Product Description 3. Marketing Features 3. Underwriting Methods and Fees, Interest Credit 3. Minimum/Maximum Loan Amounts, Occupancy 3

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1 TABLE OF CONTENTS Page # PRODUCT DESCRIPTION ELIGIBILITY Product Description 3 Marketing Features 3 Underwriting Methods and Fees, Interest Credit 3 / Loan Amounts, Occupancy 3 Transaction/Documentation Types 4 Assumability, Conversion Option 4 Qualifying Rate/Ratios, Temporary Buydown 4 Adjustable Rate (ARM) Information 4-5 Eligible/Ineligible Property Types 6 Eligible Mortgagors (Non-occupant Co-Borrower, Non-borrowing Spouse, Non-arms length, Residency, Fixed income Borrowers) Texas Cash-Out Refinance Transaction, Trusts 7 Geographic Restrictions 8 Mortgage Insurance 8 Non-ARMs Length Transaction, Transactions with Family Members 9 Cash Reserves 9 Prepayment Penalty 10 Down Payment/Gift Funds/Source of Funds 10 Verification of Funds, Ineligible Source of Funds 11 Contributions by Interested Parties 12 Secondary Marketing/Subordinate Financing 12 Ineligible Subordinate Financing 12 Repayments for Subordinate Financing/For HELOCS 12 Multiple Properties Owned/ Number of Loans to One Borrower 13 Age of Documents A565/ Dated:

2 TABLE OF CONTENTS Page # UNDERWRITING Determining the Credit Credit History/Tradeline Requirements 15 Delinquent Payments (Bankruptcy, Foreclosure, CCC, Major Adverse credit) 16 Judgments/Garnishments/Liens 16 Bankruptcy, Re-established credit 16 Loan Documentation Types Allowed ( Full Doc, Stated, and Stated/Stated) 17 Loan Amounts by Occupancy 18 Employment History/Types of Income Allowed,, Passive Income, Trailing Secondary Wage Earner Liabilities/Installment Debt 20 Refinance Transactions 20 PROPERTY/APPRAISAL Appraisal Requirements 21 Soft Markets 22 Properties listed for Sale, Land Value 22 Condo Project determination 23 Non-warrantable Condominiums 23 Condominium conversions 24 Condotels ( Condo-Hotels) 25 Rural Properties, Zoning, Water Supply, Septic, Private Road, Multiple Dwellings 26 Escrows 26 PROGRAM MATRICES Owner Occupied 1-2 units Second Homes 29 Investment Properties 1-4 units Non-warrantable condo s and Condo Hotels (Condotels) A565/ Dated:

3 PRODUCT DESCRIPTON MARKETING FEATURES The Pay-Option ARM product line consists of adjustable rate products tied to the: o 1- Month London Interbank Offering Rates (LIBOR) or o 12 Monthly Treasury Average (MTA) Loan Term: 30-Year Term/Amortization Plan Codes: o A565: Monthly Libor o : The Hybrid Pay-Option ARM is a First Lien program which offers an initial 5 year introductory period with a fixed interest rate, after which the interest rate may change. The borrower may select from one of two market indexes: LIBOR or MTA. Once selected and the loan closes, the Index can not be changed. The borrower may choose from four (4) payment options: o payment o Interest only payment o Accelerated Payment o Fully amortizing (See details of payment options ) UNDERWRITING Methods and Fees INTEREST CREDIT Traditional (Manual) Underwriting applies. Underwriters are delegated to $1,000, Loans > $1,000, to $1,500,000 require a second underwrite/counter signature from the Regional Operations Manager. Loans > $1,500,000 must be submitted to the investor for prior underwriting approval. o Prior Underwriting fee charge: $ o The underwriting fee will not be charged if: The loan is cancelled by our company The loan is denied Interest back credits are not permitted on this program MINIMUM/MAXIMUM LOAN AMOUNT loan amount $30,000 loan amount $6,000,000 OCCUPANCY Owner-Occupied, Primary Residence Second Home Investment Property/Non-Owner Occupied 3 A565/ Dated:

4 TRANSACTION TYPES DOCUMENTATION TYPE ASSUMABILITY Purchase Rate and Term Refinance Cash Out refinances Full/Alt Documentation / Verified Assets / Stated Assets Allowed: Loans are formally assumable. CONVERSION OPTION Not Available QUALIFYING RATE Qualify all income documentation types at the interest only Note Rate QUALIFYING RATIO: Up to 45% DTI is acceptable. TEMPORARY BUYDOWN Not Allowed ADJUSTABLE RATE INFORMATION Index o LIBOR: The average of Interbank offered rates for 1-Month London Interbank Offering Rates (LIBOR). (1- Month LIBOR) o MTA: The Index is the Twelve-Month Average of the annual yields on actively traded U.S. Treasury Securities adjusted to a constant maturity of one year as published by the Federal Reserve Board. The Twelve Month Average is determined by adding together the Monthly Yields for the most recently available twelve months and dividing by 12 Introductory Period: The initial introductory period is 5 years (60 months) with a Fixed Rate of interest, after which the interest rate may change. Continued on next page 4 A565/ Dated:

5 Continued from previous page Payment Options: o payment Fully amortizing rate based on the Payment rate posted on daily rate sheets. The minimum payment will adjust after the 5 th year of the loan and annually thereafter until the loan is recast. Recast will occur at the end of 10 years or earlier if the maximum negative amortization cap is reached. When adjusted, the Payment change will be limited to no more than 7.5% of the previous payment amount. This payment may result in a deferred interest which is added to the outstanding principal. This may also be referred to as negative amortization. o Interest only payment- the amount that would pay the interest portion of the monthly payment at the current interest rate. No principal reduction occurs and no additional principal is added to the balance. o Accelerated Payment: Fully amortizing (based on 15-Year Term) paymento Fully amortizing - The amount necessary to pay the loan off (including all Principal and interest) on the Maturity Date in substantially equal installments at the interest rate effective during the preceding month. Margin: Refer to rate sheet for allowed Margin/Start rate combinations Start Rate/Note Rate: Refer to rate sheet for applicable Start Rate/Note Rate add-ons Life Floor: Never lower than the margin Interest Rate Ceiling: ( interest that may be charged over the life of the loan), the life ceiling is 9.95%. Negative Amortization Ceiling: ( unpaid principal balance permitted to accrue through negative amortization) is 115 % of the original loan amount (110 % for properties located in the State of New York). Once this ceiling is reached, the payment will be recast to an amount that would fully amortize the loan over the remaining term. Adjustment/Recast Periods: o First Interest Change Date- Interest Rate adjusts after the 5 th year, then frequency based upon index chosen o First Payment Change Date- Payment adjusts annually after the 5 th year unless Negative Amortization Cap is reached. o Payment Change Cap- After the 5 th year the annual payment increase is limited to 7.5% o o After the 5 th year, all four (4) payment options remain in place until the loan is Recast. If the loan recasts prior to year 10 because it has reached its maximum negative amortization cap, three (3) payments will be available until the loan reaches its 10 th year. These three payments are Interest Only, Fully amortizing, and Accelerated payment. Interest Only Period- If the loan hits the Negative Amortization Cap prior to year 10 the loan will continue to have three (3) payment options of Interest Only Payment, Fully Amortized Payment and Accelerated payment. Recast Date - The loan recasts the earlier of ten (10) years or when the Negative Amortization Cap is reached. After year 10, the fully amortizing payment and the accelerated payment will be offered for the remainder of the loan term and may change based on the index. Payment Rate/Note Rate: o o Payment Rate-Posted on Daily Rate Sheets, this rate establishes the Payment for the fixed rate. Note Rate- Establishes the Accrual Rate, Interest Only Payment, Full Amortization Payment, and Accelerated Payment on the loan for the entire Fixed Rate Period (no teaser rate/period) Payment Adjustment Dates and Caps o The First Payment Adjustment date will be the first of the month in which the 61st month payment is due, and every 12-Months thereafter unless the Negative Amortization Cap is reached. o After the 5 th year, the annual payment increase is limited to 7.5% (payment cap) First Payment Notification: At closing, the Borrower must be provided with information showing the Borrower the four payment choices and their amounts that will be available for their first payment. A565/ Dated:

6 ELIGIBLE PROPERTY INELIGIBLE PROPERTY ELIGIBLE MORTGAGOR(S) Eligible Property Types o Attached/Detached SFR s o Attached/Detached PUDs o Low-High Rise Condos o Non-Warrantable Condos o Condo conversions o Condotels (also known as Condo-Hotels) o 2-4 Units (not eligible on Second Home transactions) Refer to Non-warrantable Condominiums, Condo Conversions and Condo-Hotel Property Section and matrices for specific property eligibility details In-eligible Property Types include: o Dwellings containing more than 4 units (E.G. 5 plex) o Timeshares or segmented ownership projects o Vacant land o Properties located in a coastal barrier resource system, federally declared wetlands or other federally protected areas. o Properties that are landlocked o Properties which represent an illegal use under zoning regulations, Commercial or Agricultural zoning o Properties that are subject to hazards, noxious odors, etc. o Properties on Native American Reservations o Properties with less than 750 square feet (600 square feet for condos) o Factory Built Housing/Manufactured Housing o Co-Ops o Log Homes, Earth Homes, Geodesic Domes o Mixed-Use properties o 2-4 Unit Second Homes o Houseboats Refer to Non-warrantable Condominiums, Condo Conversions and Condo-Hotel Property Section and matrices for specific in-eligible property details U.S. Citizens Permanent Resident Aliens evidenced by: o An Alien Registration Card (commonly known as a green card ) with a 10-Year expiration date on the front, but not on the back; OR o An Alien Registration Receipt Card (INS Form I-551) with an expiration date and must be accompanied by a copy of an unexpired INS Form I-751 filing; OR o Unexpired foreign passport which contains an unexpired stamp reading, Processed for I-551, Temporary Evidence of Lawful Admission for permanent residence. Valid until (mm-dd-yy), Employment authorized ; OR o Any other evidence of permanent residence issued by the INS. Continued on next page A565/ Dated:

7 Continued from previous page Non-Permanent Resident Alien transactions are eligible and can be made under the same terms as a U.S. citizen as long as (1) one borrower is a U.S. citizen or Permanent Resident alien. The Non-Permanent resident Alien borrower must meet all of the following requirements: o Two years employment in the U.S. o Two years credit history o Two years residence history o Established asset base in the U.S. Funds from outside the U.S. are not acceptable. o Income and residency in the U.S. must be likely to continue for at least three years. o All files must contain evidence the borrower is lawfully permitted to reside in the United States. Borrowers with one of the following Visa status are generally considered lawful non-permanent resident aliens: H-1B, H-2A, H-2B, H-3, L-1, E-1, G and TN or TC NAFTA series. o Borrower must meet all other borrower eligibility requirements Non-Permanent Resident Aliens - Limitations if all borrowers are Non-Permanent Resident Aliens, the following additional restrictions apply: o Not allowed for Condotels or Investment properties o loan amount $1,500,000 o Owner-Occupied & Second Home Full Doc: Purchase & Rate-Term refinance 90%/90% LTV/CLTV Cash Out refinance 70%/70% LTV/CLTV o Stated Doc Owner Occupied residence: Purchase & Rate-Term refinance 90%/90% LTV/CLTV Cash Out refinance 70%/70% LTV/CLTV o Stated Doc Second Home: Purchase & Rate-Term refinance 75%/75% LTV/CLTV Cash Out refinance: 65%/65% LTV/CLTV Foreign Nationals are not allowed on the PayOption ARM loan programs. Non-Occupant Co-Borrowers: Not Allowed Fixed Income Borrowers: Borrowers whose income is derived from fixed income are ONLY eligible under Full Doc (please refer to Passive/Fixed income) TRUST LOANS TEXAS CASH-OUT Intervivos Revocable trusts not allowed Texas Refinance Requirements: Loans subject to Article XVI Section 50 (a) (6) of the Texas Constitution are not permitted A565/ Dated:

8 MORTGAGE INSURANCE The approved M.I. companies are: Genworth (G.E.), MGIC, RMIC, PMI, Radian, Triad, and UGIC For all loans > 80% LTV*, mortgage insurance is required as follows: LTV MI COVERAGE All Property Types and Occupancies except Non-Warrantable Condos 30 Year Term % 30% % 25% % 12% Notes: Borrower paid M.I. only ARM pricing with potential negative amortization applies Financed single premium mortgage insurance (FSPMI) and/or Lender paid premium is not allowed * Except as otherwise stated, please note: M.I. may not be available or allowable under some state laws. MI COVERAGE Non-Warrantable Condos LTV % 30% % 25% % 20% MI Coverage Notes: For Second Homes: MI must be provided by MGIC, RMIC, or UCI M.I. companies will issue certificates on a case by case basis only Financed single premium (FSPMI) and/or Lender Paid premium is not allowed GEOGRAPHIC RESTRICTIONS All states in which lender is licensed Loans in Alaska are not permitted. 8 A565/ Dated:

9 NON-ARMS LENGTH TRANSACTION Non-arms Length transactions are generally not acceptable. Occurs when a personal or business relationship exists between the borrowers and the builder or seller. These transactions include: o Family sales or transfers o Corporate sales or transfers o Mortgagors employed in the real estate or construction trades who are involved in the construction, financing, or sale of the subject property o Some transactions involving principals or a seller or other vendor (such as an appraiser, settlement agent, title company, etc.) who is involved in the lending process of the subject property o If borrowers are purchasing a property from a builder who is purchasing the borrowers existing residence TRANSACTION WITH FAMILY MEMBERS Non-Arms length transactions with a family member are generally acceptable if: o The family member or relative is the borrowers spouse, child, parent, or any other individual related to the borrowers by blood, adoption, or legal guardianship. o An executed purchase or sales agreement between the purchaser and the family member is in the loan file. o The source and ownership of funds for the down payment, closing costs, and reserves are well documented in the loan file. o The appraised value of the property is well supported, particularly for gifts of equity or gifts of more than 20% of the LTV. CASH RESERVES Calculate reserves based on the Fully Amortizing and Fully Indexed, requirements for all properties except Condotels: Loan Amount Full/Alt Stated / Stated Asset < $3,000,000 Owner-Occupied: 2-Months Owner-Occupied: 3-Months Owner-Occupied: 3-Months < $3,000,000 Second Home: 6-Months < $3,000,000 Investment: 6-Months Second Home: 6-Months Investment: 6-Months Second Home: 6-Months N/A > $3,000,000 9-Months 12-Months N/A Condo Hotel transactions: six months cash reserves are required except if the LTV is less than or equal to 75%, then two months reserves are required. Note: Proceeds from Cash Out Refinances may NOT be used to meet cash reserve requirements 9 A565/ Dated:

10 PREPAYMENT PENALTY Loan programs are offered with a No Prepayment Penalty, 1-Year, 2-Year and 3-Year Prepayment Penalty options. Refer to rate sheets for pricing details and adjustments. o Prepayment Options: 12-Month, 24-Month or 36-Month Prepayment Penalty o The Prepayment Penalty is a Hard penalty. The prepayment penalty will be charged regardless if the property is sold or refinanced within the prepayment penalty term. o Unless otherwise restricted, the penalty is 6-Months advance interest if any prepayment is made within any 12-Month period that exceeds twenty (20) percent of the original principal amount of the loan. See example below Prepayment Amount $100,000 Less 20% of Original Balance $20,000 Excess Prepayment $80,000 Penalty equals 6-Months interest on excess prepayment. Calculation: Excess Prepayment x Int. Rate (example: 8%) divided by 2 (6 months interest rather than annualized 12 months) $3,200 DOWN PAYMENT/SOURCE OF FUNDS Acceptable types of funds that the borrowers may receive to satisfy down payment, closing costs and/or prepaid items are in one of the following forms: o Gifts o Contributions (Contributions by interested parties section for details) Gift funds are allowed with Full/Alt or Stated documentation only and subject to the following additional restrictions: GIFT FUNDS Continued on next page Restrictions Full/Alt Doc Type Stated Doc Type Occupancy Source Percentage of Borrower s funds Owner-Occupied/Primary Residence only * *Not allowed for Condo-Hotel (Condotel). 5% down payment must be made from the borrower s own funds. Exception: If the loan amount is less than or equal to $650,000 AND LTV/CLTV is 80% or less, the entire down payment may be a gift. Relatives, Domestic partner, or Fiancé Fiancée only LTV: 75% 10% down Payment must be from the Borrower s own funds. 10 A565/ Dated:

11 (Continued from previous page) Gift funds received must be documented by a gift letter: o From the donor stating that the gift need not be paid back must be included in the credit package. o Stating the donor s name and address, the amount of the gift, the date the gift was given and the relationship of the donor to the applicant. o Identifying the subject property being purchased. The transfer of funds from the donor s account to the borrower s account must be documented. Acceptable documentation to show the transfer of funds includes: o A copy of the donor s check or withdrawal slip and the borrower s deposit slip OR o A copy of the donor s check to the closing agent, and a settlement statement showing receipt of the donor s check. Ineligible Source of Funds The borrower may not receive funds for down payment, closing costs and/or other prepaid items from one of the following sources: Ineligible Down payment Types Donated Funds Funds/Commission received from Subject property Transaction Gift Funds Sweat Equity Unsecured Loans Description Funds donated by the property Seller, Builder, Real Estate agent, or any other party not related to the borrower to satisfy down payment requirements Any payment received as a result of being a party to the subject property sales transaction. A gift that must be repaid in full or in part Contributions to the construction or rehabilitation of a property in the form of labor or services rather than cash. Proceeds from a personal or unsecured loan, such as: Cash advance on a revolving charge account Unsecured line of credit Overdraft protection on checking account 11 A565/ Dated:

12 CONTRIBUTIONS BY INTERESTED PARTIES Contributions may be used to pay closing costs (these may include discounts points, commitment fees, appraisal fees, origination fees, and prepaid settlement costs) normally paid by the borrower and may be provided by the property seller, or by any other interested party, such as the builder, developer, real estate agent affiliates. Excessive contributions may require an adjustment to the property s appraised value. Occupancy Max LTV Seller Contribution Owner occupied >90% 3% < 80% and <90% 6% >90% Not Allowed Second Home >80% and <90% 3% < 80% 6% Investment/ >80% and < 90% Not Allowed Non-Owner Occupied <80% 3% SECONDARY/SUBORDINATE FINANCING* Secondary/Subordinate financing is allowed subject to the following restrictions: o The maximum LTV is 80% when there is Secondary financing. o Secondary financing is eligible subject to all of the following conditions: Subordinate financing must allow negative amortizing first liens. Second lien loan can be a closed-end second or a HELOC. Ineligible Subordinate Financing - Ineligible Subordinate Financing sources include subordinate mortgages that: o Has wrap around terms, combining the indebtedness of the First mortgage with the subordinate mortgage. o Does not provide for either regular monthly payments of principal and interest, or Interest-Only. o Allows negative amortization. o Is private party subordinate financing Repayment terms for subordinate financing - The following are applicable repayment terms for Subordinate financing: o The term of the loan cannot be less than 5-Years, unless the financing fully amortizes prior to that time. o The loan term must provide for regular payments of principal and interest, or Interest-Only. o If the loan has a variable rate: The total amount of Secondary or Subordinate financing must fully amortize during the term of the loan. AND The combined annual payment adjustments of the loan and the Secondary or Subordinate financing cannot exceed the lesser of a 2% interest rate increase, or an 8.50% payment increase. Repayment terms for HELOCs: o For Conforming and Non-conforming HELOCs, the repayment terms must provide for a regular monthly o Payments that cover at least the interest due so that negative amortization will not occur. Prepayment o Subordinate financing must allow prepayment at any time without penalty. *Please note, only outside Secondary Financing is permitted. A565/ Dated:

13 MULTIPLE PROPERTIES OWNED For limitation purposes, joint ownership in residential real estate is considered the same as total ownership of an individual property. Ownership in commercial or multi-family (5+ Units) real estate is not included in the limitation. For all loans, the borrower s Primary residence, subject property and any properties owned separately by a Coborrower must be included in the total. NUMBER OF LOANS PER BORROWER AGE OF DOCUMENTS UNDERWRITING Occupancy Owner-Occupied # of Properties Owned No Restrictions Second Home 4 Investment No Restrictions The number of loans allowed for one (1) borrower is limited to no more than four (4). Example: o One (1) Owner-Occupied Primary Residence o One (1) Second home o Two (2) Investment/Non-Owner Occupied properties Credit documentation may not be dated more than 120 days prior to the Note date. Appraisals require a re-certification of value after 120 days. o Appraisal report may not be older than 180 days from Note date Determining the Credit of two credit scores are required for each applicant Both the borrower representative and loan credit score must be determined. credit score criteria may differ for salaried and self-employed borrowers. Here is how to determine the representative credit score: Step Process 1 IF THEN... 3 scores are presented 2 scores are presented Use the middle value as the representative score Use the lower score as the representative score 2 Review each borrower s representative score to determine the loan credit score 3 The loan credit score is always the lowest representative credit score among all borrowers on the loan Continued on next page A565/ Dated:

14 Continued from previous page Reported Credit s Representative Credit s Examples: 3 Reported s 2 Reported s Borrower #1 Borrower #2 Borrower #3 Borrower #1 Borrower #2 Borrower # N/A N/A Credit not available - if the borrower does not have a credit score, they are ineligible for these loan programs Loan Credit A565/ Dated:

15 UNDERWRITING- CREDIT Tradeline and credit history requirements are as follows: o Credit History: 2-Years o number of tradelines: 3 o At least three (3) tradelines open and active for the last 12 months. o Collections, charge-offs and judgments are not valid tradelines o All borrowers must meet the minimum credit score requirements noted in the product matrices. In addition to the stated tradeline and credit history requirements, the following credit issue restrictions apply: Credit Issue Type Full/Alt and /verified assets /Stated assets Revolving and Installment Lates Late payments <90 days delinquent are considered accounted for in the credit score Late payments <90 days delinquent are considered accounted for in the credit score Mortgage Lates* No late payments allowed in the last 24- Months Bankruptcy, Foreclosure, Deed-in-Lieu, Short Sale 4-Years since discharge or completion No late payments allowed in the last 24- Months Seven years since event (discharge) Treated like Bankruptcy Treated like Bankruptcy Consumer Credit Counseling 1 Major Adverse Credit 2,3 Judgments, Collections, Charge-Offs, liens 4, delinquent property taxes, repossessions, garnishments and accounts showing 90 days or more delinquent Subject to individual evaluation. Proof of payment is required. 2 None allowed in the last 24 months Major Adverse Credit > 24 months old Issues not affecting title, do not require to be paid Issues not affecting title, do not require to be paid The re-established credit may not include accounts paid through Credit Counseling. Credit bureaus generally do not actively track Credit Counseling history in the borrower s credit file. If a completion date is not shown on the credit report, the borrower must submit verification from the counseling agency establishing the date of completion. CCC accounts are treated like Bankruptcy Any outstanding judgments and/or tax liens, as well as any other derogatory items appearing in the title policy (e.g. delinquent taxes, tax liens, mechanics liens, and collections) must be paid/released to the satisfaction of the title company. All Major Adverse Credit issues must be paid in full at closing except for an allowable aggregate of < $ if the issue(s) do not affect title. The following criteria applies to all liens: All State, IRS and property tax liens, regardless of seasoning are required to be paid, whether or not they currently affect title. No payment plans or subordinations allowed. Property tax liens on other properties will be considered Major Adverse Credit Federal tax liens older than 10 years are not required to be paid unless the title company requires payoff *Time Share lates are considered installment debts, NOT mortgage lates. A565/ Dated:

16 UNDERWRITING CREDIT (continued) Delinquent/Derogatory Credit criteria: Any derogatory items in the credit report require a letter of explanation from the applicant stating the reason for the credit problems and the reason for, or resolution of, the problem. All past due amounts and judgments must be paid in full and documented by a receipt before closing. Alternative credit is not allowed (Example: utility payments, telephone payments) Delinquent Payments o When delinquent payments are reflected on the credit report, a written explanation from the applicant explaining all recent delinquent payments or an excessive amount of delinquent payments is required. o Minor or insignificant late payments do not need explanations if all other credit is paid as agreed. o All accounts must be current before the mortgage loan is closed except those that are documented as being in legal dispute or appear not to be the responsibility of the applicant s debt and do not take priority over First lien position. o Judgments, Garnishments or Liens Judgments, garnishments or liens should generally have occurred and been satisfied 24-Months preceding the application date. Judgments, garnishments or liens which occurred or were satisfied within the 24-Months preceding the application date may be considered on a case-by-case basis. The credit file must be documented with the following: The applicant provides proof of funds, in an escrow account, to satisfy the judgment, garnishment or lien, OR Evidence that the judgment, garnishment or lien is in legal dispute documented by the appropriate letter from an attorney or court documents, AND Evidence that the judgment, garnishment or lien will not adversely effect the First lien position. Bankruptcy o Determining the elapsed time between the Bankruptcy and the application is determined by circumstances (see additional requirements below): Type of Bankruptcy Chapter 11 & 7 Bankruptcies FULL/ALT or Stated Income/Verified Assets Financing Permitted /Stated Assets Financing Permitted 4 Years from discharge 7 years from discharge Chapter 13 Bankruptcies 4 Years from discharge 7 years from discharge Medical-related Bankruptcy 4 Years from discharge 7 years from discharge o The applicant must provide complete information as to the facts and circumstances related to the bankruptcy. The written letter of explanation must substantiate the reason for bankruptcy and the following exhibits must be attached: Copy of Bankruptcy petition Schedule of debts Final discharge of the bankruptcy showing the schedule of debts that were discharged, and verification of any attempts made to reinstate credit with any previous creditors. Re-established Credit: o For re-established credit requirements after a Bankruptcy or Foreclosure, use Trade-Line requirements previously stated. o No lates are permitted after the Bankruptcy or Foreclosure. A565/ Dated:

17 LOAN DOCUMENTATION TYPES The following loan documentation types are allowed: Full/Alt /Verified Assets /Stated Assets All guidelines apply except as noted in the following table and are subject to the following additional requirements: Doc Type Full/Alt Stated Income/Verified Assets /Stated Assets Special Requirements IRS Form 4506 is required if tax returns are used to qualify the borrower Loan amounts greater than $3MM require the following additional documentation: o Income: 2-Years signed tax returns (all borrowers) Most recent quarterly filing (if applicable) Two (2) most recent pay stubs (if salaried) o Assets: 2-Months most recent statements Salaried borrowers are eligible without a Self-employed primary borrower IRS Form 4506 is required only for loans that exceed $3MM. Loans greater than $3MM require assets be documented by 2-Months most recent statements Fixed Income Borrowers are not eligible- see passive income IRS Form 4506 is not required Fixed Income Borrowers are not eligible- see passive income 17 A565/ Dated:

18 MAXIMUM LOAN AMOUNT BY OCCUPANCY UNDERWRITING INCOME Please refer to specific matrices for maximum loan amount, doc type, LTV/CLTV and cash out criteria. Employment History for Salaried: 2-Years employment history required. Job changes to advance within the same field are acceptable. o If employment has changed over the past 2-Years, verification must be obtained from the previous employer(s) as well as the current employer. Full verification must be completed for the entire 2-Year period. o Any gaps in employment over 1-Month in the past 2-Years must be explained by the borrowers. The written explanation, including the reasons for the gap(s), must be included in the loan file. o Trailing Secondary Wage Earner Use Fannie guidelines (Full DOC only) Self-Employed borrowers: An applicant who owns 25% or more of the company from which he receives his primary source of income is considered Self-employed: Self-Employed borrowers should have been in business for at least two (2) consecutive years. No gaps of verified employment income may exist for Self-Employed borrowers. An executed IRS Form 4506 is required at closing 1040 s for the previous 2-Years with all attachments and schedules When applicable complete signed 1065, K1 s, 1120 or 1120S is required. Bonus, Overtime and Commission Income Must have been consistent for the past 2-Years and likelihood of continuance is verified by the employer. Bonus Income: Will be averaged. Overtime income: Will be averaged. Commissions: The net commission income (gross less expenses) for at least 2-Years is averaged. Commissions must have been paid (not just earned) to be considered income. Automobile Allowance Income from automobile allowances or expense account payments may be used if the income has been received for at least 2-Years and is properly documented. Acceptable documentation can be a letter from employer, VOE, bank statements, or copies of checks. The documentation provided must clearly specify the following information: o o Payment amount, duration and frequency The corresponding expenses must match the same time period as the income from the employer o Provide copy of IRS Form 2106 Part Time or Second Job Income Income must be verified as having been uninterrupted for the pervious 2-Years, with a strong likelihood of continuation. Verification must be on a VOE (Form 1005) and must be supported by W- 2 forms and a recent pay stub. Continued on next page A565/ Dated:

19 Continued from previous page Rental Income For qualifying purposes, 75% of the rental income shown on the lease, net of mortgage payments, may be added to the applicant s net income or long-term debt payments, as described below: o Provide copies of complete tax returns and fully executed lease agreements. o If the cash flow is positive, then add it to the borrower s income. o If the cash flow is negative, then add it to the borrower s long-term debt. Alimony, Child Support and Maintenance Income A copy of the divorce decree and/or separation agreement must be submitted to verify the amount and continuance for at least 3-Years from the date of closing. Evidence that such income has been received in a timely manner during the past 12-Months is required to use the income to qualify the applicant. Child support income may be grossed up 25%. Retirement Income Verified by one of the following: o Letters from the organization providing the income o Copies of the retirement award letter and two months of bank statements evidencing the deposit o W-2 forms for the past year, OR o Signed copies of federal tax returns for the past 2-Years Passive Income 1, 2 Greater than 50%: The source of all unearned or passive income must be verified if it is the primary source of income; if it constitutes 50% or more of the qualifying income. Less than 50%: The source need only be stated and not verified. However, income must be deemed reasonable with the borrower s previous employment. o Stated & Stated/Stated Doc Exception: If the unearned or passive income is derived from financial assets (for example, a brokerage account, 401(k), or retirement account), the source need only be stated and not verified. Rent with Option to Buy Funds generated from rent with an option to buy are acceptable if the option-to-buy clause is contained in the original lease and the appraisal indicates the applicant s present rent exceeds market rent. Only the portion of the rental payment that exceeds the market rent can be applied toward the down payment. Rent credit in excess of this figure is considered a Seller concession and this amount must be deducted from the subject sales price. 1 Note: PASSIVE INCOME (also known as Unearned Income) is defined as income that may not readily verifiable by an outside, independent third party source. Examples include: Dividend/interest income Trust income, Child support, alimony or separate maintenance Foster care Unemployment, disability 2, social security 2 and other retirement 2 income Rental income* Installment sales or land contract income Certain sources of passive income such as Social Security, Retirement and Disability are considered Fixed Income. Borrowers earning income from Fixed Income sources are not eligible for Stated or Stated/Stated doc types. 2 * Although rental income is considered Passive Income, it is treated differently for Stated and No Ratio doc types. Sourcing and proving three year continuance is not needed for rental income, however the schedule of real estate must be completed in its entirety and the stated rental income must be reasonable. A565/ Dated:

20 LIABILITIES Installment Debt o If an installment loan will be paid off in 9-Months or less, it does not have to be included in the calculation of the debt ratio unless there is a history of the applicant renewing this type of debt. o Secured and unsecured consumer debts are considered installment debts. Such debts are verified by copies of canceled checks, a properly completed Verification of Loan (VOL) or the applicable credit report. The creditor must complete the VOL with the unpaid balance, payment history and payment terms described in detail. REFINANCE Limited Cash-Out Refinance (also known as Rate-Term refinance) o LTV/CLTV is based on the current appraised value o Current unpaid principal balance of the existing First mortgage o Closing Costs (including pre-paids) o A refinance that includes the payoff of any second lien that is not a purchase money second will be considered cash back to the borrower with the following exceptions: A refinance of a first mortgage and subordinate lien that were recorded simultaneously will be treated as a rate/ term refinance, as long as the HUD-1 shows entire amount of proceeds were applied to the purchase of the property with evidence of no cash back to the borrower.* The subordinate lien was used for documented home improvements o Refinance to buyout ex-spouse as a result of a divorce is permitted subject to the following: The borrower receives no cash proceeds from the transaction (other than the 2% or $2, allowed) The property must be the borrower s primary residence The file contains an executed copy of the divorce decree or the property settlement agreement o Incidental cash back may not exceed the lesser of 2% of the principal amount of the new mortgage or $2000. The borrower has unrestricted use of these funds. *Note: HELOC purchase money seconds cannot reflect draws taken after the acquisition of the property Cash-Out Refinances o Any second lien that is not a purchase money second (regardless of seasoning on the second) will be considered cash back to the borrower o May include the payoff of the existing first mortgage, payoff of any subordinate liens, closing costs (including prepaid items), discount points and additional funds for the applicants use in excess of those described in the limited cash-out section. Cash-Out Property owned < 12-Months LTV/CLTV is based on The lesser of the current appraised value, OR the original sales price plus any documented home improvements, whichever is less Property owned 12-Months or more The most current appraised value using the Cash-Out maximum LTV/CLTV to determine loan amount. 20 A565/ Dated:

21 PROPERTY/ APPRAISAL APPRAISAL REQUIREMENTS Loan Amount* Appraisal Requirements Loans < to $1MM One (1) full appraisal. Loans > $1MM and < $2MM One (1) full appraisal plus one (1) field review. The field review must be completed by an approved review appraiser Loans > $2MM and < $3MM Two (2) full appraisals are required. The value must be based on the lower of the two (2) appraised values. The second appraisal must be from an approved appraisal company Loans > $3MM And < $6MM 1 One full appraisal obtained from Land Safe Services AND Investor s internal substantiation of value OR One (1) field review completed by an approved review appraiser The following additional restrictions apply: Marketing time should not exceed 12-Months *Please refer to product matrices for loan criteria. 21 A565/ Dated:

22 PROPERTY /APPRAISAL SOFT MARKET AREAS A soft market area is defined as any area that shows evidence of declining property values, an over-supply of property, and/or marketing time of more than 6 months. Any property identified in the appraisal report located in a soft market, will require: o o A 5% LTV reduction from permitted financing stated in the program matrix. In addition to the three comparables normally required, at least one and preferably two comparable pending sales are required to validate the value. PROPERTIES LISTED FOR SALE Properties listed for sale are not permitted. A property that was previously listed must have a minimum of 6-Months seasoning. Place a copy of the canceled listing in the file and perform a current Multiple Listing Service search to verify that the property is not currently listed by a different agency. LAND VALUE The land value should not exceed 35% of the property value. If the land value exceeds 35%, the appraiser must include the reasons, state whether the land value is consistent with other homes in the area, and show evidence in the comparables. CONDO PROJECT DETERMINATION In order to accurately establish applicable program criteria, the determination for the project s warrantable or non-warrantable status must be made. 22 A565/ Dated:

23 NON-WARRANTABLE CONDOMINIUMS Refer to product matrices for maximum LTV s, CLTVs, Loan Amounts and Doc Types Loans can be originated in condominium projects that do not comply with the standard condominium warranties for minimum pre-sale requirements for maximum investor concentrations. Guides and requirements are as follows: o Purchase and Rate/Term only: Cash-out Refinances are not allowed o Full Documentation or allowed o Owner-Occupied, Second Homes or Investment Properties o No one single entity may own more than 10% of the total number of units in the project o Our (closing lender s) total exposure limited to a maximum of 20% of the total project o Project s commercial space is limited to 15% of the gross square footage. Additional requirements are: Commercial use of the property must operate separately from the residential use The appraisal must support that mixed-use condos are common for the area If the commercial space is on the top floor, the business must have a separate elevator that is only for the commercial use. o High-rise projects (>4 stories) may be acceptable on a case-by-case basis o Pre-sale requirements are as follows: 33% of a legal phase 50% of the total number of units must be complete 50% of the common area and facilities within the project must be completed. o Investor concentration: 70% of the units sold if the LTV is 80% or below 40% of the units sold if the LTV is above 80% o Ineligible Projects. In addition to the ineligible property characteristics listed in page 6, ineligible non-warrantable condo projects include, but are not limited to the following characteristics Projects with less than ten (10) units (may be approved on a case-by-case basis) Condotel Houseboats Live-work type condominiums (usually used for artist s studio, workshops, factories or galleries Timeshare or segmented ownership project Multi-dwelling unit condominium. (A condo project that permits an individual to hold title to more than one dwelling unit with ownership of all units evidenced by a single deed of trust or mortgage). Project that is in litigation Non-conforming zoning project Kiddie condominium Own your own property. (Can be identified by the legal description giving the borrower the right to occupy a given unit, instead of actual ownership of the unit). A565/ Dated:

24 CONDOMINIUM CONVERSIONS Projects currently under conversion or ones which have been converted within the past three years must meet the following requirements: o All rehabilitation work required for conversion must be completed in a workmanlike manner and be 100% complete. All common elements and facilities must be fully complete. o At least 70% of the total units in the project must have been conveyed or under contract to be sold to owner-occupant primary residents. o Primary residences or Second Home purchases only. o No one entity may own more than 10% of the total number of units in the project o Our (Closing Lender s) total exposure limited to a maximum of 20% of the total project o Unit owners must have sole ownership, interest in and rights to use all project facilities and common elements. The project must be covered by all applicable insurance coverage. o Control of the HOA must be turned over to the unit owners (no seasoning required) o The appraisal must reflect market acceptance of condo conversions (I.E. comps must also be condo conversion) A565/ Dated:

25 CONDOTELS (CONDO-HOTELS) Defined: A Condotel is a project that has a rental or registration desk, short-term occupancy, food and telephone services and daily cleaning services. It is operated as a commercial hotel, even though the units are individually owned. Please refer to product matrices for maximum LTV s, CLTV s, Loan Amounts, Purposes, Occupancies and Doc Types. Full Documentation loans only Cash-Out Refinances are not allowed Non-permanent resident aliens, foreign nationals and non-occupant co-borrowers (on owner-occupied primary residence only) are not allowed Gift funds are not allowed six months cash reserves are required except if the LTV is less than or equal to 75%, then two months reserves are required. All Condotels are priced and underwritten to Investment Property guidelines subject to product matrix restrictions The following requirements apply: o The appraisal must specify that Condotels are common for the area and that resale marketing time is not over 6 months and that the market supports strong rental activity o Rental income from the Condotel may not be used to qualify the borrower in calculating the DTI o 75% of the units must be sold, closed or under contract for sale o The Condotel must have been in operation for a minimum of 2 years o square footage of the unit is 600 square feet o Commercial space is limited to 15% o Project must have a minimum of 20 units o Voluntary rental pools are acceptable only for 2 nd Homes and investment properties, mandatory rental pools are not acceptable o No one entity may own more than 10% of the total number of units in the project o Our (Closing Lender s) total exposure is limited to a maximum of 20% of the total project. o Condotel conversions are not acceptable. (E.G. properties originally constructed for use as hotels or motels are not acceptable) o Units must be separately metered. o The project must carry a minimum of $1,000,000 liability insurance policy Ineligible Condotels: In addition to the ineligible property characteristics listed in page 6, ineligible Condo-Hotel projects include, but are not limited to the following characteristics: o Condotel conversions o Less than 75% of the units are sold, closed or under contact for sale o Projects in operation less than 2 years o Unit is less than 600 sq ft o Commercial space exceeds 15% o Total number of units is less than 20 o A single entity owns more than 10% of the total number of units in the project o Projects that do not have separately metered utilities o Projects with mandatory rental requirements A565/ Dated:

26 RURAL PROPERTIES Any Property indicated on the Appraisal as Rural must comply with the following criteria: o Ten (10) Acres maximum o 90% maximum LTV o The primary use must be residential, not agricultural or otherwise providing a source of income. o The site must be typical for surrounding properties with similar uses. If the subject contains excess acreage, the loan amount may be adjusted. o The subject property must be within reasonable commuting distance to a metropolitan area. o The subject property must be accessible by public roads and highways. o The present use must be the highest and best use for the property. o The condition, quality and use of outbuildings may be considered in determining the market value of the property. If the subject property contains nonresidential outbuildings which are not typical amenities, the loan amount may be adjusted. LEASEHOLD: ZONING Use FNMA guidelines Industrial, agricultural or commercial zoning is not allowed WATER SUPPLY SEPTIC Properties using alternative water supplies are acceptable provided the appraiser demonstrates that such water supply is typical for the immediate area. Septic tanks are acceptable provided the appraiser demonstrates typical for the immediate area. PRIVATE ROAD Property must have legally appropriate ingress and egress. Additionally, comps should have similar access. MULTIPLE DWELLINGS Additional residential dwellings (guest house, carriage house, in-law unit, etc) must comply with local zoning regulations and be typical and common within the neighborhood. Any value for the additional dwelling must be supported by comparable sales. ESCROWS EXHIBITS As provided by state law. Must conform to RESPA and reflected on the HUD-1. Escrow Holdbacks/ Withholds: evaluated on a case-by-case basis and subject to management approval. See attached matrices for loan amounts, LTV and credit score parameters. 26 A565/ Dated:

27 Doc Type Loan Amount LTV/CLTV 5 OWNER OCCUPIED/ PRIMARY RESIDENCE Units -Purchase and Rate-Term Refinance Full/ Alt Verified Assets Credit LTV/CLTV 5 Credit LTV/CLTV 5 1 Stated Assets Credit $400,000 95%/90% %/90% %/90% %/90% %/90% 620 $650,000 95%/90% %/90% %/80% %/90% %/75% %/75% 620 $1,000,000 80%/90% %/90% %/75% %/75% %/70% 660 $1,500, %/80% %/70% %/70% 660 $2,000, % $3,000, %/70% %/70% 700 N/A N/A $6,000,000 2,3 60%/70% %/70% 720 OWNER OCCUPIED/ PRIMARY RESIDENCE Units - Purchase and Rate-Term Refinance Doc Type Full/ Alt Verified Assets Stated Assets Loan Amount LTV/CLTV 5 Credit LTV/CLTV 5 Credit LTV/CLTV Credit $400,000 90%/90% %/90% %/80% %/90% %/80% 660 $650,000 90%/90% %/75% %/75% 620 $1,000,000 80%/90% %/90% %/75% 660 $1,500, %/80% %/70% %/70% Units maximum LTV/CLTV 90% Loan amounts greater than $1,500,000 must be submitted to investor for prior underwriting approval. 2 Units not allowed on loan amounts greater than $3,000,000 2-Units maximum 70%/70% LTV/CLTV. credit score: 660 M.I. required for all loans >80% LTV Refer to guidelines for required coverage No Secondary Financing allowed, 1 Unit property only Any and all references made to CLTV refers to outside Secondary Financing sources. 27 A565/ Dated: