosure at least 3 business days prior to loan consummation. The disclosure is required to include the terms of the prepayment fee or penalty and the rates, points and fees that would be available to the borrower for accepting a covered loan without a prepayment penalty. (CA Financial Code Section 4973(a)(2)(B) CLICK HERE FOR SAMPLE COVERED LOAN(S) Effective 1/1/06, a loan not exceeding the most current conforming loan limit for single-family first mortgage loan established by Fannie Mae in the case of a mortgage or deed of trust. CREDIT LIFE INSURANCE Within 30 days of a consumer loan transaction the following shall not be financed directly or indirectly: credit life, credit disability, credit property, or credit unemployment insurance premiums, debt cancellation or suspension agreement. If you sell any kind of the above insurance please call for additional details. DEBTS Cannot exceed 55% of consumer s monthly gross income, as verified by the credit application, financial statement, a credit report. DEFAULT No provisions allowed that increases the interest rate as a result of default. This does not apply to variable rate loans provided that the change in the interest rate is not triggered by the event of default or the acceleration for the indebtedness. FINANCING OF FEES A covered loan that finances points and fees in excess of $1,000 or 6 percent of the original principal balance (whichever is greater) shall not be financed. HOME IMPROVEMENT CONTRACT(S) Proceeds must be payable to the consumer or jointly to the consumer and the contractor or, at the election of the consumer, to a third party escrow agent for benefit of the contractor in accordance with terms and conditions established in a written escrow agreement signed by the consumer. NEGATIVE AMORTIZATION Only allowed on 1st mortgages and must be disclosed to the borrower that the loan contains a negative amortization provision that may add principal to the balance of the loan. ORIGINAL PRINCIPAL BALANCE The total initial amount the consumer is obligated to repay on the loan. PERIODIC PAYMENTS Not allowed if consolidated and paid in advance from the loan proceeds.

18 CALIFORNIA RML HIGH COST PROVISIONS 1st Mortgage POINTS & FEES All items required to be disclosed as finance charges under 226.4(a) and 226.4(b) of Regulation Z, including the Official Staff Commentary, except interest. All compensation and fees paid to mortgage brokers. All items listed in 226.4(c)(7) of Regulation Z, only if the person originating the covered loan receives direct compensation in connection with the charge. PREPAYMENT AND ACCELERATION Will not be imposed if the loan is accelerated due to default. PREPAYMENT PENALTIES Not allowed after 36-months. A prepayment penalty may be applied up to the first 36 months after consummation of the loan if: SEASONAL OR IRREGULAR INCOME The consumer is offered a choice of another product without a prepayment fee or penalty The consumer has been disclosed at least three business days prior to loan consummation the terms of the prepayment fee or penalty to the consumer for accepting a covered loan with the prepayment penalty and the rates, points, and fees that would be available to the consumer for accepting a covered loan without a prepayment penalty. The prepayment formula is not to exceed the payment of 6 months advance interest, at the contract rate of interest then in effect, on the amount prepaid in any 12-month period in excess of 20 percent of the original principal amount. CLICK HERE FOR SAMPLE. Total installments in any year shall not exceed the amount of one year s worth of payments on the loan. STATED INCOME Reasonable belief based on the income stated by the consumer, and other information in the possession. A person shall not knowingly or willfully originate a covered loan as a stated income loan with the intent, or effect, of evading the provisions of this subdivision. STEERING Steering, counseling, or directing a prospective consumer to accept a loan product with a risk grade less favorable than the risk grade that the consumer would qualify for based on that person s then current underwriting guidelines, prudently applied, is not allowed. TOTAL POINTS Exceeding 6% of the total loan amount

19 CALIFORNIA RML GENERAL PRACTICES 1st Mortgage MARITAL DESIGNATION Usually present on the Security Instrument. NOTARY A seal is required for all notary acts. Seal can be an embosser or ink stamp. PROPERTY TAX DUE DATES Taxes may be paid annually and are considered delinquent on December 10. They may also be paid in two installments. The first installment considered delinquent on December 10th and the second installment considered delinquent on April 10th. RIGHTS AND INTERESTS Community Property TYPE OF CONVEYANCE Grant Deed TYPE OF ENCUMBRANCE Deed of Trust

20 CALIFORNIA RML BROKER INFORMATION 1st Mortgage ADVERTISING Blind Advertising is prohibited. "Blind" Advertising is an advertisement used to solicit business that gives only a telephone number, post office or newspaper box number, or name other than that of the licensee. [CA Code Title 10, Section ] [CA Code Title 10, Section 1557] A broker who solicits or attempts to solicit by telephone in response to an inquiry generated by advertisement on behalf of the telephonic seller must comply with Section of the Business & Professions Code of California. This section does not apply if the person soliciting does not complete the sales presentation during the telephone conversation, but completes the sales presentation in a face to face meeting held at a later date or if the institution is a supervised financial institution or parent, subsidiary, or subsidiary of parent, or is a mortgage lender or servicer, licensed under Division 20 of the Financial Code, acting under the authority of the license. [CA Bus & Prof Section ] BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business. FAIR LENDING NOTICE The fair lending notice must be displayed openly in every financial institution and a copy must be given to every loan applicant upon receipt of a written loan application. The disclosure must show the name and address of the state agency that regulates the lender. The print of the text must be a minimum of 10- point boldface type. [CA Health & Safety Code Section ] CLICK HERE FOR SAMPLE. LATE CHARGE FEE 10 days <6% or $5.00. (Cal Civ Code ) PREPAYMENT PENALTIES Allowed-6 month s interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years. (Platt 2-28, 6/2001) RECORD RETENTION A real estate broker must retain copies 10148). A mortgage loan broker, licensed as a real estate broker by the DRE, must maintain copies of the Mortgage Loan Disclosure Statement for three years (Bus. & Prof. Code 10240(a))

21 CALIFORNIA CFL GENERAL INFORMATION 1st Mortgage ADVERTISING 1) No licensee shall place an advertisement disseminated primarily in this state for a loan unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan would be made or arranged. 2) The commissioner may require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers. 3) If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that he or she deems necessary to give adequate information to prospective borrowers. If the rates or costs advertised do not apply to loans of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement. 4) No advertising copy shall be used after its use has been disapproved by the commissioner and the licensee is notified in writing of the disapproval. 5) The commissioner may require licensees to maintain a file of all advertising copy for a period of 90 days from the date of its use. The file shall be available to the commissioner upon request. 6) A licensed finance lender may act as a broker as defined in Section at its licensed place of business without obtaining an additional license as a broker under this division provided the licensee has notified the commissioner of the action in writing. (CA Fin. Code - Sections )

22 CALIFORNIA CFL GENERAL INFORMATION 1st Mortgage ADVERTISING Under the Finance Lenders law, no person may advertise, print, display, publish, distribute or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed or broadcast in any manner, any statement or representation, including the rates, terms or conditions for making or negotiating loans, that is false, misleading or deceptive, or that omits material information that is necessary to make the statements not false, misleading or deceptive, or for licensees, refers to the supervision of the business by the state of California or any department or official of the state of California. [CA Fin Code Section ] Lenders subject to Finance Company regulations must submit in duplicate to the Commissioner for examination all advertising used or proposed to be used for its business. [CA Code of Regulations Title 10, Chapter 3, Subchapter 6, Article 10, Section 1550 APPRAISAL FEE Allowed. Must be actual fees and can not be charged if the property is refinanced 12 months or less. ( Fin. Code 22317) BROKER FEES Allowed, not regulated. CLOSING COST TO 3RD PARTIES Allowed, not regulated. CREDIT REPORT FEE Allowed, must be actual. DISCOUNT POINTS Allowed, not regulated.

