Servicing Guide Revised May 1, 2013

Servicing Guide Revised May 1, 2013 North Carolina Housing Finance Agency Page 1

Servicing Guide Table of Contents Note: The North Carolina Housing Finance Agency s Servicing Guide ( Agency Servicing Guide ) is the controlling document. To the extent that a topic is not addressed in the Agency s Servicing Guide, the Servicer should follow the guidelines set forth in the Fannie Mae Servicing Guide. Any questions should be directed to the Agency for clarification. Section 1: Purchasing and Post-Closing Processes for US Bank 1.1 Purchasing Process 1.2 Post-Closing Process 1.2.1 Original Recorded Deed of Trust 1.2.2 Original Recorded Second Deed of Trust 1.2.3 Assignments (Applies to First Deed of Trust Only) 1.2.4 Title Policy 1.2.5 Mortgage Insurance 1.2.6 Any Other Applicable Documentation Section 2: Remittance Responsibilities (all servicers) 2.1 Servicer s Remittance Responsibilities 2.2 Mortgage Accounting Records 2.3 Acceptable Mortgage Accounting Method 2.4 Establishment of Custodial or Trust Accounts 2.5 Monthly Remittance Report Packages 2.6 Partial Prepayments or Curtailments 2.7 Remittance of Funds 2.8 Wiring Instructions 2.9 Custodial Files Held By Bank of New York 2.10 Penalties for Late Remittances and Reports 2.11 Examination of Servicer s Records 2.12 1985 Series U/V and Future Bond Issues with the same MBS Structure Section 3: Default Management (all servicers) 3.1 Written Procedures 3.2 Reporting Requirements 3.3 HUD-Approved Housing Counseling Agencies 3.4 Delinquency Resolution Guidelines 3.4.1 Collection Procedures 3.4.1. A Inbound Call Coverage 3.4.1.B Outbound Call Attempts North Carolina Housing Finance Agency Page 2

3.4.1.C Delinquency Letters 3.4.1.D Late Notices 3.4.1.E Application of Mortgage Payments and Assessment of Fees 3.5 Breach Letter 3.6 45-Day Letter 3.7 Acceleration 3.7.1 Chronic Default 3.7.2 Abandonment of Property 3.7.3 Non-Monetary Default 3.8 Delinquency Guidelines on New Borrowers 3.9 Foreclosure Prevention Alternatives 3.10 Partial Payments 3.10.1 Military Indulgence 3.10.2 Temporary Indulgence 3.11 Special Forbearance 3.12 Informal Forbearance Plan 3.13 Modification (Recasting, Extending or Re-amortizing) 3.14 FHA HAMP 3.15 Treasury HAMP 3.16 USDA HAMP 3.17 VA HAMP 3.18 Face-to-Face Interviews 3.19 Reporting Delinquencies to Credit Bureaus 3.20 Property Inspections 3.21 Occupancy 3.22 Foreclosure Recommendation 3.23 1985 Series U/V and Future Bond Issues with the Same MBS Structure 3.24 Breach of Servicing Agreement Section 4: Foreclosure Management (all servicers) 4.1 Foreclose In The Name of North Carolina Housing Finance Agency 4.2 Initiation of Foreclosure Proceedings 4.3 Effects of Service Member Civil Relief Act 4.4 Effect of Environmental Hazards 4.5 FHA Mortgage Loans 4.6 Conventional and Rural Development Loans 4.7 VA Mortgage Loans 4.8 Reinstatements 4.9 Attorney Fees 4.10 Servicer Interest Penalty 4.11 Foreclosure Monitoring North Carolina Housing Finance Agency Page 3

4.12 Servicer-Initiated Temporary Suspension of Proceedings 4.13 Bidding Instructions 4.14 Deficiency Judgments 4.15 Property Maintenance and Management 4.16 Eviction Proceedings 4.17 Hazard Insurance Policies 4.18 Credit Bureau Reporting 4.19 Deed-in-Lieu of Foreclosure 4.20 Reporting to NCHFA During and After Foreclosure 4.21 Claims Settled without Acceptance of the Property 4.22 Property Conveyance 4.23 Compliance with Internal Revenue Service (Form 1099-A) 4.24 Compliance with MERS (Mortgage Electronic Registration System) 4.25 1985 Series U/V and Future Bond Issues with Same MBS Structure Section 5: Bankrupty Management (all servicers) 5.1 Written Procedures 5.2 Confirming Bankruptcy Information 5.3 Establishing Documentation Files 5.4 Reviewing Bankruptcy Reorganization Plans 5.5 Preparing and Filing the Proof of Claim 5.6 Monitoring Borrower Payments and Crucial Dates 5.7 Delays in the Bankruptcy Process 5.8 Managing Bankruptcy Chapters 5.8.1 Chapter 7 5.8.2 Chapter 11 5.8.2.A Reorganization Plan 5.8.2.B Servicing After Confirmation of the Plan 5.8.3 Chapter 13 5.8.3.A Reorganization Plan 5.8.3.B Pre-Petition and Post-Petition Payments 5.9 Special Circumstance Bankruptcies 5.9.1 Abusive Filers 5.9.2 Individuals with Fractional Interest 5.9.3 Cram-Downs of the Mortgage Debt 5.10 Application of Payments during Confirmation Process 5.10.1 Application of Payments after the Confirmation Process 5.11 Post-Foreclosure Filings 5.12 Referral of Case to Bankruptcy Attorney 5.13 Bankruptcy Reporting Requirements North Carolina Housing Finance Agency Page 4

5.14 1985 Series U/V and Future Bond Issues with same MBS Structure Section 6: Real Estate Owned (REO) 6.1 Foreclosure Confirmation 6.2 Insurer Requirements 6.3 Maintenance and Preservation of Property 6.4 Inspections 6.5 Final Claims to Insurers 6.6 1985 Series U/V and Future Bond Issues with same MBS Structure Section 7: Short Sale Procedures 7.1 Short Sale Analysis 7.2 Insurer Approval 7.3 NCHFA Approval (Conventional and USDA Loans) 7.4 Remittance of Short Sale Funds 7.5 1985 Series U/V and Future Bond Issues with same MBS Structure Section 8: Servicer Claims to NCHFA 8.1 When to File a Servicer Claim 8.2 REO Properties (Conventional or USDA) 8.3 REO Properties (FHA or VA) 8.4 Short Sales 8.5 Reimbursement of Servicer s Foreclosure Expense Request 8.6 Removal of Loan from Servicer s Trial Balance Section 9: Servicing Subordinate Liens 9.1 New Loan Setup 9.2 Monthly Servicer Subordinate Reconciliation Report 9.3 Payoff Quotes 9.3.1 Subordinations 9.4 Wiring Instructions 9.5 Satisfactions North Carolina Housing Finance Agency Page 5

Section 10: Assumptions 10.1 Assumption Processing Section 11: Exhibits Exhibit 1: Automated Investor-Delinquency Reporting File Format Exhibit 2: Form SFS-25, Letter of Agreement for Servicer s Custodial Accounts Exhibit 3: Variance Letter from HUD regarding Mortgagee Letter 2009-35 Exhibit 4: Short Sale Transmittal Summary Exhibit 5: Servicer REO Securing Notice Exhibit 6: Relocation Assistance Process Steps Exhibit 7: NCHFA Claims-Foreclosure Expense Reimbursement Request Exhibit 8: NCHFA Payoff calculation worksheet North Carolina Housing Finance Agency Page 6

Section 1 Purchasing and Post-Closing Processes for US Bank 1.1 Purchasing Process: Lenders will mail to US Bank the closing package and the compliance file. Within 72 hours of receipt of the closing package, US Bank will mail the closing package to NCHFA. NCHFA will review the closing package. NCHFA will e-mail the lender regarding any corrections that need to be made to the closing documents, and it will copy US Bank on the correspondence. Once NCHFA has approved the closing package, it will electronically send a letter to US Bank to indicate NCHFA s approval of the closing package. Once US Bank has cleared its contingencies, it will notify NCHFA to clear the US Bank contingencies within the Homeownership system and approve the loan for purchase. Before the time of purchase, NCHFA will notify US Bank regarding the day it plans to purchase the loans and the bond series it will use to fund the loan. US Bank will provide a funding schedule showing the date on which NCHFA plans to purchase the loan from US Bank. Once US Bank has purchased the loan, it will mail the original note to NCHFA. Based on the data in US Bank s funding schedule and the date and series information which NCHFA provided to US Bank, NCHFA will schedule the loan for purchase. NCHFA will scan the original note upon receipt. Then it will mail the closing package including the original note to Bank of New York Mellon. 1.2 Post-Closing Process US Bank will review the following documents in the post-close process: Original recorded Deed of Trust Original recorded second Deed of Trust (if applicable) Assignments (applies to first Deed of Trust only) North Carolina Housing Finance Agency Page 7

Title policy Mortgage insurance Any other applicable documentation US Bank will ensure that the documents comply with the following criteria in its review: 1.2.1 Original Recorded Deed of Trust: Dated the same as the Note Grantor/mortgagor includes the obligor(s) listed on the Note (and spouse, if applicable) Must reflect the borrower(s) marital status Beneficiary is the originating lender The amount referred to in Borrower owes Lender the principal sum of is the loan amount written in words and numerically Maturity date should agree with the Note Legal description agrees with the Appraisal or the Warranty Deed and Survey, if available Property address should agree with the Note Item 9(e) should show 60 day (FHA loans only) Mortgagor(s) signature should be the same as the typed name under the signature line. It should also agree with how it is listed and signed on the note. The document should be notarized the same day the borrower signed the Deed of Trust If the residence is a condo, it must have a condo rider attached and made a part of the Deed of Trust If the residence is a PUD, it must have a PUD rider attached and made a part of the Deed of Trust The appropriate box must be checked for attachments All corrections must be initialed by the mortgagor(s). If it is necessary for the borrower to sign with a mark, the signature of two witnesses (with names of witnesses typed under their signatures) will be required If the documents have been signed under a Power of Attorney, a copy of the recorded specific Power of Attorney must be obtained. The Power of Attorney must be recorded prior to the recording of the Deed of Trust and the signatures must agree in execution to the names stated in the Power of Attorney The Deed of Trust securing the Note can only be subject to minor easements, rights of way, and similar exceptions customarily acceptable to lenders of funds secured by residential real property and otherwise acceptable to the Agency. North Carolina Housing Finance Agency Page 8

If an Affidavit of Correction is required, the Lender must contact North Carolina Housing Finance Agency for direction. When an Affidavit of Correction is recorded for errors and/or omissions to the Deed of Trust, an endorsement to the Title Policy will be required to add the recording information 1.2.2 Original Recorded Second Deed of Trust (if applicable): Dated the same as the Note Grantor/mortgagor includes the obligor(s) on Note and spouse, if applicable Must reflect the borrower(s) marital status Beneficiary is North Carolina Housing Finance Agency Trustee is A. Robert Kucab The amount referred to in Borrower owes Lender the principal sum of is the loan amount written in words and numerically Legal description agrees with the first Deed of Trust Mortgagor(s) signature should be the same as the typed name under the signature line. It should also agree with how it is listed on the front of the Note and Deed of Trust. The document should be notarized on the same day the borrower signed the Deed of Trust. 1.2.3 Assignments (Applies to First Deed of Trust Only): Non-MERS members to provide a copy of recorded Assignment from Lender to MERS MERS members must register the loan in MERS, use MOM instrument and show MIN# MERS should reflect the following: o Beneficiary: NCHFA 1007932 o Servicer: US Bank 1000212 o Custodian: Bank of New York Mellon 1001148 1.2.4 Title Policy: Date of policy must match the date and time the Deed of Trust is recorded. The date of the policy can be after the recording date as long as the proper verbiage is included Address must match the address on the Note and Deed of Trust Mortgage date must match the date on the Deed of Trust Name of the insured should reflect the Lender s name followed by its successors and/or assigns, as their interest may appear, its successors and /or assigns is included in the policy jacket North Carolina Housing Finance Agency Page 9

Name of the borrower must match what is reflected on the Deed of Trust Insured mortgage must include borrower s name and marital status, Lender s name, date of Deed of Trust, date and time Deed of Trust was recorded, book #, page #, name of county in which Deed of Trust was recorded, and loan amount Loan amount must match Note and Deed of Trust Land reference must match the legal description on the Deed of Trust Title Policy must include the following endorsements, where applicable: o Alta 8.1 (Environmental Protection Lien) o Alta 9 (Restrictions, Encroachments and Minerals) o Alta 4 (Condominium Endorsement) o Alta 5 (PUD Endorsement) o Alta 7.1 (Manufactured Home Endorsement) The recording of any/all subordinate liens must be reflected on Schedule B Part II of the policy 1.2.5 Mortgage Insurance: Title Policy endorsement(s) for corrections (if applicable). Title Policy must be signed by authorized signatory. Title Policy can only be subject to minor easements, rights of way, and similar exceptions customarily acceptable to lenders of funds secured by residential real property and otherwise acceptable to the Agency. Check for the presence and accuracy of the following insurance certificates, depending on the type of loan: Private Mortgage Insurance Certificate for conventional loans with a loan-tovalue greater than 80% Mortgage Insurance Certificate (MIC) for FHA loans Loan Guaranty Certificate (LGC) for VA loans Loan Note Guarantee (LNG) for USDA loans Provide copies of the MI Certificate to Bank of New York-Mellon 1.2.6 Any Other Applicable Documentation: Verify accuracy of recorded Affidavit of Correction, used to correct errors and omissions on the recorded Deed of Trust. Verify accuracy of any other applicable documents. North Carolina Housing Finance Agency Page 10

