Qualified Mortgage (QM) Initiative December 15 th, 2013 Updated January 5 th, 2013 (Update to Page 6 Broker Compensation Cap)

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1 Qualified Mortgage (QM) Initiative December 15 th, 2013 Updated January 5 th, 2013 (Update to Page 6 Broker Compensation Cap) QM Automated Evaluation Tool Beginning in the month of December users will notice in the EAGLE web based loan portal a new button labeled QM as well as another tab labeled Fees. This tab will be optional and available for your use until January 10 th, At that time the use of this tab will become mandatory and be required for loan submission to UFF for all loans with application dates on or after January 10 th, Utilization of a PIW in lieu of a full appraisal will result in a FNMA delivery charge of $75 to the borrower and a 15 basis point loan level price adjustment (LLPA) charged to the net price of the loan. A new Fees tab and a new QM button have been added. Getting Started In order to utilize the QM tool these steps must be accomplished first: (These steps must be accomplished the same way as was required prior to this memo) 1. The upload of the loan file into the EAGLE web portal. 2. Issue or Re-Issue of credit report into the EAGLE web portal. ***New OPTION which will create a shortcut in this process*** During the upload process of the loan file; if your current loan operating system (LOS) has the ability to export your file data in a MISMO 2.6 format

2 AND all of your loan fees data is both entered and correct in your LOS than this shortcut will save you time. In order to upload your loan file, you should already be familiar with the FNMA 3.2 upload method. This method will not change and will still be mandatory for successful file upload into EAGLE. However, you have the option to ALSO upload the MISMO 2.6 file into the EAGLE web portal. This has to be done simultaneously with the FNMA 3.2 file upload. (Upload both FNMA 3.2 and MISMO 2.6 files at the same time.) This will allow you to avoid completing the Fees tab in the EAGLE web portal. The upload of the MISMO 2.6 file is optional but may save you time. If you do not have the MISMO export ability than simply upload your loan as you normally would and instead complete the following instructions from here: Pricer Tab While in the selected loan first select the pricer tab as shown below.

3 Then ensure the Pricer screen is accurately completed and then hit the Price Now button on the lower right corner. At this point if your loan has already been locked the system will pull up historical pricing from the day of the loan lock. If the loan is not locked, the system will display current days pricing. Select the loan program and rate which correspond to the loan and then push the Save (QM) button. This will then save the pricing data into the QM Tool Calculator in order to go to the next step. Completing the FEES Tab Next select the FEES tab. If you have not uploaded a MISMO file with your FNMA 3.2 file for upload than you will have to complete this screen in order to have an accurate QM certificate required for loan submission. Each fee has an associated HUD-1 line number located to the far right. This should match the HUD-1 at closing. Also it is important to accurately indicate who the fee is being paid to and paid by. When selecting who the fee is paid to ensure to designate whether the recipient is an affiliate or not. An affiliate would be any third party company with whom either the lender or the broker has any ownership interest in. Keep in mind any affiliated charge, regardless of type, will be included in the QM points and fees test. Any fees which are paid by more than one party can be split. If the split option is selected a pop-up screen will appear and you will be able to divide the fee between each of the responsible parties. Hit Save once you are complete.

4 Split fees tab for fees which are paid by more than one party. Keep in mind that the requirement for fee change tolerances for each fee type still applies. These rules do not change with the implementation of QM in January QM Button Once your loan data and credit report has been uploaded into the EAGLE web portal, credit price has been Saved to QM and all of your fees have been accurately input into the FEES screen than you can press the QM button. This button will take you to the QM Results page which will show you the last date the loan was run through the QM system and give you the opportunity to view, print and save your QM certificate. This Certificate is required to be uploaded with your actual loan package.

5 QM Certificate The QM Cert may have several different results as listed below: GENERAL QM: This will occur when the eligible points and fees are less than or equal to 3%, DTI is not more than 43%, loan term is not more than 30 years, no balloon payments, no negative amortization and no interest only. Agency QM: This will occur when the eligible points and fees are less than or equal to 3%, DTI is more than 43% however the loan receives an automated approval through one of the approved automated underwriting engines, loan term is not more than 30 years, no balloon payments, no negative amortization and no interest only. NON QM: This will occur when any of the events occur below: Eligible points and fees are more than 3%, DTI is more than 43% with NO automated approval through one of the approved automated underwriting engines, Loan term is more than 30 years, Balloon payments, Negative amortization, Interest only feature. If the loan is in this status then it will not be able to be submitted or locked. ***At this time NON-QM loans are not eligible for delivery to UFF*** Safe Harbor: This will occur when the system determines that based on the information which has been provided that the borrower has the ability to repay the loan. This information will be validated by UFF upon submission to underwriting. This occurs when the Annual Percentage Rate (APR) does not exceed 1.5% above the Annual Prime Offered Rate (APOR). For FHA loans this occurs when the APOR, plus the MMIP, plus 115 bps does not exceed the APR for the loan.

6 Rebuttable Presumption: This occurs when the Annual Percentage Rate (APR) is greater than 1.5% above the Annual Prime Offered Rate (APOR). On an FHA loan this will occur if the APR is higher than the APOR, plus the MMIP, plus 115 bps. If the loan is determined to be rebuttable presumption, than the additional guidelines will have to be followed below in order to remain eligible. QM Points and Fees Caps For a loan to be a QM, the points and fees may not exceed the caps below. The caps vary by loan amount and are: 3 percent* of the total loan amount for a loan greater than or equal to $100,000 $3,000 for a loan greater than or equal to $60,000 but less than $100,000 5 percent* of the total loan amount for a loan greater than or equal to $20,000 but less than $60,000 $1,000 for a loan greater than or equal to $12,500 but less than $20,000 8 percent* of the total loan amount for a loan less than $12,500 *For a loan amount that has a percentage cap, the total loan amount equals the amount financed from the Truth in Lending disclosure minus any real estate related fees payable to and retained by the creditor or affiliate of creditor that are both included in the QM points and fees test and financed by the creditor. Note: The dollar amounts listed above will be adjusted annually for inflation and published each year in the commentary to Regulation Z. ***Wholesale compensation plans will be limited to 2.75% in order to allow sufficient room to originate loans and allow the loans to remain QMeligible.

7 Discount Point and Fee Disclosure In order for discount points to be eligible to be not counted toward the QM points and fees caps above the attached Discount Point and Fee Disclosure must be signed by the borrower(s) before closing. Bona fide discount points will not be excluded from the total points and fees for the loan if this disclosure is not signed prior to closing. Rebuttable Presumption UFF is requiring a residual income evaluation on all Qualified Mortgages submitted that have a rebuttable presumption of compliance. The test must be performed prior to closing and evidence sufficient residual income by the borrower(s) to meet monthly living expenses after paying their mortgage and other debts. Note: Residual income is the qualified gross monthly income less the gross monthly debt. As evidence of compliance for a QM ability to repay (ATR) rebuttable presumption Loan, UFF will require a Residual Income Evaluation (RIE). The RIE must: 1. Be performed prior to Loan closing, and 2. Document sufficient consumer(s) residual income to meet monthly living expenses after paying their mortgage and other debts. Reminder: The ability to repay requirement is a statutory obligation under TILA, any breach of which would also violate the obligation with compliance with all applicable federal, state, and local laws.

8 The following apply to Qualified Mortgages that have a rebuttable presumption of compliance regardless of loan amount or program type: If monthly residual income is Primary Residence Then, the min reserves required are $2500 or greater No minimum reserves required. The greater of: 3 month liquid PITI reserves required Or $800 < $2500 Minimum reserve requirements for the base loan program Additional reserves may be required for loans with higher layering risk < $800 N/A: Not eligible for submission. If monthly residual income is Second Homes and Investment Properties Then $2500 or greater No minimum reserves. Loan is eligible with acceptable RIE documented in file. < $2500 N/A: Not eligible for submission. The QM Cert, very much like the AUS Approval Cert, will likely have to be re-evaluated throughout the loan process up until preparation of the closing documents. It is the responsibility of the broker/ originator/ processor to submit the initial QM Cert. Each subsequent QM Cert will be evaluated by a member of the UFF operations team. Any changes which will affect eligibility will be communicated by our team. More information on the ability to repay can be found at the link below:

9 Tips to Achieving QM, Safe Harbor and Using the UFF QM Tool In order to keep many of the necessary points and fees excluded from the new 3% QM test we have provided some helpful information: 1. Use of non-affiliated service providers. 2. Use of UFF s Diamond Button. This button will allow for UFF s underwriting fee to be removed from being charged to the borrower and instead be absorbed into the offered price/ discount. Use of this feature is completely optional. 3. Set broker s lender paid compensation to no greater than 2.75%. Any lender paid compensation plan above this amount will surely fail most QM tests. 4. Take your time and accurately complete your loan fees upon submission. This will reduce the occurrence of fees being eliminated or reduced at or prior to closing. 5. Ensure that you use the EAGLE web portal in Internet Explorer browser only. Also ensure that it is running in compatibility mode and pop-up blocker is off. 6. If the loan is not deemed Safe Harbor than try structuring your loan with a lower interest rate if possible. Else, you will subject to the additional guidelines of Rebuttable Presumption. If you have any questions please contact your account executive.

10 DISCOUNT POINT FEE DISCLOSURE Borrower Name(s): Lender: Print Date: Property Address: This disclosure explains the effect of your election to pay a fee, commonly known as a discount point(s), which is a percentage of the loan amount and impacts the interest rate on the loan. The comparison below demonstrates the impact that payment of discount points(s) will have on the interest rate for this loan. Interest Rate Discount Points to Obtain Starting Adjusted Rate Starting Adjusted Interest Rate Interest Rate Discount Points Paid to Obtain the Bought Down Rate Bought Down or Actual Rate There are a total of discount point(s) on this loan, which may be paid by the borrower, seller, lender and/or third party. You are paying of the discount points. Your interest rate and discount point(s) may be subject to adjustment based on the risk factors of your mortgage application and credit profile. The interest rates and discount point(s) listed above may change prior to loan closing. In addition, if you have not locked in your interest rate, the rates and discount points reflected may change prior to closing the loan. I/We have read the above disclosure and acknowledge receiving a copy by signing below. Borrower Date Borrower Date Borrower Date Borrower Date

11 QM Findings Issued: 12/16/ :24 PM Result: General QM / Safe Harbor, NMLS # REQUESTED BY BORROWER / COBORROWER REQUESTED TERMS User Name: Kevin Marconi john q test ( ) Lender Loan No: LSC Casefile ID: SUBJECT PROPERTY 789 Lame St RIVERSIDE, MO Type: SFR Status: Owner Occ QM ASSESSMENT (Version 5.0) Base Loan Amt: $250, Note Loan Amt: $250, Doc Type: Full-24 LTV/CLTV: 50.00% / 50.00% Note Rate: 4.000% Loan Type: Conventional Amort Type: Fixed Amort Term: 360 months Maturity Term: Purpose: Purchase Purpose of Refi: Lien Pos: First Mortgage This loan was evaluated against QM Type: General QM QM REQUIREMENTS ACTUAL LOAN DATA RESULT 1. Max Points & Fees <= $7, (3.00%) $6, (2.62%) PASS 2. DTI <= 43.00% 7.96% PASS 3. Loan Term <= 30 years 30 years PASS 4. No Balloon Payments Maturity Term = Amort Term PASS 5. No Negative Amortization Negative Amortization Months = None PASS 6. No Interest-Only Interest-Only Term = None PASS Liability Protection was based on: Lock Date: APOR: 4.480% (12/16/2013) Amort Type: Fixed Lien Position: First Mortgage Loan Term: 30 years THRESHOLD ACTUAL LOAN DATA RESULT APOR % = 5.980% APR = 4.000% Safe Harbor POINTS AND FEES ANALYSIS TOTAL LOAN AMOUNT POINTS & FEES CAP DISCOUNT POINTS EXCLUSION TIL Amount Financed: $250, Note Loan Amount: $250, Starting Adjusted Rate: 4.375% Fin QM Points and Fees: $0.00 QM Points & Fees Cap: 3.00% APOR: 4.480% Total Loan Amount: $250, Total Loan Amount: $250, Percentage Above APOR: % Max QM Points & Fees: $7, Allowable Exclusion: 2.000% Total QM Points & Fees: $6, Points & Fees Cushion: $ Starting Adjusted Rate: 4.375% Note Rate: 4.000% Interest Rate Reduction: 0.375% Discount Points Charged: 2.000% Discount/Rebate at Start Rate: % Eligible Discount Points: 2.000%

12 INCLUDED QM POINTS & FEES HUD# Fee Type Affiliate Paid To PFC POC Fin Paid By Amount Loan Origination Fee - Broker Borrower $6, Other (Lender-Paid Compensation) - Broker Lender $ Processing Fee - Broker Borrower $ Total QM Points & Fees: $6, EXCLUDED POINTS & FEES HUD# Fee Type Affiliate Paid To PFC POC Fin Paid By Amount Loan Discount Points (up to 2%) - Lender Borrower $5, Appraisal Fee - Joe Appraiser Borrower $ Credit Report Fee - A1 Credit Borrower $ Settlement Or Closing Fee - A1 Title and Escrow Company 1103 Title Insurance Fee - A1 Title and Escrow Company 1104 Title Insurance Fee - A1 Title and Escrow Company Borrower $ Borrower $ Borrower $ LOAN DETAILS Sales Price: $500, Appraised Value: $500, Improvements: $0.00 Fee Simple: Yes Leasehold: No PMI, MIP, Funding Fee: $0.00 Base Loan Amount: $250, Note Loan Amount: $250, Subordinate Financing: $0.00 INCOME INFORMATION test, john Other 1003's Grand Total Base Income: $15, $0.00 $15, Overtime: $0.00 $0.00 $0.00 Bonus: $0.00 $0.00 $0.00 Commissions: $0.00 $0.00 $0.00 Dividend: $0.00 $0.00 $0.00 Other: $0.00 $0.00 $0.00 Subtotal: $15, $0.00 $15, Net Rental: $0.00 $0.00 $0.00 Subject Net Cash: $0.00 $0.00 $0.00 Total Income: $15,000.00

13 QM QUAL RATE MONTHLY PAYMENTS AND RATIOS FUNDS SUMMARY Note Rate: 4.000% 1st Adj Cap: 1st Adj Period: Adj Cap: Adj Period: Life Adj Cap: QM Qual Rate: 4.000% Monthly Payment: $1, First Mortgage P&I: $1, Monthly MIP: $0.00 HOA Fees: $0.00 Second Mortgage P&I: $0.00 Hazard Insurance: $0.00 Taxes & Special Assessments: $0.00 Other: $0.00 Primary Housing Expenses: $1, Housing Ratio: 7.96% Total Fixed Payment: $1, DTI: 7.96% LIABILITIES Cash from/to Borrower: $252, Cash Out: $0.00 Amount of Gift Funds: $0.00 Source of Gift Funds: Total Closing Costs: $1, Required (funds to close): $252, Available Funds: $1,000, Reserves: $748, Months Reserves: 626 Mortgages to be Paid Off Borrower Creditor Monthly Payment Balance Debts to be Paid Off Borrower Creditor Monthly Payment Balance Debts to Remain Borrower Creditor Monthly Payment Balance Debts Excluded Borrower Creditor Monthly Payment Balance CREDIT REPORTS AND SCORES Borrower Credit Scores Reference Credit Agency Issued Date Type INCOMES Borrower Income Source Amount john q test Base Employment $15, ASSETS Borrower Type Description Account Amount john q test Savings Account Bank $1,000, QM MESSAGING QM TYPE 1. General QM requires underwriting based on a fully-amortizing schedule using the maximum rate permitted during the first five years after the date of the first periodic payment. Based on the loan product provided, a Qual Rate of 4.000% was applied for the General QM monthly payment calculation. 2. The APR provided for this first-lien mortgage does not exceed the comparable-loan APOR as of 12/16/2013 by 1.5 percentage points or more. If the interest rate on this loan were set on 12/16/2013, this QM would be assessed as not higher-priced and therefore have a safe harbor, meaning that it is conclusively presumed to comply with the ATR/QM requirements. 3. You are required to retain evidence that you complied with the ATR/QM rule, including the prepayment penalty limitations, for three years after consummation, though you may want to keep records longer for business purposes. 4. You should consult with legal counsel or your compliance officer to understand your obligations under the rule, and to devise the policies and procedures you will need to have in place to comply with the rule s requirements.

14 POINTS AND FEES 1. Real estate-related fees under (c)(7) have been excluded from QM points & fees, except the fees that were indicated as paid to the broker or lender or an affiliate, which have been included. Furthermore, you must include any charge that is unreasonable, or for which the creditor receives direct or indirect compensation in connection with the charge. 2. Third-party settlement agent fees under (a)(2) have been excluded from QM points & fees, except the fees that were indicated as paid to the broker or lender or an affiliate, which have been included. This exclusion is based on the assumption that the charges are "bona fide", and neither the creditor nor the loan originator (or their affiliates) retains a portion of the charge. 3. Any Loan Origination Fee or Mortgage Broker Fee indicated in the file has been included in QM points & fees. In addition, any other loan originator compensation, if indicated as a prepaid finance charge item within GFE block 1, has also been included. 4. Compensation paid by a lender or a mortgage broker to its loan originator employees can be excluded. However, any lender-paid compensation to a mortgage broker who is not an employee of the lender must be included, and indicated in the file as a fee paid by the lender, and paid to the broker. 5. Any other fee indicated in the file without an explicit RESPA Fee Type, if indicated as a prepaid finance charge, has been included in QM points & fees. 6. Other than broker compensation, charges that are paid by the lender have been excluded from QM points and fees. 7. Up to 2 discount points have been excluded from QM points & fees, while any portion above that amount has been included. This exclusion is based on the provided interest rate before the discount, which did not exceed the APOR for a comparable transaction by more than 1%. 8. In addition, the exclusion of discount points is based on the assumption that they are "bona fide", meaning that it reduces the consumer's interest rate by an amount that reflects established industry practices, such as secondary mortgage market norms. Discount points that are not bona fide may not be excluded. 9. There is no indication of a prepayment penalty stemming from the refinancing of a loan that the creditor or affiliate currently holds or is currently servicing. Note that the amount of penalties charged or collected from the consumer for prepaying their previous loan must be included in QM points and fees. 10. The up-front PMI premium for this transaction has not been indicated as refundable, and has therefore been included in QM points & fees. To qualify for any exclusion of up-front PMI, the premium must be refundable on a prorated basis and a refund must be automatically issued upon loan satisfaction LoanScoreCard. All rights reserved.

15 Guidance from CFPB on Appropriate Interest Rate for Excluding Discount Points under Final ATR Rule September 4, 2013 This document contains questions posed by the MBA and a summary of oral responses to these questions from Consumer Financial Protection Bureau (CFPB) staff. Please be advised that the CFPB advises that only rules and written commentary from the CFPB are authoritative. Background: On August 3, 2013, MBA requested guidance concerning how to determine the appropriate interest rate for excluding bona fide discount points for purposes of the QM points and fees calculation. Specifically, MBA asked: (1) if the interest rate to be used is the rate unique to each consumer or is simply a rate from a standard rate sheet and (2) what the appropriate rate to use is if the lender does not offer a rate with zero points. The requesting guidance attached examples of various rate point scenarios to illustrate this concern. Section (b)(1)(i)(E) of the "points and fees" definition provides that, for purposes of calculating the points and fees for a loan, up to two bona fide discount points paid by the consumer in connection with the transaction may be excluded if the interest rate without any discount does not exceed the average prime offer rate by more than one percentage point. Section (b)(1)(i)(F) of the "points and fees" definition provides if no discount points have been excluded under Section (b)(1)(i)(E), then up to one bona fide discount point paid by the consumer in connection with the transaction may be excluded if the interest rate without any discount does not exceed the average prime offer rate by more than two percentage points. Section (b)(3) defines a "bona fide discount point" and provides that the discount points paid by the consumer must reduce the interest rate based on a calculation that is consistent with established industry practices for determining the amount of reduction in the interest rate appropriate for the amount of discount points paid. Issue 1: The regulation and commentary do not explicitly provide guidance on whether interest rate without any discount includes or excludes loan level risk adjusters and/or other pricing risk adjusters that must be applied to a particular consumer s loan before it is presented to the consumer. Accordingly, the first question is whether the rate intended is the rate unique to the consumer s loan as a result of any number of credit factors or simply the rate on a rate sheet that does not include discount points? Issue 2: If there is no exact zero point rate (a rate without discount or premium), the submission asked whether the creditor could have the option of choosing to use: 1717 Rhode Island Ave., NW, Suite 400 Washington, DC (202)

16 1) The rate with the closest discount to zero 2) The rate with the closest premium to zero; 3) The rate closest to zero points (regardless of premium or discount); or 4) The rate determined by applying a linear interpolation calculation. CFPB Guidance - At a meeting at the CFPB on Tuesday, August 20, 2013, Paul Mondor, Managing Counsel, stated that questions on this issue had been raised by a number of stakeholders, including the Mortgage Bankers Association ( MBA ). He said CFPB interprets the statute to require a discount point to be the amount but for the payment of which the consumer would have paid the starting adjusted rate. He indicated that the CFPB had developed the following principles for determining the starting rate that is referred to here as the starting adjusted rate. Principle #1: CFPB defines the base rate as the starting rate to be adjusted for the particular consumer before discount points are applied - The starting adjusted rate should be the rate available to the consumer based on the particular consumer s profile and loan characteristics. It must include the LLPAs and other specific adjustments applicable to that consumer. Principle #2: Discount points excluded from points and fees may not exceed the discount points actually paid by the consumer - The discount points that are excluded from points and fees may not exceed the actual discount point amount paid by the consumer. So, if the starting adjusted rate offers a rebate and the consumer chooses to pay discount points, the amount of the points actually paid are the maximum that can be excluded up to the two points allowed in the rule. The following example was provided in the meeting: Starting adjusted rate of 4.250% with a point rebate. Consumer agrees to pay an additional 1.50 discount points to lower the rate to 3.750%. The maximum discount points that could be eligible for exclusion from points and fees is 1.50 points Principle #3(a): No requirement for zero point loan to be available - The starting adjusted rate does not have to be a rate with zero points. Mr. Mondor noted the language in the regulation ( the interest rate without any discount ) is an inexact translation of the statutory language in section 1412 of the Dodd-Frank Act ( the interest rate from which the mortgage s interest rate will be discounted ). Principle #3(b): Starting adjusted rate actually must be available -The starting adjusted rate used must actually be available to the consumer. This eliminates linear interpolation as an acceptable means of determining the starting adjusted rate as well as using a hypothetical rate as a starting adjusted rate. Neither are rates available to the consumer. Principle #4: Discount Points that may be excluded from points and fees are those applied to the starting adjusted rate for the consumer to reduce the interest rate - If the starting adjusted rate for the consumer includes a required point or portion thereof, when calculating the discount points to be excluded, such required points are included in the QM s points and fees. Page 2 of 3

17 The following example was provided in the meeting: Starting adjusted rate of 4.125% with discount points. The consumer agrees to pay in discount points to lower the rate to 3.750%. Only 1.50 additional discount points paid by the consumer to lower the rate is eligible for exclusion from points and fees since the.125 points paid are required to get the starting adjusted rate. Additionally the methodology of reaching starting rate can vary for different loans: In following the above principles to determine the appropriate interest rate, CFPB indicated a consistent methodology to determine the interest rate without a discount is not required. The CFPB indicated that retention of rate sheets would help prove compliance if challenged. All Requirements to Exclude Discount Points Still Apply: The Principles do not set forth all the requirements to exclude discount points from points and fees. The requirements in Sections (b)(1)(i)(E), (b)(1)(i)(F) and (b)(3) that are set forth above still apply. Additional Note on Written Guidance: MBA requested that the CFPB issue the guidance in writing so that industry and examiners would have a consistent standard to follow. Mr. Mondor stated that the CFPB was considering other methods of providing this guidance. He specifically mentioned that the CFPB may conduct webinars to address outstanding issues regarding the CFPB s rules and that this guidance could be included. He also mentioned the possibility of a bulletin or additional proposed amendments to the Official Interpretations, but cited resource and time constraints. He dismissed suggestions that the guidance be included in the small entity compliance guide or the final rule adopting the amendments to the mortgage rules proposed by the CFPB in June. Page 3 of 3