23 CALIFORNIA CFL GENERAL INFORMATION 1st Mortgage IDENTITY THEFT If a borrower gives an initial written notice to a lender that he/she is a victim of identity theft, then the lender must provide a written notice to the borrower of his/her right to have the credit information blocked under subdivision (k) of Section [CA Civil Code Section (f)] VICTIM OF IDENTITY THEFT NOTICE If you have been a "Victim of Identity Theft" you have certain rights under the law. In order to protect yourself you must provide the following to a credit reporting agency: - A copy of a valid police report, or - A valid investigative report made by a Department of Motor Vehicle investigator with peace officer status. The consumer credit reporting agency shall promptly and permantly block reporting information that the consumer alleges appears on his or her credit report as a result of a violation of Seciton of the Penal Code so that the information cannot be reported. The consumer credit reporting agency shall promptly notify the furnisher of the information that the information has been so blocked. Furnishers of information and consumer credit reporting agencies shall ensure that information is unblocked only upon a preponderance of the evidence establishing the facts required under paragraph (1), (2), or (3). The permanently blocked information shall be unblocked only if: 1. The information was blocked due to a material misrepresentation of fact by the consumer fraud, or 2. The consumer agrees that the blocked information, or portions of the blocked information, were blocked in error, or 3. The consumer knowingly obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions or the consumer should have known that he or she obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions. LATE CHARGE FEE 10 days and 6% (Cal. Civ. Code ) MAXIMUM APR No Maximum (Cal. Const., art. XV, 1; Fin. Cdoe 22002, 50005) MAXIMUM INTEREST RATE No Maximum (Cal. Const., art. XV, 1; Fin. Cdoe 22002, 50005) ORIGINATION No Maximum (Cal. Const., art. XV, 1; Fin. Cdoe 22002, 50005)

24 CALIFORNIA CFL GENERAL INFORMATION 1st Mortgage PREPAYMENT PENALTIES Allowed- 6 months interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years (Bus. & Prof. Code ) PROMISSORY NOTE Standard Fannie Mae/Freddie Mac state specific. Second Mortgage Note. REBATE OF UNEARNED FINANCE CHARGES Not applicable. RECORD RETENTION Licensees shall preserve their books, accounts, and records, including cards used in the card system, if any, for at least three years after making the final entry on any loan recorded therein. SIGNATURES In the event a spouse is not going on the loan, that spouse would need to sign the Deed of Trust, Notice of Right to Cancel, Section 32 (if applicable) and Truthin-Lending disclosure. WET SETTLEMENT Not applicable.

25 CALIFORNIA CFL HIGH COST PROVISIONS 1st Mortgage 5 YEAR LOAN TERM OR LESS May not provide at origination for a payment schedule with regular periodic payments that when aggregated do not fully amortize the principal balance as of the maturity date of the loan. ABILITY TO REPAY If the lender reasonably believes the consumer or consumers, when considered collectively in the case of multiple consumers, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources, other than the consumer s equity in the dwelling that secures repayment of the loan. Loans that are structured to increase to a specific designated rate, at a specific predetermined date not exceeding 37 months from the date of application, this evaluation shall be based upon the fully indexed rate of the loan calculated at the time of application. APR 8% above the yield on Treasury securities AVOIDING THE PROVISION Structuring a loan transaction as an open-end credit plan for the purpose of evading the provisions of this division when the loan would have been a covered loan if the loan had been structured as a closed end loan is prohibited. Dividing any loan transaction into separate parts for the purpose of evading the provisions of this division is prohibited. Fraud it prohibited. BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business CALL PROVISION(S) Call provisions that permit the lender, in its sole discretion, to accelerate the indebtedness is not allowed. CONSUMER CAUTION This notice must be provided on all "covered loans" in California. A covered loan is a high cost loan. This disclosure must be provided no later than three business days prior to signing the loan documents and must be signed. CLICK HERE FOR SAMPLE CONSUMER LOAN Must be secured by real property located in California, owner occupied principal dwelling. Does not include reverse mortgage an open line of credit or a consumer credit transaction that is secured by rental property second homes. COVERED LOAN(S) Effective 1/1/06, a loan not exceeding the most current conforming loan limit for single-family first mortgage loan established by Fannie Mae in the case of a mortgage or deed of trust.

26 CALIFORNIA CFL HIGH COST PROVISIONS 1st Mortgage CREDIT LIFE INSURANCE Within 30 days of a consumer loan transaction the following shall not be financed directly or indirectly: credit life, credit disability, credit property, or credit unemployment insurance premiums, debt cancellation or suspension agreement. If you sell any kind of the above insurance please call for additional details. DEBTS Cannot exceed 55% of consumer s monthly gross income, as verified by the credit application, financial statement, a credit report. DEFAULT No provisions allowed that increases the interest rate as a result of default. This does not apply to variable rate loans provided that the change in the interest rate is not triggered by the event of default or the acceleration for the indebtedness. FINANCING OF FEES A covered loan that finances points and fees in excess of $1,000 or 6 percent of the original principal balance (whichever is greater) shall not be financed. HOME IMPROVEMENT CONTRACT(S) Proceeds must be payable to the consumer or jointly to the consumer and the contractor or, at the election of the consumer, to a third party escrow agent for benefit of the contractor in accordance with terms and conditions established in a written escrow agreement signed by the consumer. NEGATIVE AMORTIZATION Only allowed on 1st mortgages and must be disclosed to the borrower that the loan contains a negative amortization provision that may add principal to the balance of the loan. ORIGINAL PRINCIPAL BALANCE The total initial amount the consumer is obligated to repay on the loan. PERIODIC PAYMENTS Not allowed if consolidated and paid in advance from the loan proceeds. POINTS & FEES All items required to be disclosed as finance charges under 226.4(a) and 226.4(b) of Regulation Z, including the Official Staff Commentary, except interest. All compensation and fees paid to mortgage brokers. All items listed in 226.4(c)(7) of Regulation Z, only if the person originating the covered loan receives direct compensation in connection with the charge. PREPAYMENT AND ACCELERATION Will not be imposed if the loan is accelerated due to default.

27 CALIFORNIA CFL HIGH COST PROVISIONS 1st Mortgage PREPAYMENT PENALTIES Not allowed after 36-months. A prepayment penalty may be applied up to the first 36 months after consummation of the loan if: SEASONAL OR IRREGULAR INCOME The consumer is offered a choice of another product without a prepayment fee or penalty The consumer has been disclosed at least three business days prior to loan consummation the terms of the prepayment fee or penalty to the consumer for accepting a covered loan with the prepayment penalty and the rates, points, and fees that would be available to the consumer for accepting a covered loan without a prepayment penalty. The prepayment formula is not to exceed the payment of 6 months advance interest, at the contract rate of interest then in effect, on the amount prepaid in any 12-month period in excess of 20 percent of the original principal amount. CLICK HERE FOR SAMPLE. Total installments in any year shall not exceed the amount of one year s worth of payments on the loan. STATED INCOME Reasonable belief based on the income stated by the consumer, and other information in the possession. A person shall not knowingly or willfully originate a covered loan as a stated income loan with the intent, or effect, of evading the provisions of this subdivision. STEERING Steering, counseling, or directing a prospective consumer to accept a loan product with a risk grade less favorable than the risk grade that the consumer would qualify for based on that person s then current underwriting guidelines, prudently applied, is not allowed. TOTAL POINTS Exceeding 6% of the total loan amount

28 CALIFORNIA CFL GENERAL PRACTICES 1st Mortgage MARITAL DESIGNATION Usually present on the Security Instrument. NOTARY A seal is required for all notary acts. Seal can be an embosser or in stamped. PROPERTY TAX DUE DATES Taxes may be paid annually and are considered delinquent on December 10. They may also be paid in two installments. The first installment considered delinquent on December 10th and the second installment considered delinquent on April 10th. RIGHTS AND INTERESTS Community Property TYPE OF CONVEYANCE Grant Deed TYPE OF ENCUMBRANCE Deed of Trust

29 ADDITIONAL LENDER FEES Allowed CALIFORNIA DRE GENERAL INFORMATION 2nd Mortgage ADVERTISING It is unlawful to make false or misleading advertising claims (Bus. & Prof. Code ). All entities advertising the availability of mortgage loans must disclose in any print or broadcast advertising the license under which the loan is made or arranged and the entity supervising the licensee (Bus & Prof. Code ). For example: Licensed by the Department of Real Estate broker license # APPRAISAL FEE Allowed BROKER FEES Allowed Effective January 1, 2005 the following activities are prohibited: 1. Include a lender's name, trade name, logo, or tagline in a written solicitation for financial services directed to "a consumer who has obtained a loan from the lender" without the lender's consent. No consent is required if the solicitation clearly and conspicuously states that the person making the solicitation is not sponsored by or affiliated with the lender, and the solicitation is not authorized by the lender. 2. Use a lender's name or a similar in any solicitation for financial services directed at consumers if doing so could cause a reasonable preson to be confused, mistaken, or deceived initially or otherwise regarding the lender's (1) sponsorship, affiliation, connection, or association with the person using the name; or (2) approval or endorsement of the person or the person's products or services. 3. Include a consumer's loan number or loan amount in a solicitation for any products or services without the consent of the consumer. This prohibition applies even if the consumer's information is publicly available. However, no consent is required if the solicitation clearly and conspicuosly states that the person is not sponsored by or affiliated with the lender, the solicitation is not authorized by the lender, and the consumer's loan information was not provided by the lender. CLOSING COST TO 3RD PARTIES Allowed CREDIT REPORT FEE Allowed DISCOUNT POINTS Not regulated.