Section 2 Reporting and Remitting 2.1 Servicer s Remittance Responsibilities The accounting responsibility of the Servicer includes the following: The accounting for and remittance to NCHFA of the principal and interest portions of monthly payments and any other sums paid by mortgagors which NCHFA may require to be remitted The accounting for and remittance to Fannie Mae of the principal and interest portions of monthly payments and any other sums paid by mortgagors which Fannie Mae may require to be remitted for the Fannie Mae Certificates in the 1985 Series U/V and future bond issues with the same MBS structure The accounting for and remittance to Ginnie Mae of the principal and interest portions of monthly payments and any other sums paid by mortgagors which Ginnie Mae may require to be remitted for the Ginnie Mae Certificates in the 1985 Series U/V and future bond issues with the same MBS structure The accounting for and administration of escrow accounts or amounts deposited by mortgagors for payment of taxes, assessments, ground rents, hazard insurance premiums, premiums due to federal agencies or private mortgage insurers, and other escrowed items 2.2 Mortgage Accounting Records Permanent mortgage accounting records will be maintained for each mortgage. Each individual mortgage record will indicate NCHFA ownership, the bond issue under which the mortgage was purchased, and the assigned 10-digit NCHFA loan number. While NCHFA does not specify the particular system or forms to be used for mortgage records, the Servicer s mortgage accounting system must be capable of producing for each mortgage an account transcript itemizing in chronological order: North Carolina Housing Finance Agency Page 11

The date, amount, and breakdown between principal, interest and escrow of each collection The date to which interest is paid The date, amount, and nature of each disbursement, advance, adjustment, or other transaction affecting the amounts due from or to the mortgagor An indication of whether the loan has been modified from its original terms The system must also be capable of producing the current outstanding principal balance of the mortgage, the current escrow balance, and any escrow advance balances. The system must be capable of accounting for Ginnie Mae and Fannie Mae MBS according to Ginnie Mae and Fannie Mae guidelines, and the Servicer shall comply with Fannie Mae, USDA, and private mortgage insurer ( PMI ) requirements regarding mortgage accounting records for the conventional and USDA loans in the Fannie Mae Certificates. The Servicer shall comply with FHA, VA and Ginnie Mae requirements regarding mortgage accounting records for the FHA and VA loans in the Ginnie Mae Certificates. 2.3. Acceptable Mortgage Accounting Method The amortization method of individual loan accounting, with interest calculated in arrears, must be used on all loans serviced for NCHFA. Under this method, the application of an individual mortgage payment to interest and principal is determined by first calculating the interest portion and applying the balance of the payment as a principal reduction. The interest is calculated using not less than the outstanding principal balance after application of the preceding payment. The interest so computed relates to the period preceding the due date of the installment being applied. All monthly interest calculations shall use a 360-day year all partial monthly interest calculations shall use a 365 day year calculation factors must be carried out six decimal places The Servicer is required to use Fannie Mae s amortization method of individual loan accounting for the Fannie Mae Certificates in the 1985 Series U/V and future bond issues with the same MBS structure The Servicer is required to use Ginnie Mae s amortization method of individual loan accounting for the Ginnie Mae Certificates in the 1985 Series U/V and future bond issues with the same MBS structure North Carolina Housing Finance Agency Page 12

2.4 Establishment of Custodial or Trust Accounts The Servicer is required to establish and maintain custodial or trust accounts for each bond resolution. These accounts must be demand deposit accounts and established in a North Carolina state bank, national bank, or savings and loan association, the deposits of which are insured by the Federal Deposit Insurance Corporation, or established in a Federal Reserve Bank. Where a Servicer maintains a branch office which NCHFA determines to be adequately equipped to service mortgages and such branch office collects and accounts separately for payments it receives and reports them directly to NCHFA, a separate custodial account may be established for each such branch office. The titles of such accounts will be as follows: [Servicer], as agent, trustee and/or bailee for the holders of NCHFA Single Family Revenue Bonds (specify Resolution) and/or payments of various mortgagors and as Custodian for The Bank of New York Mellon Trust Company (Principal and Interest) [Servicer], as agent, trustee and/or bailee for the holders of NCHFA Single Family Revenue Bonds (specify Resolution) and/or payments of various mortgagors and as Custodian for The Bank of New York Mellon Trust Company (Escrow Account) The Servicer must prepare and forward to NCHFA the original of the Letter of Agreement for Servicer s Custodial Accounts (Exhibit 2), properly executed by the Servicer and certified by the depository bank. The purpose of the Letter of Agreement is to evidence the establishment of Custodial accounts for the deposit of collections of all sums payable under the mortgages owned by NCHFA, and that all such amounts are payable to NCHFA on demand. In the event of any changes in the name and address of the depository bank, the Servicer must prepare a Letter of Agreement for Servicer s Custodial Accounts and submit it within 15 days to NCHFA. All funds received under the provisions of any NCHFA mortgage loan must be deposited in the segregated trust custodial accounts. The Servicer must maintain all such accounts in conformity with the rules and regulations of the deposit insurer and must maintain detailed records as to the respective interest of each mortgagor and NCHFA in the account(s). If at any time the balance in any custodial account should equal or exceed the insured amount, the Servicer must immediately remit the entire balance to the Trustee with the appropriate breakdown(s). North Carolina Housing Finance Agency Page 13

Custodial accounts established for NCHFA must be reconciled monthly within 30 days of the statement cycle cutoff date. The Servicer may establish general ledger accounts for internal control purposes only. For 1985 Series U/V and future bond issues with the same MBS structure, the Servicer must follow the Fannie Mae custodial or trust account requirements for the Fannie Mae Certificates. The Servicer must follow the Ginnie Mae custodial or trust account requirements for the Ginnie Mae Certificates. 2.5 Monthly Remittance Report Packages The Servicer will submit all reports and electronic downloads regarding servicing of any mortgage loan at the time and in the form requested or acceptable to NCHFA. Every report, download and all correspondence regarding a particular mortgage must refer to the NCHFA loan number and the related bond issue. It is the Servicer s responsibility to ensure that all reports and downloads required or requested by NCHFA are prepared accurately and submitted promptly. The download must comply with the requirements set forth in Automated Investor- Delinquency Reporting File Format (Exhibit 1). All monthly reports and downloads must have a cutoff date equal to the last business day of the month. Remittance downloads and reports are due at NCHFA no later than (5) business days after the cutoff date There must be no hand-written adjustments on any computer-generated report without prior written approval from NCHFA Remittance downloads and reports must include MBS loans The download must comply with the requirements set for in Automated Investor-Delinquency Reporting File Format (Exhibit 1) Any manual reports are to be forwarded to: (By Mail) North Carolina Housing Finance Agency Attn: Liliana Cely, Finance Business Group P O Box 28066 Raleigh, NC 27611-0866 North Carolina Housing Finance Agency Page 14

(By Courier) North Carolina Housing Finance Agency Attn: Liliana Cely, Finance Business Group 3508 Bush Street Raleigh, NC 27609 2.6 Partial Prepayments or Curtailments A mortgagor who is current may make payments to reduce the outstanding principal balance of the mortgage loan in any the following ways: The mortgagor may make a full monthly payment (or a payment in multiples thereof) in advance of the due date to create a cushion against the possibility of missing future payments. The mortgagor may make a partial prepayment (curtailment) in accordance with the Note and Deed of Trust. Once the prepayment has been applied as specified by the mortgagor, the mortgagor may not at a later date have the funds applied in a different manner unless the Servicer obtains the written approval of NCHFA or unless such a practice is permitted by FHA, USDA or VA, if the loan is so insured. Prepaid installments and partial prepayments (curtailments) must be included in the regular monthly remittance 2.7 Remittance of Funds Mortgage Payments, Partial Prepayments and Curtailments The Servicer will remit to Bank of New York Mellon, Trustee for NCHFA, all funds due to NCHFA which are received by the close of business on the last business day of the month All funds remitted must be received within five (5) business days of cutoff. NCHFA requires all monthly remittances unless prior approval has been granted by NCHFA and wired to the Trustee; however, the wire instructions must clearly identify the Servicer, borrower name and the breakdown by bond issue(s) for the total wire amount. A copy of the wire instructions or remittance curtailment amounts per series will be sent to NCHFA monthly North Carolina Housing Finance Agency Page 15

Prepayments The Servicer will remit to Bank of New York Mellon, Trustee for NCHFA, prepayments (payoffs and foreclosures) within two business days of receipt. 2.8 Wiring Instructions The Servicer must wire the remittance funds to one of the following accounts listed below BONY 1 ST Liens Only Date: Bank Name: Bank of New York Mellon Bank City/State: Jacksonville, FL Bank Credit Account #: GLA 111-565 TAS A/C #145388 Credit Bank Routing Number: 021000018 Credit Account Name: North Carolina Housing Finance Agency Borrower Name: Borrower Loan #: WELLS FARGO 2 nd Liens Only Date: Bank Name: Wells Fargo Bank City/State: Raleigh, NC Bank Credit Account #: 2062690003453 Credit Bank Routing Number: 121000248 Credit Account Name: NC State Treasurer Bank Type: Checking Account REF: NCHFA General Account Stif 3 Borrower Name: Borrower Loan #: North Carolina Housing Finance Agency Page 16

2.9 Custodial Files Held By Bank of New York Mellon When a mortgage loan has been paid in full, the Servicer must immediately submit a request to Bank of New York Mellon to release the custodial loan file. The Servicer must ensure compliance with NC State Statute 45-36.9 to record a satisfaction with the appropriate Register of Deeds office within 30 days of receiving full payment. Bank of New York Mellon website to request the custodial file https://documentservices.bnymellon.com/webconnect/ 2.10 Penalties for Late Remittances and Reports The penalties are set forth in the servicing contract. 2.11 Examination of Servicer s Records The Servicer will permit representatives of NCHFA to examine during regular business hours the Servicer s records or accounts pertaining to the loan documents and to examine the Servicer s corporate records relating to its capacity and ability to perform its duties hereunder. The Servicer will lend its original records or shall furnish copies at its own expense. 2.12 1985 Series U/V and Future Bond Issues with the Same MBS Structure The Servicer must follow the custodial or trust account, prepayment and remittance requirements for the Fannie Mae and Ginnie Mae Certificates. North Carolina Housing Finance Agency Page 17

Section 3 Default Management 3.1 Written Procedures To ensure that its staff is knowledgeable in all aspects of mortgage loan collections and servicing, the Servicer must have fully documented written procedures in place and must also have measures to determine that those procedures have been implemented. The format may vary but the Servicer must address, based on loan type, FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI requirements with regard to all phases of servicing mortgage loans. For uninsured loans, follow NCHFA s Servicing Guide for matters regarding collections, foreclosure, bankruptcy and REO. For all loan types, follow NCHFA s Servicing Guide for handling Remittances. Servicer s procedures must include a foreclosure management review as part of their process to ensure all investor and insurer loss mitigation requirements were met. 3.2 Reporting Requirements NCHFA requires a monthly delinquency report which is to be received by the fifth (5 th ) business day of the month. The report should contain the following information: Servicer loan number NCHFA loan number Loan type Borrower name Property address Current principal balance Next payment due date Loan status (i.e., Repayment Plan, Special Forbearance Plan, Trial Modification, etc.) Plan successfully completed date Foreclosure scheduled sale date North Carolina Housing Finance Agency Page 18

NCHFA requires a quarterly Mortgage Insurance report which is to be received by the fifth (5 th ) business day of the month. The report should contain the following information: Servicer loan number NCHFA loan number Borrower name Loan Type Description ( Conv with PMI, Conv without PMI, etc) MI Payee Original principal Current principal balance Next payment due date MI Due Date MI Amount Due LTV% MI Cancel Date The report should provide a summary of each Loan Type Description and MI Payee then grouped based on the LTV being below or above 80%. The Servicer must comply with FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI requirements reporting requirements for delinquent loans. 3.3 HUD-Approved Housing Counseling Agencies In compliance with FHA regulations, mortgagees must notify all eligible delinquent borrowers of the availability of home ownership counseling provided by mortgagees or non-profit organizations approved by HUD. This provision applies to all mortgage loans on residential properties in the Servicer s portfolio, whether FHA, USDA, VA or Conventional. The list of HUD- Approved Housing Counseling Agencies for the State of North Carolina should be sent to all delinquent borrowers as soon as delinquent servicing begins. The list of North Carolina HUD approved counselors can be located on NCHFA website www.nchfa.com. North Carolina Housing Finance Agency Page 19

3.4 Delinquency Resolution Guidelines The Servicer should treat each mortgage loan as an individual case, based upon the Servicer s knowledge of the borrower, the location and type of property, and the extent of the delinquency. 3.4.1 Collection Procedures The Servicer must employ collection and foreclosure prevention strategies that are designed to meet the goal of bringing delinquent mortgage loans current in as short a time as possible. The Servicer must document all collection efforts in its permanent mortgage loan files. It is particularly important that the Servicer have procedures to immediately address a one payment delinquency to prevent it from becoming more serious. An early determination of the reason for the delinquency gives the Servicer and the borrower time to arrange an acceptable method for curing the delinquency. If an agreement cannot be reached, the Servicer must work with the borrower to determine the appropriate foreclosure prevention alternative. 3.4.1.A Inbound Call Coverage Servicers must have a written policy that is sufficient to address inbound call coverage for customer service, collection, and foreclosure prevention departments. The foreclosure prevention staff must be available during inbound and outbound collection activity unless collection staff is also well versed in foreclosure prevention workout options. Servicers are expected to respond to messages left by the borrower within one (1) business day. North Carolina Housing Finance Agency Page 20

3.4.1.B Outbound Call Attempts Phone calls are inexpensive and are highly effective when used properly. NCHFA suggests that they be used as the principal form of contact with a delinquent borrower in order to effectuate payment on a delinquent or defaulted account or to solicit foreclosure prevention alternatives. When talking to the borrower, the Servicer must emphasize the importance of making payments on or prior to their due dates. If the borrower is in a position to bring the account current, the Servicer must make arrangements to collect payments on a certain date. If the borrower is not in a position to bring the account current, the Servicer must discuss the types of foreclosure prevention alternatives that are available. Specifically, a Servicer must vary the days of the week and time of day of calls to an individual borrower to effectuate adequate outreach. Servicers should follow established guidelines below: Beginning on the 16 th day of delinquency and ongoing through the foreclosure sale, continue calling and when possible, email attempts until: Both a right party contact has been made and a promise to pay or payment is received A reasonable resolution has been negotiated, subject to the requirements of the Servicer Guide and applicable laws Case is removed from the calling queue due to justifiable reasons based on a response from the borrower Contact is established with a minimum of 2 calls per week Servicer is responsible to conduct solicitation and workout follow up along the following guidelines: When any foreclosure prevention solicitation is required, the Servicer must attempt no fewer than 3 phone calls to the borrowers within 5 15 days of sending a solicitation mailing and no response On day 15, follow up correspondence from the Servicer must be sent to attempt right party contact for the intent of qualifying the borrower for a foreclosure prevention solution. Following this, the Servicer is then required to attempt no fewer than 3 phone calls between the 15 th and 30 th day after the initial solicitation North Carolina Housing Finance Agency Page 21

During foreclosure prevention review process, the Servicer must continue to contact the borrower to follow up on either missing information or provide a status update weekly during the foreclosure prevention review process. After an offer has been sent to the borrower, the Servicer must follow up with the borrower with a minimum of 2 calls per week and, if necessary, a reminder letter after the offer has been sent, until either the required payment and/or other documentation has been received. If there is no response after the expiration of the offer or any other imposed deadline, the Servicer should document calls made, letters sent and then move forward with other foreclosure alternatives. In situations where an alternative has been approved and payments have not been made in accordance with the agreement, the Servicer must contact the borrower 3 5 business days after payment due date. 3.4.1.C Delinquency Letters In the early stages of delinquency, a Servicer must contact the borrower to determine their commitment and capacity to cure the delinquency. In order to better evaluate whether some special relief or foreclosure prevention alternative is appropriate, a Servicer must send a foreclosure prevention solicitation letter to the borrower between the 35 th and 45 th day of delinquency. Elements of the letter should include available foreclosure prevention alternatives pertaining to the particular loan type. Servicer may determine the content and format of its solicitation letter, as long as the letter includes the following key points: A statement that the borrower is in default under the terms of the mortgage loan, acknowledging they may be experiencing temporary or permanent financial problems that led to the default An expression of concern indicating that the Servicer wants to work with the borrower to find a mutually agreeable way to resolve the delinquency and avoid foreclosure A summary of the other options that may be available to help the borrower cure the delinquency, with emphasis on how these options can be tailored to fit the borrowers individual circumstances (whether they are permanent or temporary in nature) and a caution that not all of the options are available to everyone. This summary can be a part of the letter or a separate brochure, pamphlet, flyer, etc. North Carolina Housing Finance Agency Page 22

A request for basic information about the borrower s circumstances (including preliminary financial information) to help the Servicer determine which options appear to be most appropriate for the borrower. The type of information needed may be listed in the letter or included in any summary of the Servicer s foreclosure prevention options A toll-free telephone number the borrower can call to discuss their situation or obtain more information about the types of relief or foreclosure prevention alternatives that are available A reminder that the borrower is obligated to make all future payments as they become due even while the Servicer is evaluating the types of assistance that may be available, plus a caution that the Servicer cannot guarantee the borrower will receive any (or particular type of) assistance Appropriate disclosure language related to the Servicer s role as a debt collector is required 3.4.1.D. Late Notices There are two types of late notices that may be used a payment reminder notice and a first foreclosure prevention solicitation. For most first-lien mortgage loans, the Servicer must send the borrower a payment reminder notice for any payment that has not been received by the 16 th day after it is due. This notice must address the borrower, state a desire to work with the borrower to preserve homeownership, and state the amount of late charges that are due. 3.4.1.E. Application of Mortgage Payments and Assessment of Fees Full mortgage payments consist of principal and interest payable on the Note, along with the escrow amount The Servicer must apply in the following order, in accordance with the amortization schedule, all payments received for each NCHFA mortgage loan first to interest, then to principal, then to escrow and finally to any late charges/fees due North Carolina Housing Finance Agency Page 23

All partial payments must be handled in accordance with FHA, USDA, VA, Fannie Mae, Ginnie Mae, MI requirements and applicable state laws. For uninsured delinquent loans where an agreement has been made, funds should be applied to Unapplied Funds until sufficient funds to make full payments are received. On delinquent loans where contact has not been made, acceptance of partial payments should be analyzed. Consideration should be given to returning the funds to the borrower with a letter advising the reason and providing the total amount due The Servicer must maintain accurate records of all mortgage payments, expenditures for taxes, assessments, mortgage insurance premiums and hazard insurance premiums The Servicer must comply with the State of North Carolina H.B. 45-91 assessment of fees, processing of payments and publication of statements. The Servicer is required to credit mortgage payments within one (1) business day of receipt. The Servicer must notify the borrower within 10 days of any payments not being credited to their account. The Servicer must send the borrower a statement regarding the fee assessment within 30 days and assess fees to the borrower s account within 45 days of being incurred The Servicer assumes full responsibility for administering the borrower s escrow account. The monthly deposits required to ensure funds will be available to pay escrow items as they come due are to be estimated by the Servicer. 3.5 Breach Letter The Breach Letter should be sent to the current owner(s) of the property who signed the Note and Deed of Trust between the 42 nd and 75 th day of delinquency depending on loan type. If the original loan has been assumed and release of liability has not been obtained, copies of the Breach Letter should go to each borrower who signed the Note and Deed of Trust and to the person(s) who assumed the loan. If the original borrower s address is unknown, attempted notification can be accomplished by mailing to the property address. In a divorce situation where one spouse has deeded their interest to the other spouse, the Breach Letter should be sent to each spouse if both signed the Note and Deed of Trust. This, of course, assumes there was no release of liability. The Breach Letter should clearly explain the following: North Carolina Housing Finance Agency Page 24

The exact nature of the breach (for example, a default in payment) What action is required to cure the breach The date by which breach must be cured Approximate date foreclosure will begin if breach is not cured by specified date The Breach Letter must comply with Federal and State regulations and FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI regulations, if applicable. All FHA, NCHFA, USDA, VA, and MI requirements must be followed to protect insurance/guaranty. 3.6 45-Day Letter The Servicer must give a borrower at least 45 days notice prior to initiating a foreclosure proceeding per HB 45-102. In addition to informing the borrower of the Servicer s intention to foreclose, the notice must also inform the borrower of the following: Itemization of past due amounts causing the loan to be in default and any other charges that must be paid in order to bring the loan current A statement that the borrower may have options available other than foreclosure The borrower may discuss the available options with the mortgage lender, the mortgage Servicer or a counselor approved by HUD The Servicer must provide the address, telephone number and contact information for the Servicer The Servicer must provide the address, telephone number and contact information for one or more HUD approved counseling agencies located in North Carolina The Servicer must provide the address, telephone number and contact information for the State Home Foreclosure Prevention Project (SHFPP) of the North Carolina Housing Finance Agency. Homeowners can contact the State Foreclosure Prevention Project at 1-888-442-8188 NC Housing Finance Agency State Home Foreclosure Prevention Project 3508 Bush Street Raleigh NC 27609-7509 www.ncforeclosureprevention.gov North Carolina Housing Finance Agency Page 25

The Servicer must register the loan with Office of the Administrator of Courts through the SHFPP database within 3 days of mailing the 45 day letter. 3.7 Acceleration 3.7.1 Chronic Default When a mortgage is chronically delinquent and the Servicer has exhausted all reasonable efforts and/or the terms of the FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI requirements have been met, the Servicer should recommend acceleration in accordance with the terms of the Deed of Trust. 3.7.2 Abandonment of Property In all cases when the property has been abandoned, whether the loan is in default or not, the Servicer should immediately comply with the requirements of FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI requirements. Notice of Intent to Foreclose should be submitted to the appropriate insurer or guarantor. In all cases, the Servicer should attempt to locate the borrower and ascertain the reasons for abandonment. The Servicer should take proper action as is necessary for the protection of the mortgaged property to avoid waste, damage and vandalism. It is the responsibility of the Servicer to maintain adequate Mortgagee-Interest-Only Insurance coverage on vacant and abandoned properties. 3.7.3 Non-Monetary Default The Servicer must immediately inform NCHFA, in writing, whenever it suspects, knows, or becomes aware of mortgage fraud, improper assumption (including unauthorized transfer of deed) or violation of the terms of the mortgage. The Servicer must give the individual case specifics and request advisement from NCHFA. Upon NCHFA s positive determination of borrower non-monetary default and upon written instructions to the Servicer, the Servicer will institute foreclosure proceedings. NCHFA must be informed immediately in the event a borrower initiates legal proceedings in connection with a foreclosure or other servicing related matter. North Carolina Housing Finance Agency Page 26

3.8 Delinquency Guidelines on New Borrowers Particular attention should be paid to the promptness with which payments are received from new borrowers. The Servicer must impress upon the borrower the need to make all payments promptly on or before the due date. The reasons for delinquency by a new borrower vary and may include a borrower s misunderstanding of payment requirements. The Servicer should make personal contact with a new borrower on the 15 th day of delinquency to determine the reason for default. 3.9 Foreclosure Prevention Alternatives As permitted by FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI, the Servicer may make provisions for several foreclosure prevention alternatives to cure delinquencies. Foreclosure alternatives should not be granted unless there is a reasonable expectation that it will restore the mortgage to a current status. Efforts should be made to obtain financial information, to fully explain the nature of the alternative and the borrower s responsibility under the alternative being proposed, to determine the borrower s sincerity regarding the curing of the delinquency, and to obtain the borrower s signature on any formal agreement. In such cases, the Servicer should ensure that the borrower has a complete understanding of the arrangements and the consequences of not meeting the arrangement. It is the responsibility of the Servicer to be familiar with the requirements of FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI relative to the granting of a foreclosure alternative to qualifying borrowers. Servicers should also be aware of other available assistance resources, such as governmental or private bodies that may provide assistance to borrowers. NCHFA is generally willing to accept any agreement for temporary indulgence, liquidating plan, etc., that the Servicer recommends and that does not jeopardize the priority of the NCHFA lien by reason of the rights of any subordinate lien holder and provided that there is no reduction in the amount of any claim against the insurer or guarantor in the event of foreclosure. 3.10 Partial Payments At all times the Servicer must comply with FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI guidelines pertaining to accepting partial payments. For uninsured loans, the following steps should be taken: North Carolina Housing Finance Agency Page 27

When a partial payment (i.e., payment that is less than the total amount due) is received, the Servicer shall immediately contact the borrower to determine why the full amount was not sent If, in the Servicer s opinion, the borrower has proper regard for the mortgage obligation and is conscientiously trying to meet that obligation, partial payments should be accepted. However, this is subject to the limitation further explained in this section. Such payments will be held as unapplied funds until a full monthly installment of principal, interest and escrow is available for application, provided that the remaining amount owed is expected to be paid in the immediate future based on conversations with the borrower However, should the borrower indicate that the full payment cannot be paid during that time; the Servicer should evaluate the circumstances and determine whether some foreclosure prevention alternative might be used to bring the borrower s account current. The Servicer is not permitted to accept partial payments on a continuing basis, unless formal alternatives are granted. Acceptance of such payments should be judiciously exercised only when it appears that such action will assist in curing a delinquency. Servicers are not expected to accept partial payments from borrowers who are habitual delinquents or who have a history of remitting NSF checks. In these situations, the partial payments should be returned to the borrower with a letter of explanation within applicable state law regarding returning payments. 3.10.1 Military Indulgence When the borrower is in military service, they may be entitled to benefits under the Service Members Civil Relief Act, as amended. The Servicer should be familiar with, and act in accordance with, the requirements of the Act and other pertinent requirements. NCHFA must be notified immediately of any changes to the interest rate as the result of the requirements under SCRA. The Servicer should attempt to contact the service member annually during the period of active military service to confirm active duty status. Once the service member s active duty period ends, the Servicer will need to notify NCHFA to change its records to reflect the original mortgage interest rate. 3.10.2 Temporary Indulgence Temporary indulgence, also known as leniency or informal forbearance, is a thirty (30) day period of leniency, which occurs after the 30 th day and prior to the 120 th day of North Carolina Housing Finance Agency Page 28

delinquency. This period allows a borrower additional time to cure a delinquency, either through full reinstatement or satisfaction of the mortgage, or by making formal arrangements to liquidate the delinquency through indulgence when it is anticipated that such action will culminate in payment of the total arrearage in a short period of time. Some instances where temporary indulgence should be considered are the following: Pending sale or assumption Insurance settlement being negotiated Assistance through a social agency is forthcoming Additional time is needed to formalize a written agreement 3.11 Special Forbearance At all times the Servicer must comply with FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI guidelines pertaining to accepting Special Forbearance. Under Special Forbearance, the Servicer can agree to reduce or suspend the borrower s monthly payments for a specified period. After that, the borrower must agree to resume their regular monthly payments and to pay additional money toward the delinquency at scheduled intervals. Special forbearance should be considered when the default is the result of the following: The borrower s death or the death of a member who made a significant contribution towards the monthly payment Illness or some natural disaster that the borrower was not insured against A substantial reduction in income that the borrower could not prevent Some other unusual circumstance that warrants the use of a relief provision and is well documented Special Forbearance Agreements must always be in writing and signed by the borrower. The Agreement should clearly set out the period of reduced or suspended payments, the schedule for making additional payments when the borrower resumes regular monthly payments, and the date on which the forbearance will end. The agreement should clearly state the consequences if the borrower fails to make the agreed monthly payment. For uninsured loans, approval must be obtained from NCHFA if the term of Special Forbearance will exceed 12 months. Servicer must have procedures in place to maintain follow up on payments not received. North Carolina Housing Finance Agency Page 29

3.12 Informal Forbearance Plan Under an Informal Forbearance Plan, the borrower must immediately make payments in addition to regular monthly payments to cure the delinquency. Servicers should consider a Repayment Plan when the delinquency resulted from a temporary hardship that no longer appears to be a problem. When the delinquency involves fewer than three (3) monthly payments, forbearance plans may be verbal agreements however, the Servicer must document the agreement in its servicing system. Formal written agreements are required if the delinquency is greater than three months. Each agreement should clearly state the amount and due date of each additional payment, and the date by which the total delinquency must be cured. The agreement should clearly state the consequences if the borrower fails to make the agreed monthly payment. Informal Forbearance Plans may require the following: Monthly payments that are multiples of the regular installment Regular monthly payments one month and multiple payments the next Payments to be made more often than monthly Any other variation in the timing or amount of the payment that will cure the delinquency in the shortest possible time Formal Repayment Plan At all times the Servicer must comply with FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI guidelines pertaining to accepting a formal repayment plan. A Repayment Plan should include the regular monthly payment plus additional amounts that will bring the loan current within 18 months. The Servicer should consider a Repayment Plan when the delinquency resulted from a temporary hardship that no longer appears to be a problem. The agreement must be signed by the borrower, returned and placed with the permanent mortgage file. North Carolina Housing Finance Agency Page 30

3.13 Modification (Recasting, Extending or Re-amortizing) A modification of the terms of the mortgage for any loan may be recommended by the Servicer, when in its estimation, a change in the terms of the loan presents the best means of recovering fully the maximum principal and interest. This means of solving the delinquency should be used in rare cases and prior approval by NCHFA is not required as long as the following terms are met: The Servicer must confirm the property is owner occupied. Non-owner occupancy is a non-monetary default and therefore not eligible for loss mitigation alternatives Title search reveals no judgments Capitalized principal balance cannot exceed the original principal balance by more than $3,000 (this requirement may change based upon the economy) Terms can only be extended back out to 30 years Interest rate must remain at the original Note rate The original unrecorded document should be submitted to NCHFA who will forward the original document to the Custodian. A copy will be retained by NCHFA, a copy should be retained by the Servicer and a copy should be supplied to the borrower. The Servicer must satisfy all requirements of the FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI. Once the modification has been executed, the Servicer must send the original unrecorded document to NCHFA along with a request to be reimbursed the escrow advance portion. This reimbursement request should on the Servicer s letterhead and shall be taken from the month end remittance funds. The request should contain the following information: Servicer loan number NCHFA loan number Loan type Borrower name Property address Total amount of escrow advance and include a breakdown of the shortage The Servicer shall comply with Fannie Mae and USDA modification requirements for the Fannie Mae Certificates and the FHA, VA, Ginnie Mae requirements for the Ginnie Mae Certificates. North Carolina Housing Finance Agency Page 31

3.14 FHA HAMP FHA has approved a variance allowing NCHFA to participate in the FHA HAMP without adjusting the interest rate or extending the terms beyond the original 30 years. The loan must be qualified for FHA HAMP without utilizing these two elements of the qualification process. 3.15 Treasury HAMP NCHFA does not participate in Treasury HAMP. 3.16 USDA HAMP NCHFA does not participate in USDA HAMP. 3.17 VA HAMP NCHFA loans cannot be modified as required under the VA HAMP; however the Servicer must evaluate the loans for VA HAMP using the methods outlined in their guide. If the loan is found eligible for VA HAMP, the Servicer should submit the evaluation results to the VA through VALERI and request for the loan to be refunded to allow the HAMP modification to be finalized. If the loan is not eligible for the VA HAMP program or if the loan is found potentially eligible but VA declines to refund the loan, the Servicer should deny the VA HAMP request. 3.18 Face-to-Face Interviews While we encourage face-to-face interviews to ensure maximum opportunity to reach an alternative to foreclosure, NCHFA does not require face-to-face interviews. For FHA and Fannie Mae insured loans please refer to the FHA and Fannie Mae guidelines. The Servicer must apply these collection procedures for servicing all loans in this series with Fannie Mae and Ginnie Mae Certificates. North Carolina Housing Finance Agency Page 32

3.19 Reporting Delinquencies to Credit Bureaus Each month Servicers must report accounts delinquent by thirty (30) days or more to the three major credit repositories. Once a delinquent mortgage has been reported to the credit bureaus, the Servicer must update the information monthly or when a significant change of circumstances occurs. Servicer s must also report the acceptance of a Deed-in-Lieu of foreclosure, a completed short sale and the completion of foreclosure proceedings. The Servicer is responsible for the complete and accurate reporting of mortgage loans status information to the repositories and for resolving any disputes that arise from the information it reports. A Servicer must respond promptly to any inquiries from borrowers regarding the specific mortgage loan status information reported to the credit repositories. Servicers must comply with all applicable provisions of the Fair Credit Reporting Act, including those provisions addressing obligations with respect to disputed or inaccurate information. 3.20 Property Inspections The Servicer must comply with FHA, USDA, VA, Fannie Mae, Ginnie Mae, and MI guidelines pertaining to performing property inspections. For uninsured loans, the property must be initially inspected between the 45 th and 60 th day of delinquency and continued monthly until loan is current or the property has been sold or conveyed. A property inspection is not required if the Servicer verifies with the borrower that the home is owner-occupied. This verification needs to be performed each month the loan remains delinquent. 3.21 Occupancy In the event a Servicer has reason to suspect the property is not owner occupied (e.g. mailing address is different from the property address), the Servicer must confirm the occupancy status of the property. In cases where the borrower is not occupying the property, the Servicer must remind the borrower of the stipulation in the loan documents requiring the property be owneroccupied. The borrower may choose one of the following options to resolve the occupancy issue: Reoccupy the property Refinance the loan List the property for sale with a realtor Request permission from NCHFA to temporarily suspend the occupancy requirement North Carolina Housing Finance Agency Page 33

If the borrower has a valid reason for not occupying the property, or they need time to be in a position to eventually reoccupy the property, the Servicer must present the circumstances to NCHFA for advisement. At its discretion, NCHFA can grant temporary immunity to allow the borrower sufficient time to resolve the issue. 3.22 Foreclosure Recommendation Collection staff must evaluate accounts to make a recommendation to management to foreclose after expiration of both the 45 Day Letter and Notice of Intent to Accelerate. The Agency reserves the right to review all foreclosure requests if deemed necessary prior to the file being referred to the foreclosure attorney. Prior to approving the loan for foreclosure, the Servicer must ensure they have checked the appropriate military website ensuring the borrower(s) are not active military. If the borrower(s) are active military, the Servicer must follow HB 45-21.12A The Servicer must submit a request to Bank of New York Mellon to release the original loan documents (custodial file) at the time the loan has been approved for foreclosure. If the foreclosure action is cancelled, custodial file will need to be returned to Bank of New York Mellon. Request custodian loan files: https://documentservices.bnymellon.com/webconnect/ Return custodial loan files: Bank of New York Mellon 2220 Chemsearch Blvd., #150 Irving, Texas 75062 3.23 1985 Series U/V and Future Bond Issues with the Same MBS Structure The Servicer must follow the collection procedures regarding late payments, returned checks, and application of payments for each Conventional and USDA loan for the Fannie Mae Certificates. North Carolina Housing Finance Agency Page 34

The Servicer must follow the collection procedures regarding late payments, returned checks, and application of payments for each FHA and VA loan for the Ginnie Mae Certificates. 3.24 Breach of Servicing Agreement If an event occurs in the servicing of a loan which constitutes breach of the Servicing Agreement, and North Carolina Housing Finance Agency chooses Servicer repurchase of the loan as an election of remedy, the repurchase demand must also extend to any subordinate loan originated by the Agency. Upon written notice by the Agency, the Servicer shall repurchase any Mortgage Loan for the sum of the unpaid principal balance plus accrued interest on the Note. If the repurchase request extends to a subordinate loan, it will only be for the sum of the unpaid principal balance Any such repurchase by the Servicer shall take place on such date as the Agency specifies in its notice to the Servicer of the occurrence of one or more of the foregoing events, which date shall be not less than ten (10) days from the date of such notice. Upon repurchase, the Agency shall reassign to the Servicer its interest in such Mortgage Loan, including the related Loan Documents and hazard and flood and title insurance policies. North Carolina Housing Finance Agency Page 35

Section 4 Foreclosure Management When a borrower shows disregard for the mortgage loan obligation or is unable to make the mortgage payments, the Servicer must protect NCHFA s investment by taking prudent action. The Servicer must make every reasonable effort to offer the borrower all available foreclosure prevention alternatives before referring a mortgage loan to a foreclosure attorney. The Servicer must also inspect the property and analyze the individual circumstances of the delinquency prior to a referral. The Servicer must process foreclosures, conveyances and claims in accordance with provisions of the mortgage loan, state law, and the requirements of FHA, NCHFA, USDA, VA, Fannie Mae, Ginnie Mae, and MI. Therefore, the Servicer must have appropriate policies, procedures and controls to ensure compliance with NCHFA s requirements. 4.1 Foreclose In The Name of North Carolina Housing Finance Agency In all circumstances, the Servicer should initiate legal proceedings in NCHFA s name. At no time should the Servicer initiate foreclosure in the name of the original lender or MERS. The Servicer may not initiate or defend non-routine litigation on NCHFA s behalf unless it obtains prior written consent. One example of a non-routine legal action is a case in which the Servicer s legal counsel wants to pursue a judicial foreclosure in order to clear technical defects even though the security property is located in a state in which the usual method of foreclosure is by non-judicial foreclosure. 4.2 Initiation of Foreclosure Proceedings Every effort to reinstate a delinquent loan should be exhausted prior to initiating a foreclosure action. The decision to foreclose should be made after a complete review of the individual circumstances surrounding the default. Generally, foreclosure proceedings must begin upon North Carolina Housing Finance Agency Page 36

expiration of the breach letter (Notice of Intent) and any other required notices mandated by state law. The Servicer is responsible for initiating and processing foreclosures in accordance with the Note and Deed of Trust, Federal and State regulations, FHA, NCHFA, USDA, VA and MI guidelines. The Servicer shall closely monitor the foreclosure process ensuring timelines are met. If the property has been abandoned or vacated by the borrower, and it is determined that the borrower does not intend to make the mortgage payments, and the borrower is not eligible for relief from foreclosure under the Service Members Civil Relief Act (or any state law that similarly restricts the right to foreclose), the Servicer must expedite foreclosure proceedings to the greatest extent allowable under applicable law without exploring all foreclosure prevention options. In addition, the Servicer must expedite foreclosure proceedings for any mortgage loan if the borrower was advised in writing of available foreclosure prevention options and their response indicated a lack of interest in the mortgage loan obligation. The Servicer shall comply with Fannie Mae, USDA, and MI insurer loan liquidation requirements for the Fannie Mae Certificates. The Servicer shall comply with FHA, VA and Ginnie Mae loan liquidation requirements for the Ginnie Mae Certificates. 4.3 Effects of Service Member Civil Relief Act The Housing and Economic Recovery Act of 2008 made both temporary and permanent changes to the Service Member s Civil Relief Act. Effective January 1, 2011, Servicers are required to limit the granting of the stay of foreclosure or other legal proceedings to a maximum of 90 days after termination of active duty, unless otherwise required by governing law at the time. 4.4 Effect of Environmental Hazards The Servicer should not begin foreclosure proceedings for any mortgage loan if it becomes aware of environmental hazards (e.g., lead-based paint) that affect the security property. Instead, the Servicer must refer these types of situations to NCHFA. After NCHFA analyzes the information, instructions will be issued to the Servicer. North Carolina Housing Finance Agency Page 37

4.5 FHA Mortgage Loans The Servicer of an FHA-insured mortgage loan must send information to the borrower regarding various alternatives HUD offers for resolving mortgage loan delinquencies before it can pursue foreclosure proceedings. If the borrower does not pursue HUD s foreclosure prevention alternatives (or is not eligible for them), the Servicer must refer the mortgage loan to an attorney to begin foreclosure proceedings after the expiration of the breach letter (Notice of Intent) and any other required notices mandated by state law. The Servicer must ensure the foreclosure attorney has initiated foreclosure proceedings for an FHA-insured mortgage loan within 6 months from the date of the mortgage loan default, or within such other time period approved or authorized by HUD (bankruptcy relief or default on loss mitigation alternative). 4.6 Conventional and Rural Development Loans Foreclosure proceedings must begin upon expiration of the breach letter (Notice of Intent) and any other required notices mandated by state law. The Servicer must expedite foreclosure proceedings to the greatest extent allowable under applicable law if the borrower is not eligible for foreclosure prevention alternatives. The foreclosure can be postponed to facilitate foreclosure prevention alternatives if the Servicer determines the borrower qualifies for relief provisions and the insurer concurs. 4.7 VA Mortgage Loans The Servicer of a VA-guaranteed mortgage loan must send all notices that VA requires to notify the borrower of his/her breach of the terms of the mortgage loan. VA requires Servicers to submit a Notice of Default and Notice of Intent to Foreclose to the VA office prior to initiating foreclosure. Servicers must proceed with foreclosure upon the expiration of the breach letter (Notice of Intent), the VA Notice of Intent to Foreclose, and any other required notices mandated by state law. 4.8 Reinstatements The Servicer can accept full reinstatement without approval from NCHFA at any time prior to the foreclosure sale. The Servicer can also accept a borrower s proposal for a partial reinstatement if it believes the borrower is acting in good faith and review of a financial statement supports the conclusion that the borrower can bring the loan current within a reasonable length of time. North Carolina Housing Finance Agency Page 38

The Servicer must require the proposed plan be submitted in writing so that a more formal repayment plan can be drafted. Foreclosure proceedings should not be dismissed until initial funds and the executed plan have been received. The repayment plan must clearly state that foreclosure action will resume if the borrower does not meet the agreed-upon terms. 4.9 Attorney Fees The Servicer is expected to ensure the foreclosure attorney s fees do not exceed limits allowed by FHA, NCHFA, USDA, VA and MI guidelines. If circumstances require the expenditure of fees in excess of the allowed minimum, the Servicer must seek approval from FHA, NCHFA, USDA, VA and MI Companies. NCHFA will not reimburse a Servicer for any fees not authorized by the insurer. 4.10 Servicer Interest Penalty The Servicer is responsible for reimbursement of any losses incurred which are the direct result of not following established procedures set forth by FHA, NCHFA, USDA, VA and MI. This includes actions of the attorney selected by the Servicer. 4.11 Foreclosure Monitoring The Servicer shall incorporate a thorough and effective system for monitoring foreclosure progress in its internal procedures. The system should ensure that each step of a foreclosure case is completed within a reasonable period of time and is in accordance with FHA, NCHFA, USDA, VA and MI regulations. The Servicer should maintain well documented records on each case, including notations of verbal conversations with the foreclosure attorney, mortgagor, NCHFA, FHA, USDA, VA and MI Company. The Servicer should have the ability to identify the status of each case at any given time. 4.12 Servicer-Initiated Temporary Suspension of Proceedings When a delinquent mortgage loan is referred to a foreclosure attorney, the Servicer must continue working with the borrower in order to bring a mortgage loan current, develop a workout plan or finalize some other foreclosure prevention alternative unless the Servicer has determined a workout plan or foreclosure prevention alternative is not feasible. The Servicer North Carolina Housing Finance Agency Page 39

must continue to pursue these efforts up until 48 hours prior to the foreclosure sale; it should not notify the attorney to place on hold or suspend the foreclosure proceedings unless it has actually received funds to fully reinstate the mortgage loan or has agreed to a delinquency workout arrangement with the borrower. These workout arrangements should not be made until the borrower s financial package has been received and analyzed. The Servicer must keep the attorney advised of the status of relevant negotiations for repayment plans and must consult with the attorney before actually entering into a written workout agreement to ensure that the foreclosure proceedings will not be impaired in the event they must resume. 4.13 Bidding Instructions The Servicer should comply with FHA, NCHFA, USDA, VA and MI regulations when issuing bidding instructions to the attorney. If the loan is uninsured, the Servicer should enter a bid consisting of the total indebtedness plus all incurred legal fees and costs. 4.14 Deficiency Judgments Servicer should not pursue deficiency judgments unless specifically instructed by FHA, USDA, VA and MI Companies. 4.15 Property Maintenance and Management Throughout the foreclosure process, the Servicer is responsible for performing all property maintenance functions to ensure that the condition and appearance of the property are maintained satisfactorily. Once the foreclosure is approved, the Servicer must make an inspection of the property every thirty (30) days until the loan has been foreclosed. This includes securing the property, mowing the grass, removing trash and other debris that violates applicable laws or poses a health or safety hazard, winterizing the property, etc. The Servicer must manage the property until it is conveyed or sold as a REO. The Servicer must take whatever action is necessary to protect the value of the property based on FHA, NCHFA, USDA, VA and MI regulations. This includes making sure that no apparent violations of applicable law are occurring on the property (such as violation of laws relating to illegal narcotics and similar substances) and that the property is protected against vandals and the elements. North Carolina Housing Finance Agency Page 40

If the property has been reported as being vacant, it must be secured by performing the following tasks: Changing exterior locks Securing all windows and exterior doors Removing hazardous materials Repairing fences and otherwise securing potentially dangerous areas and facilities (such as swimming pools) against entry or use by children or others who could be harmed Ensure proper fire insurance coverage is maintained Winterization Note: The Servicer must not remove any personal property prior to confirmation of the foreclosure sale. The Servicer must follow the Fannie Mae, USDA and MI insurer property management requirements regarding the conventional and USDA loans for the Fannie Mae Certificates. The Servicer must follow the FHA, Ginnie Mae, and VA management requirements for the Ginnie Mae Certificates. 4.16 Eviction Proceedings Immediately following confirmation of the foreclosure sale, the Servicer should determine the occupancy status of the property. For HUD and VA insured loans, the Servicer will follow the established guidelines. For Conventional and USDA loans, the Servicer will follow the established NCHFA REO Guidelines. If the property is tenant-occupied, the Servicer should follow the established guidelines regarding Tenant Occupied Properties. 4.17 Hazard Insurance Policies The Servicer is required to (a) cancel the insurance coverage after determining there is no claimable damage and consider the refund in preparing the claim and (b) obtain force placed insurance per Fannie Mae coverage requirements in order to protect the interest of the investor. The Servicer shall take no action or fail to take any action which will have the effect of North Carolina Housing Finance Agency Page 41

reducing or otherwise impairing the coverage provided by the mortgage insurer. Any refund received after the claim has been finalized should be remitted to NCHFA. 4.18 Credit Bureau Reporting Each month, the Servicer must notify the three major credit repositories about any foreclosures that were completed (or any Deed-in-Lieu of Foreclosures that were accepted) during the previous month. 4.19 Deed-in-Lieu of Foreclosure A Deed-in-Lieu (DIL) of foreclosure must never be a substitute for sound servicing practices. If the default was caused by circumstances beyond the borrower s control, and all reasonable efforts have been made to cure the delinquency, the Servicer should explore the feasibility of a voluntary deed. Prior to pursuing a DIL, the borrower must market the property at fair market value by a real estate agent for three months (or timeframe established by the insurer). The Servicer must analyze whether acceptance of a DIL of foreclosure is in the best interest of NCHFA prior to its recommendation. At a minimum the Servicer must complete the following: Determine owner occupancy and condition of the mortgaged premises Obtain approval from FHA, NCHFA, USDA, VA and MI Company to guarantee mortgage insurance will cover losses as a result of the DIL. The Servicer must also comply with HUD s requirements regarding pre-screening mortgagor s eligibility for DIL Obtain and review a complete financial package from the borrower, Have the mortgaged premises appraised and results reported to the applicable insurer and NCHFA Complete a title search to confirm clear title Analyze the marketability of the mortgaged premises The Servicer should not recommend acceptance of a DIL unless the following are true: All other workout options have been exhausted A written request has been received from the borrower The current appraisal confirms the absence of equity which could be recovered through the borrower s sale of the mortgaged premises North Carolina Housing Finance Agency Page 42

The title search confirms no other liens exist. In the event liens are discovered, the Servicer should analyze whether they should proceed with foreclosure or negotiate a reduced payoff. The Servicer must obtain NCHFA s approval before making payment to any other lien holder Cash consideration will not be paid to the mortgagor for voluntary conveyance of the mortgaged property Upon receiving NCHFA written approval, the Servicer must arrange for timely and efficient conveyance of the mortgaged premises. The Servicer or its counsel must complete the following: Prepare all documents necessary to process the DIL and convey title Obtain from the borrower an executed estoppels affidavit in the form commonly required by private institutional mortgage investors and acceptable to title insurers Obtain written acknowledgement from the borrower that the property will be vacated within 10 days of acceptance of a DIL Comply with the requirements for reporting a property acquisition to credit bureaus and the Internal Revenue Service Convey the property to HUD or VA If the loan is USDA or Conventional See REO Procedures File all appropriate claims The Servicer must follow the Fannie Mae and USDA DIL requirements regarding the conventional and USDA loans for the Fannie Mae Certificates. The Servicer must follow the FHA, Ginnie Mae, and VA DIL requirements for the Ginnie Mae Certificates. 4.20 Reporting to NCHFA During and After Foreclosure The Servicer is responsible for processing the foreclosure in accordance with the provisions and deadlines of the Note, Deed of Trust, FHA, NCHFA, USDA, VA, and MI Company. The Servicer shall provide a report monthly containing the following information: Loan type Foreclosure sales scheduled North Carolina Housing Finance Agency Page 43

Foreclosure sales held Foreclosure sale confirmed Foreclosure Bid Amount Occupancy status of each property This report should be provided to NCHFA by the 5 th business day of each reporting month. 4.21 Claims Settled without Acceptance of the Property If FHA or VA will not accept conveyance of the property due to mortgagee neglect, NCHFA expects the Servicer to repurchase the property. For all other insured properties, including a VA No-Bid, the Servicer should follow established REO (Real Estate Owned property) procedures. 4.22 Property Conveyance Government The Servicer must ensure the title is transferred in a timely manner after confirmation of the foreclosure sale, in accordance with FHA and VA guidelines. Conventional Loans MI companies have the option to purchase Conventional loans from NCHFA after the claim has been filed. If MI companies do not choose this option, the Servicer must then follow the established REO procedures. 4.23 Compliance with Internal Revenue Service (Form 1099-A) Servicers are responsible for completing the Acquisition or Abandonment of Secured Property (IRS Form 1099-A), and filing the information with the IRS by the required dates. 4.24 Compliance with MERS (Mortgage Electronic Registration System) Servicers should follow MERS compliance procedures to report a completed foreclosure. North Carolina Housing Finance Agency Page 44

4.25 1985 Series U/V and Future Bond Issues with Same MBS Structure The Servicer must follow the foreclosure procedures as outlined for each Conventional and USDA loan for the Fannie Mae Certificates. The Servicer must follow the foreclosure procedures as outlined for each FHA and VA loan for the Ginnie Mae Certificates. North Carolina Housing Finance Agency Page 45

Section 5 Bankruptcy Management 5.1 Written Procedures The Servicer must have written procedures to control and monitor bankruptcy proceedings effectively. Procedures must include, but not be limited to, the following items: Proactively monitoring bankruptcy filings in order to identify bankruptcies at the time borrowers actually file them. Establishing a case status and portfolio performance tracking system to permit the proper reporting and analysis of activity for individual cases and monitoring the Servicer s overall bankruptcy management process. Maintaining an individual case file for each mortgage loan that is involved in bankruptcy proceedings. Establishing a procedure to ensure all appropriate stops are placed on the loan to prevent the assessment of late charges on Chapter 13 bankruptcy filings and the mailing of delinquent payment notifications. Referring the case to the bankruptcy attorney promptly. Filing a Proof of Claim, the circumstances under which it is required, how to prepare it, time frame for filing, etc. Reviewing proposed payment plans and analyzing the results of the bankruptcy attorney s negotiations to determine if they represent adequate bankruptcy resolution provisions. Pursuing legal action to obtain early dismissal of the case, stay relief, plan objections, or other relevant proceedings if negotiations have failed. Determining when the prerequisites for filing motion for bankruptcy relief have been met. North Carolina Housing Finance Agency Page 46

Establishing and maintaining a legal events record to define the status of a case throughout the bankruptcy proceedings and identifying when conditions for additional legal proceedings have been met. Establishing procedures to ensure that the bankruptcy court and the Chapter 13 bankruptcy trustee are promptly and appropriately notified when a mortgage loan for which a Chapter 13 bankruptcy has been filed. Establishing and maintaining a payment compliance record to define the borrower s and/or bankruptcy trustee s compliance with any payment plan or other court ordered arrangement, identifying when conditions for additional legal proceedings have been met, and taking appropriate action if the borrower fails to make payments under the plan (including filing a motion to have the automatic stay lifted when the borrower becomes three post-petition payments delinquent under the plan). Establishing procedures to ensure escrow analyses are performed at the time of bankruptcy filing to claim any additional shortage on the proof of claim. Establishing procedures to ensure annual escrow analyses are performed while the account is in bankruptcy for all Chapter 13 and current Chapter 7 loans. Chapter 13 analysis should be performed manually as if the loan is current. Ensuring that the borrower, borrower s counsel and bankruptcy trustee are notified upon a change in payment amount due to an escrow analysis. Initiating foreclosure proceedings or finalizing a foreclosure prevention alternative, if appropriate, promptly following the completion of the bankruptcy proceedings. Ensuring compliance with the automatic stay and the co-borrower stay. There are a number of steps that the Servicer will need to perform once it receives notice that a bankruptcy filing has taken place and over the course of the bankruptcy proceedings. There are several public information access services available that enable subscribers to electronically obtain case summaries and docket information to assist in monitoring and controlling bankruptcy cases. 5.2 Confirming Bankruptcy Information Once the Servicer determines that a borrower has filed bankruptcy, it must obtain confirmation of the following information: borrower s name, social security number, bankruptcy case number, date of filing, the chapter under which the bankruptcy was filed and the court that has jurisdiction of the case. North Carolina Housing Finance Agency Page 47

If the Servicer is listed as a creditor in the bankruptcy petition, it should receive a copy of the Notice of Commencement from the bankruptcy court. The notice may include several important dates such as the date and time for the initial meeting of creditors, the date by which all claims must be filed, the date for the hearing of confirmation of a borrower s Chapter 13 Reorganization Plan, and the deadline for objecting to the discharge of the debt or the Confirmation of a Reorganization Plan. The Servicer must note in its bankruptcy tracking system all these dates and deadlines to ensure that appropriate and timely follow ups are scheduled and actions are taken. 5.3 Establishing Documentation Files The Servicer must maintain an individual file for each case that is involved in bankruptcy proceedings, regardless of whether the mortgage loan has a current or delinquent status. The file must include a copy of the borrower s petition for bankruptcy, the Notice of Commencement, the Proof of Claim, any Reorganization Plan, all pleadings and notices, any new appraisal for the security property that the Servicer obtains in connection with the bankruptcy, and any correspondence with the bankruptcy attorney or trustee. 5.4 Reviewing Bankruptcy Reorganization Plans The Servicer or bankruptcy attorney must obtain a copy of any proposed Reorganization Plan and review it prior to the confirmation hearing and any deadline to object to the confirmation. The review must seek answers to the following questions: Does the plan attempt to modify the Mortgage, the Note, the principal balance, interest rate, or the maturity date of the mortgage? If it does, the bankruptcy attorney must file an Objection to the Confirmation or to other motions filed by the borrower if appropriate Does the plan include the correct arrearage claim amount? If it does not, need to determine if the Proof of Claim overrides the Chapter 13 Plan or if the bankruptcy attorney needs to file an Objection to the Confirmation Does the plan provide for the arrearage claim to be paid in a reasonable period of time in accordance with customary rules and practices? If it does not, the bankruptcy attorney must file an Objection to the Confirmation North Carolina Housing Finance Agency Page 48

5.5 Preparing and Filing the Proof of Claim A creditor generally is not required to file a Proof of Claim for a Chapter 7 bankruptcy unless the trustee predetermines the presence of assets. For Chapters 7 Asset, 11, 12& 13, a Proof of Claim must be filed upon receiving the Notice of Commencement, or no later than the bar date stated in the notice. The Servicer must file a Proof of Claim for each lien they service for North Carolina Housing Finance Agency (includes 1 st and all subordinate liens). 5.6 Monitoring Borrower Payments and Crucial Dates The Servicer must keep accurate records of the payments it receives from the borrower before, during, and after the bankruptcy process to ensure that both pre-petition and post-petition payments are made on time and are properly accounted for in accordance with the borrower s contractual obligation and the rules of the bankruptcy court. The payment records should separate the pre petition and post petition funds and keep track of their respective due dates. 5.7 Delays in the Bankruptcy Process The Agency expects the Servicer to manage the bankruptcy process in a manner which prevents losses relating to improper or delayed actions. Delays can occur if the following areas are not properly managed: Monitoring borrower s compliance with the plan Monitoring the attorney after referral for Proofs of Claim, Motions for Relief and Objection Filings Monitoring the file for dismissal, discharge, relief of stay, etc. and proceeding immediately with next appropriate servicing action Servicers are responsible for delays resulting in a loss to the Agency. 5.8 Managing Bankruptcy Chapters 5.8.1 Chapter 7 The key to successful management of a Chapter 7 bankruptcy involving a current mortgage loan is to closely monitor the case and take appropriate action, when necessary, to ensure North Carolina Housing Finance Agency Page 49

that no pleadings are filed or other actions taken that would adversely affect the Agency s security interest in the property. For example, if the borrower intends to retain possession of the property, the Servicer should attempt to enter into a Reaffirmation Agreement with the borrower. The Servicer must closely monitor the payment status of the mortgage loan and, if it becomes 60 days delinquent, refer it to a bankruptcy attorney within 2 weeks from the 60 th day of delinquency. The key to successful management of a Chapter 7 bankruptcy involving a delinquent mortgage loan is determining the borrower s intentions for the security property as soon as possible and obtaining either payments or bankruptcy release in a timely manner. If the borrower submits payments to reinstate the loan, the Servicer should attempt to enter into a Reaffirmation Agreement. 5.8.2 Chapter 11 When a Chapter 11 bankruptcy is filed, the borrower formulates a plan of reorganization to provide for the repayment of the creditors. Generally, the borrower remains in control of his/her affairs as a borrower-in-possession and has most of the same powers and duties of the court-appointed trustee. 5.8.2.A The Reorganization Plan The key to the successful management of a Chapter 11 bankruptcy regardless of whether the mortgage loan is current or delinquent is ensuring that NCHFA s interest is adequately protected pending the filing of the Reorganization Plan. For this reason, the Servicer must refer a Chapter 11 case to a bankruptcy attorney within two weeks of the filing of the bankruptcy case and direct that the attorney file a Notice of Appearance. Once the proposed Plan of Reorganization (which describes the term for repayment of all claims against the borrower) is filed, the bankruptcy attorney must review it and the Disclosure Statement. The Disclosure Statement describes the effect and viability of the proposed Reorganization Plan on creditors and compares the proposal to the results that will probably be obtained under Chapter 7 proceedings for the same individual. The review of these documents is critical since they reveal whether the Reorganization Plan seeks to modify the terms of the mortgage loan. A borrower s request for cramdown in a non-routine litigation must be reported immediately to NCHFA. The attorney must actively participate in the plan s confirmation process and file an objection to any plan that modifies the right NCHFA has under the security instrument or that is not otherwise in NCHFA s best interest. When appropriate, the bankruptcy attorney must object to the Disclosure Statement in order to preview the court s ruling on an important issue or to prevent the North Carolina Housing Finance Agency Page 50

confirmation of the plan. In cases in which the borrower will not receive a discharge upon confirmation of the Reorganization Plan, the attorney must attempt to negotiate termination of the automatic stay upon confirmation of the Reorganization Plan. 5.8.2.B Servicing After Confirmation of the Plan When a Reorganization Plan that modifies the original terms of a mortgage loan is confirmed, the Servicer must send either the mortgage loan modification documents or a copy of the Reorganization Plan that sets out the modified terms of the mortgage loan to NCHFA. Generally, NCHFA will change its investor reporting system records to reflect the secured portion of the debt and establish a receivable amount for the unsecured portion of the debt. In Chapter 11 cases, the Bankruptcy Code provides that borrowers generally will not receive a discharge until completion of all payments under the Plan. The automatic stay will remain in effect after confirmation until the borrowers receive a discharge or the case is closed or dismissed. In cases where the automatic stay remains in effect, the stay can be lifted or the case can be dismissed if the borrower defaults under the provisions of the Reorganization Plan. As a result, the Servicer must keep the case active in its system until the discharge is entered. If the borrower becomes 60 days delinquent in making the payments required under the Reorganization Plan, the Servicer must either refer the case to a bankruptcy attorney within two weeks of the 60 th day of delinquency or, if already referred, advise the bankruptcy attorney to seek relief from the automatic stay or dismissal of the case. The Servicer remains responsible for ensuring that all previous payments have been properly applied and for verifying the borrower is 60 days delinquent before sending the referral. When the automatic stay is lifted or the case is dismissed for a delinquent mortgage loan, the Servicer must immediately send any required breach letter to the borrower (if not previously sent) and refer the mortgage loan to an attorney to initiate or resume foreclosure proceedings, keeping in mind the possibility of arranging a foreclosure prevention alternative. 5.8.3 Chapter 13 When a Chapter 13 bankruptcy is filed, the borrower attempts to reorganize his financial affairs by proposing a repayment arrangement that dedicates all of his disposable income over a specified period of time to the repayment of creditors. A court-appointed trustee North Carolina Housing Finance Agency Page 51

supervises the bankruptcy by monitoring all aspects of the case and by collecting and disbursing plan payments to the creditors. 5.8.3. A. The Reorganization Plan The key to the successful management of a Chapter 13 bankruptcy regardless of whether the mortgage loan is current or delinquent is assessing the feasibility of the borrower s Reorganization Plan and requesting relief from the automatic stay and/or dismissal of the case if the plan is not feasible or the borrower fails to make mortgage payments as provided by the plan. The Servicer or attorney should review the borrower s Statement of Affairs and Schedule of Assets and Liabilities to verify that the borrower s Reorganization Plan is not only feasible, but also is proposed in good faith. The plan generally must not modify the terms of the mortgage loan in any way; it should result in the full repayment of the mortgage loan arrearage (including any applicable costs) within a reasonable period of time and provide for repayment of the proper claim amount, which is the amount required to fully reinstate the mortgage loan, including all recoverable interest and charges. If the terms of the Reorganization Plan are unacceptable and the borrower is not willing to amend the plan to adequately address the unacceptable provisions, the bankruptcy attorney must file an Objection to Confirmation of the Plan or a motion to dismiss the case. Reasons for filing an objection or a request for dismissal may include, among other things, the failure of the plan to provide for complete repayment of all arrearages within five years, the failure of the borrower to make post-petition mortgage payments, a lack of feasibility in the terms of the plan, a bad faith filing (multiple bankruptcies involving the same property), or inclusion of an improper provision for modifying the terms of the mortgage loan (a cramdown) as a part of the plan. 5.8.3. B Pre-Petition and Post-Petition Payments The Reorganization Plan must require the borrower to remain current on all contractual mortgage obligations coming due after the date of the bankruptcy petition, while curing the pre-petition arrearages under the terms of the repayment arrangement. The Servicer will need to monitor and separately account for all pre-petition and postpetition payments. If trustee payments to the Servicer are not received timely, the Servicer must access the trustee s website or contact the trustee s office to determine if the borrower is in compliance with the requirements of the plan. North Carolina Housing Finance Agency Page 52

The Servicer must maintain detailed records of any payments it receives during the confirmation process: the type of payment (pre-petition or post-petition), the amount received, the receipt date, the source of the payment, and the allocation of the payment (principal, interest, late charges, etc.). The Servicer should generally hold any prepetition payments it receives as unapplied funds until an amount equal to the full monthly payment due under the Note is available for application to the mortgage loan balance. The automatic stay can be lifted if the borrower defaults under the provision of the Reorganization Plan that requires the borrower to keep post-petition payments current. In addition, the case can be dismissed if the borrower is clearly unable to make the prepetition payments required by the Reorganization Plan. If the borrower becomes 60 days delinquent in making the contractual post-petition payments, the Servicer must refer the case to a bankruptcy attorney within two weeks of the 60 th day of delinquency to seek relief from the automatic stay. The Servicer is responsible for ensuring that all previous payments have been properly applied and for verifying that the borrower is 60 days delinquent before sending the referral. 5.9 Special Circumstance Bankruptcies Certain types of bankruptcies require either a different type of expertise or a greater degree of coordination than the average bankruptcy. Bankruptcies that fall into this category include those involving an abusive filer, one or more individuals that have a fractional interest in the security property because the property owner conveyed the interest to delay foreclosure proceedings, a borrower who is pursuing a cramdown or modification of the terms of the Note or Mortgage, a borrower who uses the security property as an investment property, and a borrower who files for bankruptcy after the title to the property is acquired at a foreclosure sale. 5.9.1 Abusive Filers The bankruptcy code restricts a borrower s ability to obtain more than one discharge within certain time periods. For example, a borrower may receive only one discharge under Chapter 7 every eight years. Generally, a case filed under Chapter 13 may be dismissed at any time, with no bars against re-filing and commencing a new case after dismissal of the old one. There are several ways to address the actions of an abusive filer, including the following provisions of the bankruptcy code: North Carolina Housing Finance Agency Page 53

Section 109(g) which bars the borrower from filing a new bankruptcy petition for 6 months, if they dismissed their case voluntarily after a motion for relief from the automatic stay was filed Section 362(b) (21) which provides that the automatic stay does not prohibit foreclosure in a case filed in violation of Section 109(g) or in a case filed in violation of a prior order of a bankruptcy court Section 362(d) (4) which provides for relief from the automatic stay and two-year In Rem relief in cases involving schemes to delay, hinder, and defraud creditors, including transfers of full or partial ownership of the property or multiple bankruptcy filings affecting the property, provided that the order entered by the bankruptcy court is recorded in compliance with applicable state laws governing notices or interests or liens in real property Within two weeks after a borrower files for bankruptcy, the Servicer must check its records for the mortgage loan to determine whether a previous bankruptcy has been filed. If the Servicer s records reflect other bankruptcy filings by the borrower, it must refer the case to its bankruptcy attorney immediately (and mark the referral package as repeat filer or possible bankruptcy abuse ). On receiving information about an abusive filer, the attorney must closely monitor the status of the case and prepare any pleadings that are appropriate, including but not limited to the following: A Motion for Relief from automatic stay pursuant to Section 362(d)(4) for cases involving schemes to delay, hinder and defraud creditors, including transfers of full or partial ownership of the property for multiple bankruptcy filings affecting the property; any orders obtained pursuant to Section 362(d)(4) must be immediately recorded in compliance with applicable state laws governing notices or interests or liens in real property so that they will be binding in future cases involving the same property for a two year period A Motion for Relief from Co-Borrower Stay pursuant to Section 1301 A Motion for In Rem Relief to bar any person from filing another case in the future affecting the security property and a Motion for Perspective Relief to prevent the borrower from re-filing in the future An Objection to Confirmation of Chapter 13 Plan and a Motion to Dismiss in connection with a Chapter 13 bankruptcy in which the Reorganization Plan appears to be infeasible or offered in bad faith or for which there has been no change in the borrower s circumstances since the last bankruptcy filing. North Carolina Housing Finance Agency Page 54

The objection should detail the facts of all previous bankruptcy filings and the abusive nature of the present filing and list the grounds for declaring the plan to be infeasible, in bad faith, or the lack of change in circumstances 5.9.2 Individuals with Fractional Interest A borrower may convey a fractional interest in a property that secures a NCHFA loan to one or more individuals to delay the initiation of foreclosure proceedings. Each of the individuals holding a fractional interest in the property could file a petition for bankruptcy, thus delaying foreclosure and postponing the repayment of the debt indefinitely. When it appears that a fractional interest in a property has been conveyed solely for this purpose, the bankruptcy attorney should prepare a Motion for Relief from Automatic Stay pursuant to Section 362(d) (4), if appropriate. Any orders obtained must immediately be recorded in compliance with applicable state laws governing notices or interests or liens in real property so that they will be binding in future cases involving the same property for a 2-year period. 5.9.3 Cramdowns of the Mortgage Debt A bankruptcy cramdown is the act of obtaining confirmation of a Reorganization Plan over the objection of the creditor. A cramdown of the mortgage debt is an attempt to involuntarily modify any of the terms of the Mortgage or Note by court order. This modification could include a change to the unpaid principal balance, interest rate, monthly payment amount, or maturity date of the mortgage or the bifurcation of the claim into secured and unsecured portions, with the secure portion equal to the value of the secured property and the unsecured portion equal to the difference between the unpaid mortgage loan balance and the value of the property. While bankruptcy law generally prohibits the modification of a mortgage loan that is secured by a borrower s principal residence, it does recognize mortgage modifications in a limited number of situations, including the following: When the mortgage loan is secured by an investment property When the mortgage loan is secured by other collateral in addition to the borrower s principal residence and incidental property, as those terms are defined in the Bankruptcy Code When the mortgage loan will mature within 5 years after the date the borrower filed bankruptcy North Carolina Housing Finance Agency Page 55

When the Reorganization Plan has been confirmed and is going to pay off the mortgage loan debt within the 5 year plan period, the Servicer must take all the appropriate steps to ensure the loan gets paid off during the life of the plan. However, even in the limited number of situations in which mortgage modifications would otherwise be permitted, they are prohibited by Section 1325(a)(9) if the creditor holds a purchase money security interest, and the secured indebtedness was incurred within one year before the bankruptcy filing. Moreover, even if a mortgage modification is permissible, the plan must provide for the creditor to retain its lien until either the underlying debt has been paid in full or the borrower has received a Chapter 13 discharge. When the Servicer learns that a bankruptcy filing may involve a cramdown, it must immediately refer the case to a bankruptcy attorney. A borrower s request for a cramdown is non-routine litigation which must immediately be reported to NCHFA. When an appraisal is required to oppose a cramdown request, the Servicer must work closely with a bankruptcy attorney in selecting the appraiser to make sure the appraiser is sufficiently familiar with the issues involved in complex bankruptcy matters and has experience in testifying about these issues in court. The bankruptcy attorney should attend the initial meeting of creditors for all bankruptcy cases involving cramdowns. The attorney should question the borrower about their evaluation of the property, the budget, and the proposed payment plan to ascertain whether there are grounds for objecting to the plan based on its lacking of feasibility. The attorney should also attempt to determine whether the borrower is receiving any rental income from the property. If the borrower is receiving rental income, the attorney should consider filing a Motion for Sequestration of Rental Income to request the bankruptcy court to determine how the rental income (or cash, collateral ) will be utilized. In most situations, the borrower signed an addendum to the Mortgage indicating they will continue to occupy their property, and it is not allowed to be used as investment property. Under special circumstances, NCHFA might grant permission to allow the property to be rented for a certain period of time; however, the borrower must have received approval from NCHFA. With NCHFA s prior approval, the bankruptcy attorney may also conduct discovery with respect to the borrower s evaluation of the property, the borrower s finances, and the rental income for the property, including requesting the production of the documents, requesting admissions of fact, and serving interrogatories on the borrower and their counsel. If the meeting of creditors and other methods of discovery are not sufficient to North Carolina Housing Finance Agency Page 56

obtain meaningful information, the bankruptcy attorney should consider conducting a broader examination of the borrower s financial affairs under Rule 2004 of the Federal Rules of Bankruptcy Procedure. The bankruptcy attorney should also consider filing a Motion of Adequate Protection Payments to request that interim disbursements of payments be made during the dispute phase of the cramdown preceding that occurs prior to the confirmation of the Reorganization Plan. The bankruptcy court determines the amount of the secured claim that it will allow for confirmation purposes through a valuation hearing. The bankruptcy attorney must review the borrower s proposed valuation of the security property and compare it to the estimated value from the appraisal report that the Servicer obtains for the property. When the appraisal report that the Servicer obtains indicates that the value of the security property is less than or equal to the borrower s valuation, the bankruptcy attorney must negotiate a possible settlement, stipulation, or work out arrangement. A settlement agreement or stipulation must establish the amount of the secured claim and should include a provision that the Stay will be lifted or the case will be dismissed (possibly without a hearing) if the borrower defaults in a mortgage payment under the cramdown plan at any time When the appraisal report that the Servicer obtains indicates that the value of the property is greater than the borrower s valuation, the bankruptcy attorney generally should file an Objection to Confirmation of the Reorganization Plan and/or an Objection to the borrower s Motion to Determine Secured Status pursuant to ll USC 506(a). The bankruptcy attorney should take a firm stance with respect to the settlement of any valuation or confirmation issues Any settlement must address the borrower s need to make payments to maintain real estate taxes, mortgage insurance, and hazard insurance (including flood, if applicable) throughout the bankruptcy proceeding 5.10 Application of Payments during Confirmation Process When payments are sent to the Servicer during the confirmation process, the Servicer generally should hold them as unapplied funds until an amount equal to the full monthly payment that is due under the Mortgage Note is available for application to the mortgage loan balance. North Carolina Housing Finance Agency Page 57

5.10.1 Application of Payments after the Confirmation Process When the bankruptcy court confirms a Reorganization Plan that provides for a cramdown of the mortgage debt, the Servicer will no longer need to account for prepetition and post-petition payments separately, but it must separately account for payments to the secured and unsecured portions of the debt that are made under the repayment plan. The Servicer must not make any permanent changes to the mortgage terms by actually modifying the mortgage loan documents. The Servicer s accounting system for recording payment applications for a confirmed cramdown must keep track of the mortgage payment as follows: (1) interest rate, monthly payment, and due date of the secured portion of the debt; (2) interest rate, monthly payment, and due date for the unsecured portion of the debt; and (3) the original term of the mortgage note and the application of payment under those terms. If the borrower misses two consecutive payments for the secured portion of the debt or if the borrower fails to maintain current tax or hazard insurance obligations, the Servicer must immediately notify the bankruptcy attorney and request for a Motion for Relief from Stay or a Motion to Dismiss to be filed. 5.11 Post-Foreclosure Filings On occasion, a borrower may file for bankruptcy after NCHFA has acquired a property through a foreclosure sale (after confirmation of the foreclosure sale). Since a foreclosure generally eliminates any rights a borrower had in the acquired property, there may be no need to refer a case involving a post-foreclosure bankruptcy filing to a bankruptcy attorney to file a Proof of Claim or to review a proposed Reorganization Plan, other than to ensure that it does not seek to overturn the foreclosure sale. The Servicer must obtain the opinion of the bankruptcy attorney regarding filing a Relief of Stay prior to proceeding with post-foreclosure activity. 5.12 Referral of Case to Bankruptcy Attorney When a referral is appropriate, the Servicer must send a complete referral package to the attorney. The referral package must include copies of the legal documents the attorney needs to conduct the bankruptcy proceedings and all necessary information about the status of the property, the borrower, the mortgage loan, and the bankruptcy filing. The Servicer must also include in the referral package any relevant information on the current bankruptcy filing, and North Carolina Housing Finance Agency Page 58

any prior bankruptcy filing involving the borrower or the subject property (such as plans, pleadings, schedules, and proofs of claim), foreclosure prevention activities, loan collection history, any previous or current foreclosure status information, and all information the Servicer has regarding the value of the security property, if applicable. 5.13 Bankruptcy Reporting Requirements The Servicer shall comply with NCFHA, FHA, VA, USDA and MI bankruptcy reporting requirements. 5.14 1985 Series U/V and Future Bond Issues with the Same MBS Structure The Servicer must follow the bankruptcy procedures as outlined for each Conventional and USDA loan for the Fannie Mae Certificates. The Servicer must follow the bankruptcy procedures as outlined for each FHA and VA loan for the Ginnie Mae Certificates. North Carolina Housing Finance Agency Page 59

Section 6 Real Estate Owned (REO) 6.1 Foreclosure Confirmation Once the foreclosure has been confirmed, the Servicer must proceed in one of two ways, depending on occupancy of the property. Property is occupied: If the property is still occupied by the previous owners, the Servicer must work with the foreclosure attorney to issue a 10 day letter to the occupants advising them to vacate the premises. The Servicer will also notify NCHFA and the Agency-approved asset management firm of the new REO property by emailing a securing package. (Servicer s Securing Notice Exhibit 5). Included in the securing package is the latest appraisal on the property, a payoff quote, and a copy of the recorded Trustee Deed. If the latter is not yet available, the Servicer should forward it as soon as possible. After the expiration of the 10 day letter, the Agency-approved asset management firm will conduct a property inspection to verify if the property is still occupied. If the property is vacant, the Agency-approved asset management firm will proceed with the trash out and have the locks changed. If the property is still occupied, the Agency-approved asset management firm will forward a Relocation Assistance packet to the occupants. Upon receipt of a signed and completed Relocation Assistance documents, the Agency-approved asset management firm will forward copies to the Servicer along with a request for a check in the amount of $1,800 payable to the borrowers listed on the Note. The Servicer will forward the check to the Agency-approved asset management firm. If the occupants do not return the Relocation Assistance documents by the allotted time frame, NCHFA will advise the Servicer to proceed with the Eviction. If the property is occupied by tenants, the Servicer/ Agency-approved asset management firm must notify NCHFA and follow appropriate laws regarding tenants rights. Once the eviction is scheduled, the Servicer must notify the Agency approved asset management firm of the date and North Carolina Housing Finance Agency Page 60

time of the eviction. The Agency-approved asset management firm will have a representative at the property site to change the locks. Property is vacant: Immediately after the foreclosure confirmation date, the Servicer must notify NCHFA and the Agency-approved asset management firm of the new REO property by emailing a securing package. (Servicer s Securing Notice Exhibit 5). Included in the securing package is the latest appraisal on the property, a payoff quote, and a copy of the recorded Trustee Deed. If the latter is not yet available, the Servicer should forward it as soon as possible. Now that the property is vacant, the Agency-approved asset management firm will schedule the clean-out of the home as well as have the locks changed. 6.2 Insurer Requirements The Servicer must cooperate with the mortgage insurer (Conventional and USDA loans) to ensure that any action taken with respect to the sale of an REO does not jeopardize the maximum benefits from the mortgage insurer. Such requirements may include filing the Property Disposition Plan with USDA and notifications to the private mortgage insurer of listing and sale information. 6.3 Maintenance and Preservation of Property Until final disposition of the REO and receipt of all funds by NCHFA, the Servicer is expected to advance funds in payment of taxes, insurance and other expenses necessary to protect NCHFA s interest. The Servicer should ensure that appropriate hazard insurance coverage is maintained on all REO s with NCHFA listed as the insured. During the REO period, the Agency-approved asset management firm will pay for repairs and homeowners association dues, lawn maintenance, utility bills, etc. and send a monthly invoice to the Servicer. The Servicer will maintain records regarding these expenses, and charge them against the advances for that property. North Carolina Housing Finance Agency Page 61

6.4 Inspections The Servicer must inspect the REO at least monthly until such time as the property is verified as vacant. Inspections should be documented on an inspection report and maintained in the Servicer s file. If an inspection reveals that the property s condition has deteriorated since last inspection, Servicer must submit an inspection report to NCHFA with appropriate recommendations. 6.5 Final Claims to Insurers Servicer must file foreclosure claims within the mortgage insurer s timeframe ensuring the maximum benefits are paid. If the mortgage insurer curtails interest due to late filing, that interest loss will be subtracted from the Servicer claim to NCHFA. 6.6 1985 Series U/V and Future Bond Issues with Same MBS Structure The Servicer must follow the Fannie Mae and USDA marketing requirements regarding Conventional and USDA loans, for the Fannie Mae Certificates. the The Servicer must follow the FHA and VA marketing requirements regarding the FHA and VA loans, for the Ginnie Mae Certificates. North Carolina Housing Finance Agency Page 62

Section 7 Short Sale Procedures 7.1 Short Sale Analysis From time to time, a mortgagor may request permission to sell the home for less than the outstanding principal balance. Because the funds to pay off the principal balance are short, the event is called a Short Sale. Servicers are required to make an initial analysis and to obtain approval from the loan insurer (FHA, VA, USDA, or MI Company). Permission should not be granted for a short sale until an actual sales contract has been submitted and MI Company and NCHFA approvals have been obtained. 7.2 Insurer Approval As stated above, the Servicer must first gather the required documentation to submit a package to the proper loan insurer (FHA, VA, USDA, or the MI Company). Each insurer has its own guidelines to follow. Once the Servicer has obtained the insurer s approval for the short sale, the next step depends on the loan type. NCHFA allows Servicers to proceed with short sales approved by FHA and VA; however all Conventional and USDA short sales must be approved by NCHFA prior to allowing a closing to occur. 7.3 NCHFA Approval (Conventional and USDA Loans) The Servicer must submit a Short Sale Package to NCHFA to include the following: Short Sale Transmittal Summary form Insurer Approval Letter and supporting documentation Mortgagor s letter showing reason(s) for short sale request Listing Price History from listing agent Offer to Purchase and Contract signed by buyer North Carolina Housing Finance Agency Page 63

Copy of buyer s pre-qualification letter for financing or proof of funds availability for cash sales Recent Appraisal (exterior and interior inspection) Current Payoff Quote through settlement date from Offer to Purchase Preliminary HUD-1 Settlement Statement Any other pertinent documentation Part of the analysis performed by NCHFA will be to compare the current appraised value to the Offer price. Based on our recent REO history, an REO property typically sells for approximately 85% of the current appraised value. However, REO properties have greater expenses and time costs associated with them. For example, we estimate the property preservation, foreclosure attorney bills, and miscellaneous costs to be $5000 and escrow advances to be $2500. Therefore, we will compare the Offer price and its estimated loss versus the projected REO sales price (current appraised value times 85%) and its carrying costs ($7500 plus accruing interest for six months) to see which action is less costly. 7.4 Remittance of Short Sale Funds Servicers must instruct the closing attorney to wire the short sale closing proceeds directly to NCHFA. Refer to Section 2.7 Wiring Instructions. 7.5 1985 Series U/V and Future Bond Issues with the Same MBS Structure The Servicer must follow the short sale procedures for each Conventional and USDA loan for the Fannie Mae Certificates. The Servicer must follow the short sale procedures for each FHA and VA loan for the Ginnie Mae Certificates. North Carolina Housing Finance Agency Page 64

Section 8 Servicer Claims to NCHFA 8.1 When to File a Servicer Claim Once a property has been conveyed or sold to a new owner, either through a Real Estate Owned (REO) sale, or a short sale, the servicer should submit a claim to NCHFA for reimbursement of all expenses incurred during the foreclosure/ REO period. The Servicer must submit the final servicer claim package no later than 30 days from the events shown in Section 8.2 or 8.3 below. 8.2 REO Properties (Conventional or USDA) For conventional or USDA financed REO properties, four events must occur before the Servicer can file a claim for reimbursement of expenses. They are: Insurer Claim Funds must be received REO closing must occur transferring title to another party Final expenses have been paid to NCHFA s asset management firm All escrow refunds must be received Once all expenses have been finalized, the Servicer should submit the claim package which includes the following: Completed Foreclosure Expense Reimbursement Request form (Exhibit 7) Insurer Claim Benefits Letter/Documentation A printout history of all expenses paid listing date paid and payee A loan history from January of year of last payment through the current date, and showing all escrow disbursements, escrow refunds and resulting escrow balances Copies of invoices paid other than NCHFA s asset management firm North Carolina Housing Finance Agency Page 65

8.3 REO Properties (FHA or VA) For FHA or VA REO properties, two events must occur before the Servicer can file a claim for reimbursement of expenses. They are: Insurer Claim Funds must be received All escrow refunds must be received Once all expenses have been finalized, the Servicer should submit the claim package which includes the following: Completed Foreclosure Expense Reimbursement Request form. Insurer Claim Benefits Letter/Documentation. A printout history of all expenses paid listing date paid and payee. A loan history from January of year of last payment through the current date, and showing all escrow disbursements, escrow refunds and resulting escrow balances. 8.4 Short Sales The Short Sale Servicer Claim procedure is similar to the REO properties. All expenses must be paid, insurer claim funds and escrow refunds must be received, and the short sale closing must have occurred. The Servicer should use the same timing requirement, forms, and procedures as shown in Section 8.2 and 8.3. 8.5 Reimbursement of Servicer s Foreclosure Expense Request NCHFA compares the Servicer s claim package to the MI Company s Explanation of Claim Payment. Any discrepancies between the amount requested and the amount reimbursed will be reviewed by NCHFA to determine if the Servicer is due that reimbursement. Any losses incurred due to the Servicer delay in the foreclosure process, including interest curtailments and expense loss, will be charged back to the Servicer. Any interest curtailment request will be at the Note rate. NCHFA will request the approved reimbursement less any curtailments to be wired to the Servicer. North Carolina Housing Finance Agency Page 66

8.6 Removal of Loan from Servicer s Trial Balance Once NCHFA reviews the servicer claim package, a removal letter will be forwarded to the Servicer. The letter will state the amount to be reimbursed and outline any discrepancies between amount requested by the Servicer and the amount approved by NCHFA. Once the removal letter is received by the Servicer, the loan should be removed from the Trial Balance. North Carolina Housing Finance Agency Page 67

Section 9 Servicing Subordinate Liens 9.1 New Loan Setup When NCHFA purchases a loan from the lender and down payment assistance was provided, the Servicer will setup the subordinate lien as a piggyback to the first lien. 9.2 Monthly Servicer Subordinate Reconciliation Report A report will be provided monthly to the Servicer listing the Subordinate liens that are a piggyback to NCHFA first lien. The Servicer should review the report and notify NCHFA of any discrepancies. Some Subordinate liens are forgiven over time and a special report will be provided to the Servicer to write down the Subordinate lien loan balance. 9.3 Payoff Quotes All payoff quotes should include the Subordinate lien amount unless otherwise instructed by NCHFA to exclude. The Subordinate lien payoff amount should be itemized on the payoff quote separately so all recipients can see all funds due and payable. NCHFA will consider subordinating a borrower 2 nd lien if they are getting a streamline refinance. 9.3.1 Subordinating a 2 nd Lien for a Streamline Refinance NCHFA will consider subordinating a borrower s 2 nd lien if they are getting a Streamline Refinance. If NCHFA approves the subordination request, the subordination agreement is drafted by NCHFA Legal Department and forwarded to the borrower s closing attorney. Once the subordination agreement is recorded, NCHFA will bring the 2 nd lien in house to service. The Servicer will be instructed to remove the loan from their servicing system and accept payoff funds for the 1 st lien. North Carolina Housing Finance Agency Page 68

Servicer s Responsibilities NCHFA will notify the Servicer by email when a Subordination request has been approved by NCHFA. Servicer should place appropriate stops/flags on their system to ensure the borrower cannot access any online portal to request a payoff quote. The stop should stay in place up to 90 days unless otherwise instructed by NCHFA. Payoff quotes provided to the borrower should not include the 2 nd lien amount. Most Servicers will have to manually produce a payoff in order to provide only the payoff for the 1 st lien. The Servicer will need to verify that a payoff quote has not already been generated and will need to provide an updated quote removing the 2 nd lien loan balance. Should this process not be followed by the Servicer, any funds collected for the 2 nd lien and remitted to NCHFA will be returned to the Servicer to handle. 9.4 Wiring Instructions Date: Bank Name: Wells Fargo Bank City/State: Raleigh, NC Bank Credit Account #: 2062690003453 Credit Bank Routing Number: 121000248 Credit Account Name: NC State Treasurer Bank Type: Checking Account REF: NCHFA General Account Stif 3 Borrower Name: Borrower Loan #: 9.5 Satisfactions When a Subordinate lien has been paid in full or the loan amount has been forgiven, the Servicer will submit Satisfactions to the appropriate Register of Deeds Office within 30 days according to NC State Statute 45-36.9. Bank of New York Mellon website to request the Subordinate lien documents from the custodial file https://documentservices.bnymellon.com/webconnect/ North Carolina Housing Finance Agency Page 69

Section 10 Assumptions 10.1 Assumptions All Assumptions must be approved by NCHFA and the applicant must meet the current underwriting guidelines. For the applicant to be considered for assumption of the current loan, a complete underwriting package will need to be submitted to NCHFA. For a specific list of underwriting document list, contact NCHFA Servicing Department. For FHA and VA loans, assumptions are allowed for new buyers, marriage, divorce borrowers and heirs. For USDA and CONV loans, assumptions are allowed for marriage, divorce borrowers and heirs. If a borrower also has a 2 nd lien, the Servicer will need to review the loan documents to determine if the loan is assumable. If the 2 nd lien is assumable, NCHFA underwriters will review that assumption request when they review the 1 st lien assumption paperwork. If the 2 nd is not assumable, the applicant will have to pay off the 2 nd lien when the assumption loan documents are signed and transferred. North Carolina Housing charges a $50.00 fee to review the assumption compliance paperwork. North Carolina Housing Finance Agency Page 70