30 CALIFORNIA DRE GENERAL INFORMATION 2nd Mortgage IDENTITY THEFT If a borrower gives an initial written notice to a lender that he/she is a victim of identity theft, then the lender must provide a written notice to the borrower of his/her right to have the credit information blocked under subdivision (k) of Section [CA Civil Code Section (f)] VICTIM OF IDENTITY THEFT NOTICE If you have been a "Victim of Identity Theft" you have certain rights under the law. In order to protect yourself you must provide the following to a credit reporting agency: - A copy of a valid police report, or - A valid investigative report made by a Department of Motor Vehicle investigator with peace officer status. The consumer credit reporting agency shall promptly and permantly block reporting information that the consumer alleges appears on his or her credit report as a result of a violation of Seciton of the Penal Code so that the information cannot be reported. The consumer credit reporting agency shall promptly notify the furnisher of the information that the information has been so blocked. Furnishers of information and consumer credit reporting agencies shall ensure that information is unblocked only upon a preponderance of the evidence establishing the facts required under paragraph (1), (2), or (3). The permanently blocked information shall be unblocked only if: 1. The information was blocked due to a material misrepresentation of fact by the consumer fraud, or 2. The consumer agrees that the blocked information, or portions of the blocked information, were blocked in error, or 3. The consumer knowingly obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions or the consumer should have known that he or she obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions. LATE CHARGE FEE 10 days and 6% (Cal Civ. Code ) MAXIMUM APR No Maximum (Cal. Const., art. XV, 1; Fin. Code 22002, 50005) MAXIMUM INTEREST RATE No Maximum (Cal. Const., art. XV, 1; Fin. Code 22002, 50005)

31 CALIFORNIA DRE GENERAL INFORMATION 2nd Mortgage ORIGINATION No maximum (Cal. Const., art XV, 1; Fin. Code 22002, 50005) PREPAYMENT PENALTIES Allowed- 6 months interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years (Bus. & Prof. Code ) PROHIBITED PRACTICES Only direct lending can be done in California, table funding is not allowed. PROMISSORY NOTE Standard Fannie Mae/Freddie Mac state specific Second Mortgage Note REBATE OF UNEARNED FINANCE CHARGES Not applicable. RECORD RETENTION A real estate broker must retain copies of all loan-related documents and servicing records for three years after the last transaction (Bus. & Prof. Code 10148). A mortgage loan broker, licensed as a real estate broker by the DRE, must maintain copies of the Mortgage Loan Disclosure Statement for three years (Bus. & Prof. Code 10240(a)). SIGNATURES In the event a spouse is not going on the loan, that spouse would need to sign the Deed of Trust, Notice of Right to Cancel, Section 32 (if applicable) and Truthin-Lending disclosure. WET SETTLEMENT Not applicable.

32 CALIFORNIA DRE HIGH COST PROVISIONS 2nd Mortgage 5 YEAR LOAN TERM OR LESS May not provide at origination for a payment schedule with regular periodic payments that wen aggregated do not fully amortize the principal balance as of the maturity date of the loan. ABILITY TO REPAY If the lender reasonably believes the consumer or consumers, when considered collectively in the case of multiple consumers, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources, other than the consumer s equity in the dwelling that secures repayment of the loan. Loans that are structured to increase to a specific designated rate, at a specific predetermined date not exceeding 37 months from the date of application, this evaluation shall be based upon the fully indexed rate of the loan calculated at the time of application. APR 8% above the yield on Treasury securities AVOIDING THE PROVISION Structuring a loan transaction as an open-end credit plan for the purpose of evading the provisions of this division when the loan would have been a covered loan if the loan had been structured as a closed end loan is prohibited. Dividing any loan transaction into separate parts for the purpose of evading the provisions of this division is prohibited. Fraud it prohibited. BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business. CALL PROVISION(S) Call provisions that permit the lender, in its sole discretion, to accelerate the indebtedness is not allowed. CONSUMER CAUTION This notice must be provided on all "covered loans" in California. A covered loan is a high cost loan. This disclosure must be provided no later than three business days prior to signing the loan documents and must be signed. CLICK HERE FOR SAMPLE. CONSUMER LOAN Must be secured by real property located in California, owner occupied principal dwelling. Does not include reverse mortgage an open line of credit or a consumer credit transaction that is secured by rental property second homes.

33 COVERED LOAN PREPAYMENT PENALTY DISCLOSURE CALIFORNIA DRE HIGH COST PROVISIONS 2nd Mortgage When a "covered loan" as defined in CA Financial Code Section 4970(b)(1) contains a prepayment fee or penalty, borrowers must be given a disclosure at least 3 business days prior to loan consummation. The disclosure is required to include the terms of the prepayment fee or penalty and the rates, points and fees that would be available to the borrower for accepting a covered loan without a prepayment penalty. (CA Financial Code Section 4973(a)(2)(B) CLICK HERE FOR SAMPLE COVERED LOAN(S) Effective 1/1/06, a loan not exceeding the most current conforming loan limit for single-family first mortgage loan established by Fannie Mae in the case of a mortgage or deed of trust. CREDIT LIFE INSURANCE Within 30 days of a consumer loan transaction the following shall not be financed directly or indirectly: credit life, credit disability, credit property, or credit unemployment insurance premiums, debt cancellation or suspension agreement. If you sell any kind of the above insurance please call for additional details. DEBTS Cannot exceed 55% of consumer s monthly gross income, as verified by the credit application, financial statement, a credit report. DEFAULT No provisions allowed that increases the interest rate as a result of default. This does not apply to variable rate loans provided that the change in the interest rate is not triggered by the event of default or the acceleration for the indebtedness. FINANCING OF FEES A covered loan that finances points and fees in excess of $1,000 or 6 percent of the original principal balance (whichever is greater) shall not be financed. HOME IMPROVEMENT CONTRACT(S) Proceeds must be payable to the consumer or jointly to the consumer and the contractor or, at the election of the consumer, to a third party escrow agent for benefit of the contractor in accordance with terms and conditions established in a written escrow agreement signed by the consumer. NEGATIVE AMORTIZATION Only allowed on 1st mortgages and must be disclosed to the borrower that the loan contains a negative amortization provision that may add principal to the balance of the loan. ORIGINAL PRINCIPAL BALANCE The total initial amount the consumer is obligated to repay on the loan. PERIODIC PAYMENTS Not allowed if consolidated and paid in advance from the loan proceeds.

34 CALIFORNIA DRE HIGH COST PROVISIONS 2nd Mortgage POINTS & FEES All items required to be disclosed as finance charges under 226.4(a) and 226.4(b) of Regulation Z, including the Official Staff Commentary, except interest. All compensation and fees paid to mortgage brokers. All items listed in 226.4(c)(7) of Regulation Z, only if the person originating the covered loan receives direct compensation in connection with the charge. PREPAYMENT AND ACCELERATION Will not be imposed if the loan is accelerated due to default. PREPAYMENT PENALTIES Not allowed after 36-months. A prepayment penalty may be applied up to the first 36 months after consummation of the loan if: The consumer is offered a choice of another product without a prepayment fee or penalty The consumer has been disclosed at least three business days prior to loan consummation the terms of the prepayment fee or penalty to the consumer for accepting a covered loan with the prepayment penalty and the rates, points, and fees that would be available to the consumer for accepting a covered loan without a prepayment penalty. The prepayment formula is not to exceed the payment of 6 months advance interest, at the contract rate of interest then in effect, on the amount prepaid in any 12-month period in excess of 20 percent of the original principal amount. SEASONAL OR IRREGULAR INCOME Total installments in any year shall not exceed the amount of one year s worth of payments on the loan. STATED INCOME Reasonable belief based on the income stated by the consumer, and other information in the possession. A person shall not knowingly or willfully originate a covered loan as a stated income loan with the intent, or effect, of evading the provisions of this subdivision. STEERING Steering, counseling, or directing a prospective consumer to accept a loan product with a risk grade less favorable than the risk grade that the consumer would qualify for based on that person s then current underwriting guidelines, prudently applied, is not allowed. TOTAL POINTS Exceeding 6% of the total loan amount

35 CALIFORNIA DRE GENERAL PRACTICES 2nd Mortgage MARITAL DESIGNATION Usually present on the Security Instrument. NOTARY A seal is required for all notary acts. Seal can be an embosser or ink stamped. PROPERTY TAX DUE DATES Taxes may be paid annually and are considered delinquent on December 10th. They may also be paid in two installments. The first installment considered delinquent on December 10th and the second installment considered delinquent on April 10th. RIGHTS AND INTERESTS Community Property TYPE OF CONVEYANCE Grant Deed TYPE OF ENCUMBRANCE Deed of Trust

36 CALIFORNIA DRE BROKER INFORMATION 2nd Mortgage ADVANCE FEES Only licensed real estate brokers acting within the confines of CA Real Estate Law may collect advance fees from the borrower for soliciting lenders on behalf of borrowers or performing services for borrowers in connection with loans to be secured directly or collaterally by a lien on real property or performing any other activities for which a license is required, prior to the borrower becoming obligated to complete the loan. [CA Bus & Prof Code Section ] Credit report and appraisal fees are not considered "advance fees" by the DRE. However, the fees must be maintained in a trust account and the broker may not charge the borrower an amount in excess of the cost charged to the broker for such fees.

37 CALIFORNIA DRE BROKER INFORMATION 2nd Mortgage ADVERTISING Blind Advertising is prohibited. "Blind" Advertising is an advertisement used to solicit business that gives only a telephone number, post office or newspaper box number, or name other than that of the licensee. [CA Code Title 10, Section ] [CA Code Title 10, Section 1557] BROKER FEES Allowed A broker who solicits or attempts to solicit by telephone in response to an inquiry generated by advertisement on behalf of the telephonic seller must comply with Section of the Business & Professions Code of California. This section does not apply if the person soliciting does not complete the sales presentation during the telephone conversation, but completes the sales presentation in a face to face meeting held at a later date or if the institution is a supervised financial institution or parent, subsidiary, or subsidiary of parent, or is a mortgage lender or servicer, licensed under Division 20 of the Financial Code, acting under the authority of the license. [CA Bus & Prof Section ] Effective January 1, 2005 the following activities are prohibited: 1. Include a lender's name, trade name, logo, or tagline in a written solicitation for financial services directed to "a consumer who has obtained a loan from the lender" without the lender's consent. No consent is required if the solicitation clearly and conspicuously states that the person making the solicitation is not sponsored by or affiliated with the lender, and the solicitation is not authorized by the lender. 2. Use a lender's name or a similar in any solicitation for financial services directed at consumers if doing so could cause a reasonable preson to be confused, mistaken, or deceived initially or otherwise regarding the lender's (1) sponsorship, affiliation, connection, or association with the person using the name; or (2) approval or endorsement of the person or the person's products or services. 3. Include a consumer's loan number or loan amount in a solicitation for any products or services without the consent of the consumer. This prohibition applies even if the consumer's information is publicly available. However, no consent is required if the solicitation clearly and conspicuosly states that the person is not sponsored by or affiliated with the lender, the solicitation is not authorized by the lender, and the consumer's loan information was not provided by the lender. BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business.

38 COPIES OF LOAN DOCUMENTS CALIFORNIA DRE BROKER INFORMATION 2nd Mortgage A Department of Real Estate (DRE) licensed broker must provide a copy of the appraisal to the lender and borrower, at or prior to closing, if the borrower pays for it and the loan is a "regulated loan" or "covered transaction" for a first lien loan under $30,000 or a junior lien under $20,000. [CA Bus & Prof Code Section ] A broker who retains the services of a licensed or certified appraiser and delivers the appraisal to the lender and borrower has met the requirement for complete disclosure of the estimated fair market value of the property. [CA Bus & Prof Code Section (a).] FAIR LENDING NOTICE The fair lending notice must be displayed openly in every financial institution and a copy must be given to every loan applicant upon receipt of a written loan application. The disclosure must show the name and address of the state agency that regulates the lender. The print of the text must be a minimum of 10- point boldface type. [CA Health & Safety Code Section ] CLICK HERE FOR SAMPLE. GOOD FAITH This form helps eliminate duplicate disclosures that a broker is required to complete in order to be in compliance with federal and state law. DREapproved forms must contain a MLDS approval number if broker does not use the exact form issued by the DRE. [CA Code of Regulations Rules Section ] CLICK HERE FOR SAMPLE. LATE CHARGE FEE 10 days and 6% (Cal Civ. Code ) PREPAYMENT PENALTIES Allowed- 6 months interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years (Bus. & Prof. Code ) RECORD RETENTION A real estate broker must retain copies 10148). A mortgage loan broker, licensed as a real estate broker by the DRE, must maintain copies of the Mortgage Loan Disclosure Statement for three years (Bus. & Prof. Code 10240(a)) TELEPHONE SOLICITATIONS A broker who solicits or attempts to solicit by telephone in response to an inquiry generated by advertisement on behalf of the telephonic seller must comply with Section of the Business & Professions Code of California. This section does not apply if the person soliciting does not complete the sales presentation during the telephone conversation, but completes the sales presentation in a face to face meeting held at a later date or if the institution is a supervised financial institution or parent, subsidiary, or subsidiary of parent, or is a mortgage lender or servicer, licensed under Division 20 of the Financial Code, acting under the authority of the license. [CA Bus & Prof Section ]

39 CALIFORNIA DRE BROKER INFORMATION 2nd Mortgage TRUST ACCOUNT The broker may at the request of the owner of the trust funds or of the principals to a transaction or series of transactions, deposit the funds into an interestbearing account that is insured by the Federal Deposit Insurance Corporation located in a bank, savings and loan association, credit union, or industrial loan company. There are certain conditions that must be met: 1. The name on the account is the broker as trustee for the specified beneficiary or specified principal of the transaction or series of transactions; 2. the account funds are kept separate, distinct, and apart from the broker's funds and any funds the broker holds in trust for other persons; 3. the account is insured by an agency of the federal government; 4. interest on the account must not inure directly or indirectly to the benefit of the broker or any person licensed to the broker; 5. the broker must disclose to the parties involved how the interest will be calculated, the nature of the account, whether there will be service charges, and how they will be paid and to whom will they be paid; how the interest earned will be disbursed; and the requirements for early withdrawal and any penalties involved; and 6. loan contract is to specify to whom interest earned on the funds is to be paid or credited. [CA Bus & Prof Code Section 10145(a)(3)(d).] The broker is not under any obligation to place funds into an interest ratebearing account unless he is requested to do so. [CA Bus & Prof Code Section 10145(a)(3)(e).] TRUST ACCOUNT Funds accepted by the broker belonging to others in connection with a transaction must be deposited into a trust fund account maintained by the broker in a bank or recognized depository in the state of California or they must be placed in a neutral escrow depository or into the hands of the broker's principal. [CA Bus & Prof Code Section 10145(a)(1).] Should the broker collect payments or perform services for an investor or note owner in connection with a loan secured by a first lien on real property, the broker may deposit the funds in a trust in an out-of-state depository institution insured by the Federal Deposit Insurance Corporation, as long as the investor or note owner is one of the following: A. Fannie Mae, Freddie Mac, FHA, VA, or GNMA; B. a bank, banking holding company, savings bank, savings and loan association, trust company, savings bank or savings association holding company, credit union, insurance company, industrial bank, industrial loan company or the subsidiary of any bank, bank holding company, savings and loan association, savings bank or savings association holding company doing business under the authority of and in accordance with, the laws of California, another state, or the United States relating to banks, trust companies, savings or savings associations, credit unions, industrial banks or industrial loan companies, or charter issued by the United State or a state, district, territory, or commonwealth of the United States; or C. California Housing Finance Agency (CHFA) or local housing finance agency organized under the Health and Safety Code.

40 ADDITIONAL LENDER FEES Allowed CALIFORNIA RML GENERAL INFORMATION 2nd Mortgage As soon as is practical after a borrower request that a licensee performs brokerage services for the borrower, the licensee and borrower must enter into a written loan brokerage agreement (Cal Fin Code 50701). The borrower must receive a copy of the agreement either upon execution or within three business days after execution. ADVERTISING Unlawful for any person to make false advertising claims [Cal Bus & Prof Code ] If advertising interest rates d charges, the advertisement must state the rates and charges in a complete and clear manner designated to provide adequate information to prospective borrowers. If the rates or charges do not apply to all loans made by the licensee, the advertisement must clearly indicate such. An advertisement, which complies with the federal Truth-in- Lending Act and Regulation Z, are presumed to satisfy these requirements (Cal Fin Code ) Must maintain a file of all advertisements it has used for at least 90 days from the date of use. (Cal Fin Code ) A licensee is prohibited form Advertising that it or any of its employees are bonded, supervised by, regulated by, audited by, or examined by the State of California or any of its agencies (Cal Code Regs tit 10, ). A residential Mortgage Lender or loan servicer shall refer to its licensure in any written or printed communications or any communication by means of recorded telephone messages, telephonic or electronic media, or media communication, only by the following statement Licensed by the Department of Corporations under the California Residential Mortgage Lending Act APPRAISAL FEE Allowed (Platt 2-18, 6/2001) BROKER FEES Allowed CLOSING COST TO 3RD PARTIES All credit reports and appraisal fees must be actual charge and have supporting documentation proving the fee that was charged to the borrower. As soon as is practical after a borrower request that a licensee performs brokerage services for the borrower, the licensee and borrower must enter into a written loan brokerage agreement (Cal Fin Code 50701). The borrower must receive a copy of the agreement either upon execution or within three business days after execution. Actual charges (Platt 2-18, 6/2001)

41 CREDIT REPORT FEE Allowed (Platt 2-18, 6/2001) DISCOUNT POINTS Not regulated. CALIFORNIA RML GENERAL INFORMATION 2nd Mortgage All credit reports and appraisal fees must be actual charge and have supporting documentation proving the fee that was charged to the borrower. IDENTITY THEFT If a borrower gives an initial written notice to a lender that he/she is a victim of identity theft, then the lender must provide a written notice to the borrower of his/her right to have the credit information blocked under subdivision (k) of Section [CA Civil Code Section (f)] VICTIM OF IDENTITY THEFT NOTICE If you have been a "Victim of Identity Theft" you have certain rights under the law. In order to protect yourself you must provide the following to a credit reporting agency: - A copy of a valid police report, or - A valid investigative report made by a Department of Motor Vehicle investigator with peace officer status. The consumer credit reporting agency shall promptly and permantly block reporting information that the consumer alleges appears on his or her credit report as a result of a violation of Seciton of the Penal Code so that the information cannot be reported. The consumer credit reporting agency shall promptly notify the furnisher of the information that the information has been so blocked. Furnishers of information and consumer credit reporting agencies shall ensure that information is unblocked only upon a preponderance of the evidence establishing the facts required under paragraph (1), (2), or (3). The permanently blocked information shall be unblocked only if: 1. The information was blocked due to a material misrepresentation of fact by the consumer fraud, or 2. The consumer agrees that the blocked information, or portions of the blocked information, were blocked in error, or 3. The consumer knowingly obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions or the consumer should have known that he or she obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions.

42 LATE CHARGE FEE 10 days <6% or $5.00. (Cal Civ Code ) CALIFORNIA RML GENERAL INFORMATION 2nd Mortgage MAXIMUM APR No maximum (DIDMCA 12 USCA 1735f-7) MAXIMUM INTEREST RATE No maximum (DIDMCA 12 USCA 1735f-7) ORIGINATION Allowed As soon as is practical after a borrower request that a licensee performs brokerage services for the borrower, the licensee and borrower must enter into a written loan brokerage agreement (Cal Fin Code 50701). The borrower must receive a copy of the agreement either upon execution or within three business days after execution. PREPAYMENT PENALTIES Allowed-6 month s interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years. (Platt 2-28, 6/2001) PROMISSORY NOTE Standard Fannie Mae/Freddie Mac state specific Second Mortgage Note. REBATE OF UNEARNED FINANCE CHARGES Not applicable. RECORD RETENTION 36 months from last transaction. SIGNATURES In the event a spouse is not going on the loan, that spouse would need to sign the Deed of Trust, Notice of Right to Cancel, Section 32 and Truth in Lending disclosure. WET SETTLEMENT Not applicable.

43 CALIFORNIA RML HIGH COST PROVISIONS 2nd Mortgage 5 YEAR LOAN TERM OR LESS May not provide at origination for a payment schedule with regular periodic payments that wen aggregated do not fully amortize the principal balance as of the maturity date of the loan. ABILITY TO REPAY If the lender reasonably believes the consumer or consumers, when considered collectively in the case of multiple consumers, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources, other than the consumer s equity in the dwelling that secures repayment of the loan. Loans that are structured to increase to a specific designated rate, at a specific predetermined date not exceeding 37 months from the date of application, this evaluation shall be based upon the fully indexed rate of the loan calculated at the time of application. APR 8% above the yield on Treasury securities AVOIDING THE PROVISION Structuring a loan transaction as an open-end credit plan for the purpose of evading the provisions of this division when the loan would have been a covered loan if the loan had been structured as a closed end loan is prohibited. Dividing any loan transaction into separate parts for the purpose of evading the provisions of this division is prohibited. Fraud it prohibited. BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business. CALL PROVISION(S) Call provisions that permit the lender, in its sole discretion, to accelerate the indebtedness is not allowed. CONSUMER CAUTION AND HOME OWNERSHIP COUNSELING NOTICE This notice must be provided on all covered loans in California. A covered loan is a high cost loan. This disclosure must be provided no later than three business days prior to signing the loan documents and must be signed. CLICK HERE FOR SAMPLE. CONSUMER LOAN Must be secured by real property located in California, owner occupied principal dwelling. Does not include reverse mortgage an open line of credit or a consumer credit transaction that is secured by rental property second homes.

44 COVERED LOAN PREPAYMENT PENALTY DISCLOSURE CALIFORNIA RML HIGH COST PROVISIONS 2nd Mortgage When a "covered loan" as defined in CA Financial Code Section 4970(b)(1) contains a prepayment fee or penalty, borrowers must be given a disclosure at least 3 business days prior to loan consummation. The disclosure is required to include the terms of the prepayment fee or penalty and the rates, points and fees that would be available to the borrower for accepting a covered loan without a prepayment penalty. (CA Financial Code Section 4973(a)(2)(B) CLICK HERE FOR SAMPLE COVERED LOAN(S) Effective 1/1/06, a loan not exceeding the most current conforming loan limit for single-family first mortgage loan established by Fannie Mae in the case of a mortgage or deed of trust. CREDIT LIFE INSURANCE Within 30 days of a consumer loan transaction the following shall not be financed directly or indirectly: credit life, credit disability, credit property, or credit unemployment insurance premiums, debt cancellation or suspension agreement. If you sell any kind of the above insurance please call for additional details. DEBTS Cannot exceed 55% of consumer s monthly gross income, as verified by the credit application, financial statement, a credit report. DEFAULT No provisions allowed that increases the interest rate as a result of default. This does not apply to variable rate loans provided that the change in the interest rate is not triggered by the event of default or the acceleration for the indebtedness. FINANCING OF FEES A covered loan that finances points and fees in excess of $1,000 or 6 percent of the original principal balance (whichever is greater) shall not be financed. HOME IMPROVEMENT CONTRACT(S) Proceeds must be payable to the consumer or jointly to the consumer and the contractor or, at the election of the consumer, to a third party escrow agent for benefit of the contractor in accordance with terms and conditions established in a written escrow agreement signed by the consumer. NEGATIVE AMORTIZATION Only allowed on 1st mortgages and must be disclosed to the borrower that the loan contains a negative amortization provision that may add principal to the balance of the loan. ORIGINAL PRINCIPAL BALANCE The total initial amount the consumer is obligated to repay on the loan. PERIODIC PAYMENTS Not allowed if consolidated and paid in advance from the loan proceeds.

45 CALIFORNIA RML HIGH COST PROVISIONS 2nd Mortgage POINTS & FEES All items required to be disclosed as finance charges under 226.4(a) and 226.4(b) of Regulation Z, including the Official Staff Commentary, except interest. All compensation and fees paid to mortgage brokers. All items listed in 226.4(c)(7) of Regulation Z, only if the person originating the covered loan receives direct compensation in connection with the charge. PREPAYMENT AND ACCELERATION Will not be imposed if the loan is accelerated due to default. PREPAYMENT PENALTIES Not allowed after 36-months. A prepayment penalty may be applied up to the first 36 months after consummation of the loan if: SEASONAL OR IRREGULAR INCOME The consumer is offered a choice of another product without a prepayment fee or penalty The consumer has been disclosed at least three business days prior to loan consummation the terms of the prepayment fee or penalty to the consumer for accepting a covered loan with the prepayment penalty and the rates, points, and fees that would be available to the consumer for accepting a covered loan without a prepayment penalty. The prepayment formula is not to exceed the payment of 6 months advance interest, at the contract rate of interest then in effect, on the amount prepaid in any 12-month period in excess of 20 percent of the original principal amount. CLICK HERE FOR SAMPLE. Total installments in any year shall not exceed the amount of one year s worth of payments on the loan. STATED INCOME Reasonable belief based on the income stated by the consumer, and other information in the possession. A person shall not knowingly or willfully originate a covered loan as a stated income loan with the intent, or effect, of evading the provisions of this subdivision. STEERING Steering, counseling, or directing a prospective consumer to accept a loan product with a risk grade less favorable than the risk grade that the consumer would qualify for based on that person s then current underwriting guidelines, prudently applied, is not allowed. TOTAL POINTS Exceeding 6% of the total loan amount

46 CALIFORNIA RML GENERAL PRACTICES 2nd Mortgage MARITAL DESIGNATION Usually present on the Security Instrument. NOTARY A seal is required for all notary acts. Seal can be an embosser or ink stamp. PROPERTY TAX DUE DATES Taxes may be paid annually and are considered delinquent on December 10. They may also be paid in two installments. The first installment considered delinquent on December 10th and the second installment considered delinquent on April 10th. RIGHTS AND INTERESTS Community Property TYPE OF CONVEYANCE Grant Deed TYPE OF ENCUMBRANCE Deed of Trust

47 CALIFORNIA RML BROKER INFORMATION 2nd Mortgage ADVERTISING Blind Advertising is prohibited. "Blind" Advertising is an advertisement used to solicit business that gives only a telephone number, post office or newspaper box number, or name other than that of the licensee. [CA Code Title 10, Section ] [CA Code Title 10, Section 1557] A broker who solicits or attempts to solicit by telephone in response to an inquiry generated by advertisement on behalf of the telephonic seller must comply with Section of the Business & Professions Code of California. This section does not apply if the person soliciting does not complete the sales presentation during the telephone conversation, but completes the sales presentation in a face to face meeting held at a later date or if the institution is a supervised financial institution or parent, subsidiary, or subsidiary of parent, or is a mortgage lender or servicer, licensed under Division 20 of the Financial Code, acting under the authority of the license. [CA Bus & Prof Section ] BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business. FAIR LENDING NOTICE The fair lending notice must be displayed openly in every financial institution and a copy must be given to every loan applicant upon receipt of a written loan application. The disclosure must show the name and address of the state agency that regulates the lender. The print of the text must be a minimum of 10- point boldface type. [CA Health & Safety Code Section ] CLICK HERE FOR SAMPLE. LATE CHARGE FEE 10 days <6% or $5.00. (Cal Civ Code ) PREPAYMENT PENALTIES Allowed-6 month s interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years. (Platt 2-28, 6/2001) RECORD RETENTION A real estate broker must retain copies 10148). A mortgage loan broker, licensed as a real estate broker by the DRE, must maintain copies of the Mortgage Loan Disclosure Statement for three years (Bus. & Prof. Code 10240(a))

48 CALIFORNIA CFL GENERAL INFORMATION 2nd Mortgage ADVERTISING 1) No licensee shall place an advertisement disseminated primarily in this state for a loan unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan would be made or arranged. 2) The commissioner may require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers. 3) If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that he or she deems necessary to give adequate information to prospective borrowers. If the rates or costs advertised do not apply to loans of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement. 4) No advertising copy shall be used after its use has been disapproved by the commissioner and the licensee is notified in writing of the disapproval. 5) The commissioner may require licensees to maintain a file of all advertising copy for a period of 90 days from the date of its use. The file shall be available to the commissioner upon request. 6) A licensed finance lender may act as a broker as defined in Section at its licensed place of business without obtaining an additional license as a broker under this division provided the licensee has notified the commissioner of the action in writing. (CA Fin. Code - Sections ) ADVERTISING Under the Finance Lenders law, no person may advertise, print, display, publish, distribute or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed or broadcast in any manner, any statement or representation, including the rates, terms or conditions for making or negotiating loans, that is false, misleading or deceptive, or that omits material information that is necessary to make the statements not false, misleading or deceptive, or for licensees, refers to the supervision of the business by the state of California or any department or official of the state of California. [CA Fin Code Section ] Lenders subject to Finance Company regulations must submit in duplicate to the Commissioner for examination all advertising used or proposed to be used for its business. [CA Code of Regulations Title 10, Chapter 3, Subchapter 6,

49 CALIFORNIA CFL GENERAL INFORMATION Article 10, Section nd Mortgage APPRAISAL FEE Allowed. Must be actual fees and can not be charged if the property is refinanced 12 months or less. ( Fin. Code 22317) BROKER FEES Allowed, not regulated. CLOSING COST TO 3RD PARTIES Allowed, not regulated. CREDIT REPORT FEE Allowed, must be actual. IDENTITY THEFT If a borrower gives an initial written notice to a lender that he/she is a victim of identity theft, then the lender must provide a written notice to the borrower of his/her right to have the credit information blocked under subdivision (k) of Section [CA Civil Code Section (f)] VICTIM OF IDENTITY THEFT NOTICE If you have been a "Victim of Identity Theft" you have certain rights under the law. In order to protect yourself you must provide the following to a credit reporting agency: - A copy of a valid police report, or - A valid investigative report made by a Department of Motor Vehicle investigator with peace officer status. The consumer credit reporting agency shall promptly and permantly block reporting information that the consumer alleges appears on his or her credit report as a result of a violation of Seciton of the Penal Code so that the information cannot be reported. The consumer credit reporting agency shall promptly notify the furnisher of the information that the information has been so blocked. Furnishers of information and consumer credit reporting agencies shall ensure that information is unblocked only upon a preponderance of the evidence establishing the facts required under paragraph (1), (2), or (3). The permanently blocked information shall be unblocked only if: 1. The information was blocked due to a material misrepresentation of fact by the consumer fraud, or 2. The consumer agrees that the blocked information, or portions of the blocked information, were blocked in error, or 3. The consumer knowingly obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions or the consumer should

50 CALIFORNIA CFL GENERAL INFORMATION 2nd Mortgage have known that he or she obtained possession of goods, services, or moneys as a result of the blocked transaction or transactions. LATE CHARGE FEE 10 days and 6% (Cal. Civ. Code ) MAXIMUM APR No Maximum (Cal. Const., art. XV, 1; Fin. Code 22002, 50005) MAXIMUM INTEREST RATE No Maximum (Cal. Const., art. XV, 1; Fin. Code 22002, 50005) ORIGINATION No Maximum (Cal. Const., art. XV, 1; Fin. Code 22002, 50005) PREPAYMENT PENALTIES Allowed- 6 months interest on the amount prepaid in excess of 20% of the original loan amount within a 12 month period for the first 7 years (Bus. & Prof. Code ) PROMISSORY NOTE Standard Fannie Mae/Freddie Mac state specific. Second Mortgage Note REBATE OF UNEARNED FINANCE CHARGES Not applicable. RECORD RETENTION Licensees shall preserve their books, accounts, and records, including cards used in the card system, if any, for at least three years after making the final entry on any loan recorded therein. SIGNATURES In the event a spouse is not going on the loan, that spouse would need to sign the Deed of Trust, Notice of Right to Cancel, Section 32 (if applicable) and Truth-in-Lending disclosure. WET SETTLEMENT Not applicable.

51 CALIFORNIA CFL HIGH COST PROVISIONS 2nd Mortgage 5 YEAR LOAN TERM OR LESS May not provide at origination for a payment schedule with regular periodic payments that when aggregated do not fully amortize the principal balance as of the maturity date of the loan. ABILITY TO REPAY If the lender reasonably believes the consumer or consumers, when considered collectively in the case of multiple consumers, will be able to make the scheduled payments to repay the obligation based upon a consideration of their current and expected income, current obligations, employment status, and other financial resources, other than the consumer s equity in the dwelling that secures repayment of the loan. Loans that are structured to increase to a specific designated rate, at a specific predetermined date not exceeding 37 months from the date of application, this evaluation shall be based upon the fully indexed rate of the loan calculated at the time of application. APR 8% above the yield on Treasury securities AVOIDING THE PROVISION Structuring a loan transaction as an open-end credit plan for the purpose of evading the provisions of this division when the loan would have been a covered loan if the loan had been structured as a closed end loan is prohibited. Dividing any loan transaction into separate parts for the purpose of evading the provisions of this division is prohibited. Fraud it prohibited. BROKER STEERING A broker shall not steer, counsel, or direct any prospective consumer to accept a loan product at a higher cost than that for which the consumer could qualify based on the loan products offered by the persons with whom the broker regularly does business CALL PROVISION(S) Call provisions that permit the lender, in its sole discretion, to accelerate the indebtedness is not allowed. CONSUMER CAUTION This notice must be provided on all "covered loans" in California. A covered loan is a high cost loan. This disclosure must be provided no later than three business days prior to signing the loan documents and must be signed. CLICK HERE FOR SAMPLE CONSUMER LOAN Must be secured by real property located in California, owner occupied principal dwelling. Does not include reverse mortgage an open line of credit or a consumer credit transaction that is secured by rental property second homes. COVERED LOAN(S) Effective 1/1/06, a loan not exceeding the most current conforming loan limit for single-family first mortgage loan established by Fannie Mae in the case of a mortgage or deed of trust.

52 CALIFORNIA CFL HIGH COST PROVISIONS 2nd Mortgage CREDIT LIFE INSURANCE Within 30 days of a consumer loan transaction the following shall not be financed directly or indirectly: credit life, credit disability, credit property, or credit unemployment insurance premiums, debt cancellation or suspension agreement. If you sell any kind of the above insurance please call for additional details. DEBTS Cannot exceed 55% of consumer s monthly gross income, as verified by the credit application, financial statement, a credit report. DEFAULT No provisions allowed that increases the interest rate as a result of default. This does not apply to variable rate loans provided that the change in the interest rate is not triggered by the event of default or the acceleration for the indebtedness. FINANCING OF FEES A covered loan that finances points and fees in excess of $1,000 or 6 percent of the original principal balance (whichever is greater) shall not be financed. HOME IMPROVEMENT CONTRACT(S) Proceeds must be payable to the consumer or jointly to the consumer and the contractor or, at the election of the consumer, to a third party escrow agent for benefit of the contractor in accordance with terms and conditions established in a written escrow agreement signed by the consumer. NEGATIVE AMORTIZATION Only allowed on 1st mortgages and must be disclosed to the borrower that the loan contains a negative amortization provision that may add principal to the balance of the loan. ORIGINAL PRINCIPAL BALANCE The total initial amount the consumer is obligated to repay on the loan. PERIODIC PAYMENTS Not allowed if consolidated and paid in advance from the loan proceeds. POINTS & FEES All items required to be disclosed as finance charges under 226.4(a) and 226.4(b) of Regulation Z, including the Official Staff Commentary, except interest. All compensation and fees paid to mortgage brokers. All items listed in 226.4(c)(7) of Regulation Z, only if the person originating the covered loan receives direct compensation in connection with the charge. PREPAYMENT AND ACCELERATION Will not be imposed if the loan is accelerated due to default.

53 CALIFORNIA CFL HIGH COST PROVISIONS 2nd Mortgage PREPAYMENT PENALTIES Not allowed after 36-months. A prepayment penalty may be applied up to the first 36 months after consummation of the loan if: SEASONAL OR IRREGULAR INCOME The consumer is offered a choice of another product without a prepayment fee or penalty The consumer has been disclosed at least three business days prior to loan consummation the terms of the prepayment fee or penalty to the consumer for accepting a covered loan with the prepayment penalty and the rates, points, and fees that would be available to the consumer for accepting a covered loan without a prepayment penalty. The prepayment formula is not to exceed the payment of 6 months advance interest, at the contract rate of interest then in effect, on the amount prepaid in any 12-month period in excess of 20 percent of the original principal amount. CLICK HERE FOR SAMPLE. Total installments in any year shall not exceed the amount of one year s worth of payments on the loan. STATED INCOME Reasonable belief based on the income stated by the consumer, and other information in the possession. A person shall not knowingly or willfully originate a covered loan as a stated income loan with the intent, or effect, of evading the provisions of this subdivision. STEERING Steering, counseling, or directing a prospective consumer to accept a loan product with a risk grade less favorable than the risk grade that the consumer would qualify for based on that person s then current underwriting guidelines, prudently applied, is not allowed. TOTAL POINTS Exceeding 6% of the total loan amount

54 CALIFORNIA CFL GENERAL PRACTICES 2nd Mortgage MARITAL DESIGNATION Usually present on the Security Instrument. NOTARY A seal is required for all notary acts. Seal can be an embosser or in stamped. PROPERTY TAX DUE DATES Taxes may be paid annually and are considered delinquent on December 10. They may also be paid in two installments. The first installment considered delinquent on December 10th and the second installment considered delinquent on April 10th. RIGHTS AND INTERESTS Community Property TYPE OF CONVEYANCE Grant Deed TYPE OF ENCUMBRANCE Deed of Trust

55 CALIFORNIA DRE EARLY DISCLOSURES APPRAISAL DISCLOSURE Must be displayed openly in every financial institution and a copy must be given to every loan applicant upon receipt of a written loan application. The disclosure must show the name and address of the state agency which regulated the lender. CLICK HERE FOR SAMPLE COMMITMENTS Only required if you are charging borrowers a commitment fee (Cal Fin Code 50203(a)(4)(B)(ii) CREDIT APPLICATION MARRIED APPLICANT DISCLOSURE CREDIT REPORT DISCLOSURE (Cal. Civ Code a) DOMESTIC PARTNER DISCLOSURE EARTHQUAKE INSURANCE Condo projects only CLICK HERE FOR SAMPLE Under CA Civil Code (j) certain credit applications must clearly specify that the applicant, if married, may apply for a separate account. CLICK HERE FOR SAMPLE Section of the CA Family Code, provides registered domestic partners with the same rights, protections, and benefits, as well as the same responsibilities, obligations, and duties under law, whether derived from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as those granted to and imposed upon spouses. Therefore, a non-borrowing spouse or registered domestic partner will have a community property interest in the real property of the borrowing spouse or registered domestic partner. This ownership interest prevents creditors from attaching the entire homestead property without the written consent of both spouses or partner. CLICK HERE FOR SAMPLE ESCROW DISCLOSURE (Cal Civ Code 2954(a) FAIR LENDING NOTICE Must be displayed openly in every financial institution and a copy must be given to every loan applicant upon receipt of a written loan application. The disclosure must show the name and address of the state agency, which regulates the lender. (Health & Saf. Code 35830) CLICK HERE FOR SAMPLE Provider Lender Lender Lender Lender Lien Position

56 CALIFORNIA DRE EARLY DISCLOSURES INTERIM INTEREST A disclosure is required to be given to the borrower acknowledging the additional interest charge at the time the parties establish the disbursement date, if the borrower requests the deed of trust be recorded on a Monday or the day immediately following a bank holiday. This disclosure must be provided to the borrower when the parties establish the recording date, and the borrower must acknowledge the additional interest charge by signing the disclosure instrument. CLICK HERE FOR SAMPLE LOAN DISCLOSURE You may substitute the MLDS for the GFE only if the loan has an original principal balance for $20K or more. (Bus & Prof. Code & 10241) LOCK-IN AGREEMENT Only required if you provide a lock-in (Cal Fin Code 50203(a)(3)(B) NOTICE TO CO-SIGNOR (Cal Civ Code (a)) Provider Lender Lender Lender Lender Lien Position

57 CALIFORNIA RML EARLY DISCLOSURES BROKER AGREEMENT Lender/Broker specific. No VMP form. Required by residential mortgage lenders, licensed by the DOC, who provide brokerage services to borrowers. The borrower is to be provided a copy of the executed agreement either upon execution, if the documents are signed in the licensee s office or within three business days after execution. Requirement of this disclosure can be found in the CA Financial Code Section BROKER FEES Allowed As soon as is practical after a borrower request that a licensee performs brokerage services for the borrower, the licensee and borrower must enter into a written loan brokerage agreement (Cal Fin Code 50701). The borrower must receive a copy of the agreement either upon execution or within three business days after execution. COMMITMENTS Lender specific. No VMP form. If a licensed residential mortgage lender charges a commitment fee, then CA Fin. Code Section 50203(4)(A) & (B) requires the commitment to be in writing and signed by the borrower and licensee. CREDIT APPLICATION MARRIED APPLICANT DISCLOSURE DOMESTIC PARTNER DISCLOSURE Under CA Civil Code (j) certain credit applications must clearly specify that the applicant, if married, may apply for a separate account. CLICK HERE FOR SAMPLE Section of the CA Family Code, effective 1/1/05, provides registered domestic partners with the same rights, protections, and benefits, as well as the same responsibilities, obligations, and duties under law, whether derived from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as those granted to and imposed upon spouses. Therefore, a non-borrowing spouse or registered domestic partner will have a community property interest in the real property of the borrowing spouse or registered domestic partner. This ownership interest prevents creditors from attaching the entire homestead property without the written consent of both spouses or partner. CLICK HERE FOR SAMPLE Provider Lender Broker Lender Lien Position

58 CALIFORNIA RML EARLY DISCLOSURES FAIR LENDING NOTICE Must be displayed openly in every financial institution and a copy must be given to every loan applicant upon receipt of a written loan application. The disclosure must show the name and address of the state agency, which regulates the lender. (Health & Saf. Code 35830) CLICK HERE FOR SAMPLE. INSURANCE DISCLOSURE A lender must give the borrower a written notice of the contents of Civil Code (a) as soon as practicable, but before the execution of the note or security Instrument (CA Civ. Code (b)). CLICK HERE FOR SAMPLE. INTEREST RATE LOCK-IN Lender specific. No VMP form. If a licensed residential AGREEMENT mortgage lender charges a rate lock fee, they must provide an agreement in writing and signed by both the borrower and licensee. INTERIM INTEREST A disclosure is required to be given to the borrower acknowledging the additional interest charge at the time the parties establish the disbursement date, if the borrower requests the deed of trust be recorded on a Monday or the day immediately following a bank holiday. This disclosure must be provided to the borrower when the parties establish the recording date, and the borrower must acknowledge the additional interest charge by signing the disclosure instrument. CLICK HERE FOR SAMPLE Provider Lender Lender Lender Lien Position

59 AUTOMATED VALUATION MODEL NOTICE CREDIT APPLICATION MARRIED APPLICANT DISCLOSURE DOMESTIC PARTNER DISCLOSURE EARTHQUAKE INSURANCE Condo projects only CLICK HERE FOR SAMPLE CALIFORNIA CFL EARLY DISCLOSURES Effective January 1, 2007, Lenders must notify borrowers that they may be entitled to a copy of the automated valuation model result. The notice must be in 10-point bold type and must be a separate document which must be given no later than 15 days after the lender receives the written application. Release of the automated valuation model result to the borrower may be conditioned upon payment of the fee. (CA Finance Code Section added by CA AB ) The notice must contain the following: that the borrower's request for the automated valuation model result must be in writing; that the request must be received by the licensee no later than 90 days after the licensee provides notice of the action taken on the application; an address to which the request should be sent; and the following statement: "An automated valuation model is not an appraisal. It is a computerized property valuation system that is used to derive a real property value." CLICK HERE FOR SAMPLE Under CA Civil Code (j) certain credit applications must clearly specify that the applicant, if married, may apply for a separate account. CLICK HERE FOR SAMPLE Section of the CA Family Code, effective 1/1/05, provides registered domestic partners with the same rights, protections, and benefits, as well as the same responsibilities, obligations, and duties under law, whether derived from statutes, administrative regulations, court rules, government policies, common law, or any other provisions or sources of law, as those granted to and imposed upon spouses. Therefore, a non-borrowing spouse or registered domestic partner will have a community property interest in the real property of the borrowing spouse or registered domestic partner. This ownership interest prevents creditors from attaching the entire homestead property without the written consent of both spouses or partner. CLICK HERE FOR SAMPLE ESCROW DISCLOSURE (Cal. Civ. Code 2954(a)) Provider Lender Lender Lien Position

60 CALIFORNIA CFL EARLY DISCLOSURES FAIR LENDING NOTICE Must be displayed openly in every financial institution and a copy must be given to every loan applicant upon receipt of a written loan application. The disclosure must show the name and address of the state agency, which regulates the lender. (Health & Saf. Code 35830) CLICK HERE FOR SAMPLE INTERIM INTEREST A disclosure is required to be given to the borrower acknowledging the additional interest charge at the time the parties establish the disbursement date, if the borrower requests the deed of trust be recorded on a Monday or the day immediately following a bank holiday. This disclosure must be provided to the borrower when the parties establish the recording date, and the borrower must acknowledge the additional interest charge by signing the disclosure instrument. CLICK HERE FOR SAMPLE LOCK-IN AGREEMENT Only required if you provide a lock-in (Cal Fin Code 50203(a)(3)(B) Provider Lender Lender Lien Position

61 IMPOUND DISCLOSURE/WAIVER CALIFORNIA DRE LATE DISCLOSURES A lender must give the borrower the option of establishing an impound (escrow) account if the borrower is not required by law to have one. This disclosure explains why the impound account would be established, the rate of interest that would be paid, and if not required by law, the option for the borrower to establish or decline an escrow impound account. (CA Civil Code Section 2954) CLICK HERE FOR SAMPLE INSURANCE DISCLOSURE A lender must give the borrower a written notice of the contents of Civil Code Section (a) as soon as practicable, but before the execution of the Note or Security Instrument. [CA Civil Code Section (b)]. This insurance disclosure notifies the borrower that a lender cannot require a borrower to provide hazard insurance in an amount exceeding the replacement value of the improvements on the property. CLICK HERE FOR SAMPLE INTERIM INTEREST DISCLOSURE/CERTIFICATE OF COMPLIANCE A disclosure is required to be given to the borrower acknowledging the additional interest charge at the time the parties establish the recording date, if the borrower requests the deed of trust be recorded on a Monday or the day immediately following a bank holiday. This disclosure must be provided to the borrower when the parties establish the recording date, and the borrower must acknowledge the additional interest charge by signing the disclosure instrument. [CA Civil Code (2)] Effective January 1, 2004 AB 313 amended the law changing the interim interest period from the recording date to the disbursement date. The Finance Code was revised requiring that an evidence of compliance with Section if the Civil Code may be a certification executed by the licensee, or other evidence in the loan file acceptable to the commissioner. (CA Fin Code (o)) CLICK HERE FOR SAMPLE Provider Lender Lender Lender Lien Position

62 STATEMENT OF CREDIT DENIAL, TERMINATION OR CHANGE CALIFORNIA DRE LATE DISCLOSURES CA Civil Code Section requires that the adverse action notice must now advise the applicants of their rights to a free copy of the credit report within 60 days. The free copy may be obtained from the credit bureau identified in the notice and from any other credit reporting agency that compiles and maintains files on consumers on a nationwide basis. The applicants also have a right under CA Civil Code Section to dispute the accuracy or completeness of any information in a consumer credit report furnished by the consumer credit reporting agency. CLICK HERE FOR SAMPLE Provider Lender Lien Position

63 IMPOUND DISCLOSURE/WAIVER INTERIM INTEREST DISCLOSURE/CERTIFICATE OF COMPLIANCE CALIFORNIA RML LATE DISCLOSURES A lender must give the borrower the option of establishing an impound (escrow) account if the borrower is not required by law to have one. This disclosure explains why the impound account would be established, the rate of interest that would be paid, and if not required by law, the option for the borrower to establish or decline an escrow impound account. [CA Civil Code Section 2954] CLICK HERE FOR SAMPLE A disclosure is required to be given to the borrower acknowledging the additional interest charge at the time the parties establish the recording date, if the borrower requests the deed of trust be recorded on a Monday or the day immediately following a bank holiday. This disclosure must be provided to the borrower when the parties establish the recording date, and the borrower must acknowledge the additional interest charge by signing the disclosure instrument. [CA Civil Code (2)] Effective January 1, 2004 AB 313 amended the law changing the interim interest period from the recording date to the disbursement date. The Finance Code was revised requiring that an evidence of compliance with Section if the Civil Code may be a certification executed by the licensee, or other evidence in the loan file acceptable to the commissioner. (CA Fin Code (o)) CLICK HERE FOR SAMPLE PMI CLOSING DISCLOSURE To be provided to the borrower within 30 days after closing of escrow. This disclosure is required on loans where the lender requires PMI as a condition of funding. It advises the borrower on when they have a right to cancel PMI. CLICK HERE FOR SAMPLE. STATEMENT OF CREDIT DENIAL, TERMINATION OR CHANGE CA Civil Code Section requires that the adverse action notice must now advise the applicants of their rights to a free copy of the credit report within 60 days. The free copy may be obtained from the credit bureau identified in the notice and from any other credit reporting agency that compiles and maintains files on consumers on a nationwide basis. The applicants also have a right under CA Civil Code Section to dispute the accuracy or completeness of any information in a consumer credit report furnished by the consumer credit reporting agency. CLICK HERE FOR SAMPLE Provider Lender Lender Lender Lender Lien Position

64 CALIFORNIA CFL LATE DISCLOSURES BROKER FEE STATEMENT Each Broker shall give to the Borrower at the time of final negotiations a statement which shows the name, address and license number for both the Broker and finance Lender. This statement needs to reflect the loan amount; terms of the agreement with the Broker; all exact fees paid or to be paid to the Broker and to any person other than the finance Lender. This statement needs to be signed, dated and a copy given to the Lender. (CA Finance Code - Section 22338) IMPOUND A lender must give the borrower the option of establishing DISCLOSURE/WAIVER an impound (escrow) account if the borrower is not required by law to have one. This disclosure explains why the impound account would be established, the rate of interest that would be paid, and if not required by law, the option for the borrower to establish or decline an escrow impound account. (CA Civil Code Section 2954) CLICK HERE FOR SAMPLE INSURANCE DISCLOSURE A lender must give the borrower a written notice of the contents of Civil Code Section (a) as soon as practicable, but before the execution of the Note or Security Instrument. [CA Civil Code Section (b)]. This insurance disclosure notifies the borrower that a lender cannot require a borrower to provide hazard insurance in an amount exceeding the replacement value of the improvements on the property. CLICK HERE FOR SAMPLE STATEMENT OF CREDIT CA Civil Code Section requires that the adverse DENIAL, TERMINATION OR action notice must now advise the applicants of their rights CHANGE to a free copy of the credit report within 60 days. The free copy may be obtained from the credit bureau identified in the notice and from any other credit reporting agency that compiles and maintains files on consumers on a nationwide basis. The applicants also have a right under CA Civil Code Section to dispute the accuracy or completeness of any information in a consumer credit report furnished by the consumer credit reporting agency. CLICK HERE FOR SAMPLE Provider Broker Lender Lender Lien Position