Fully Amortizing Payment A periodic payment of principal and interest that will fully repay the loan amount over the loan term.

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1 Section 12.7: : Regulation Z Ability to Repay and Qualified Mortgages Summary On January 10, 2013, Regulation Z was amended to require creditors to make a reasonable, good faith determination of a consumer s ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and established certain protections from liability under this requirement for qualified mortgages. The new rules also limit prepayment penalties and require creditors to retain evidence of compliance with the rules for three years after a covered loan is consummated. The effective date of these amendments is January 10, Definitions Covered Transaction Any consumer credit transaction that is secured by a dwelling, except for a home equity line of credit subject to 12 CFR , a timeshare plan, a reverse mortgage, or a temporary or bridge loan with a term of twelve (12) months or less. Fully Amortizing Payment A periodic payment of principal and interest that will fully repay the loan amount over the loan term. Fully Indexed Rate The interest rate calculated using the index or formula that will apply after recast, as determined at the time of consummation, and the maximum margin that can apply at any time during the loan term. Higher-priced covered transaction A covered transaction with an annual percentage rate that exceeds the average prime offer rate (APOR) for a comparable transaction as of the date the interest rate is set by 1.5 or more percentage points for a first-lien covered transaction, or by 3.5 or more percentage points for a subordinate-lien covered transaction. Loan amount The principal amount the consumer will borrow as reflected in the promissory note or loan contract. Loan term The period of time to repay the obligation in full. Maximum loan amount The loan amount plus any increase in principal balance that results from negative amortization, based on the terms of the legal obligation assuming: The consumer makes only the minimum periodic payments for the maximum possible time, until the consumer must begin making fully amortizing payments; and The maximum interest rate is reached at the earliest possible time. REVISION NUMBER: PAGE 1 OF 5 REVISED DATE: 02/07/13

2 Mortgage-related related obligations Property taxes; premiums and similar charges that are required by the creditor; fees and special assessments imposed by a condominium, cooperative, or homeowners association; ground rent; and leasehold payments. Points and fees All items required to be disclosed as finance charges, except interest or the time-price differential; all compensation paid to mortgage brokers; All real-estate related fees (other than amounts held for future payment of taxes) unless the charge is reasonable, the creditor receives no direct or indirect compensation in connection with the charge, and the charge is not paid to an affiliate of the creditor; and Premiums or other charges for credit life, accident, health, or loss-of-income insurance, or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under applicable law) that provides for cancellation of all or part of the consumer's liability in the event of the loss of life, health, or income or in the case of accident, written in connection with the credit transaction. Prepayment penalty A penalty for paying all or part of the principal before the date on which the principal is due. A prepayment penalty includes computing a refund of unearned interest by a method that is less favorable to the consumer than the actuarial method. Recast For an adjustable-rate mortgage, the expiration of the period during which payments based on the introductory fixed interest rate are permitted under the terms of the legal obligation; For an interest-only loan, the expiration of the period during which interest-only payments are permitted under the terms of the legal obligation; and For a negative amortization loan, the expiration of the period during which negatively amortizing payments are permitted under the terms of the legal obligation. Simultaneous loan Another covered transaction or home equity line of credit subject to that will be secured by the same dwelling and made to the same consumer at or before consummation of the covered transaction or, if to be made after consummation, will cover closing costs of the first covered transaction. Third-party record A document or other record prepared or reviewed by an appropriate person other than the consumer, the creditor, or the mortgage broker, or an agent of the creditor or mortgage broker; A copy of a tax return filed with the Internal Revenue Service or a State taxing authority; A record the creditor maintains for an account of the consumer held by the creditor; or If the consumer is an employee of the creditor or the mortgage broker, a document or other record maintained by the creditor or mortgage broker regarding the consumer's employment status or employment income. Repayment Ability SNMC shall not make a loan that is a covered transaction unless it makes a reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms. Credit and operations procedures and internal controls must be updated to ensure compliance with this policy. REVISION NUMBER: PAGE 2 OF 5 REVISED DATE: 02/07/13

3 Procedures must address the following topics: Basis for determination of the Ability to Repay, as specified in the rule; Verification of Income or Assets; Verification using Third-Party Records; Payment calculation for fixed- and adjustable-rate mortgages; o Include procedures for balloon-payment loans, interest-only loans and negative amortization loans; o Also include payment calculation for simultaneous loans; Calculating the monthly debt-to-income ratio and monthly residual income; and Refinancing of non-standard mortgages. Qualified Mortgages Safe harbor for transactions that are not higher her-priced covered transactions By complying with the ability to repay requirements on a qualified mortgage loan that is not a higher-priced covered transaction SNMC is granted safe harbor. Presumption of compliance for higher her-priced covered transactions SNMC is presumed to have complied with the ability to repay requirements on a qualified mortgage loan that is a higher-priced covered transaction. To rebut the presumption of compliance, it must be proven that, despite meeting the requirements of a qualified mortgage, SNMC did not make a reasonable and good faith determination of the consumer's repayment ability at the time of consummation, by showing that the consumer's income, debt obligations, alimony, child support, and the consumer's monthly payment (including mortgage-related obligations) on the covered transaction and on any simultaneous loans of which SNMC was aware at consummation would leave the consumer with insufficient residual income or assets other than the value of the dwelling (including any real property attached to the dwelling) that secures the loan with which to meet living expenses, including any recurring and material non-debt obligations of which SNMC was aware at the time of consummation. General Qualified Mortgage Definition Provides for regular periodic payments that are substantially equal, except for the effect that any interest rate change after consummation has on the payment in the case of an adjustable-rate or step-rate mortgage, that do not: o Result in an increase of the principal balance; o Allow the consumer to defer repayment of principal, or o Result in a balloon payment; For which the loan term does not exceed 30 years; For which the total points and fees payable in connection with the loan do not exceed the amounts specified; For which the creditor underwrites the loan, taking into account the monthly payment for mortgage-related obligations, using: o The maximum interest rate that may apply during the first five years after the date on which the first regular periodic payment will be due; and o Periodic payments of principal and interest that will repay either: The outstanding principal balance over the remaining term of the loan as of the date the interest rate adjusts to the maximum interest rate, assuming the consumer will have made all required payments as due prior to that date; or REVISION NUMBER: PAGE 3 OF 5 REVISED DATE: 02/07/13

4 The loan amount over the loan term; For which SNMC considers and verifies at or before consummation the ability to repay as set forth previously in this policy. o For which the ratio of the consumer's total monthly debt to total monthly income at the time of consummation does not exceed 43 percent. Temporary (Agency) Qualified Mortgage Definition Special Rules Loans must meet the same requirements as General QM loans regarding prohibitions on risky features (negative-amortization, interest-only, and balloon-payment features), a maximum loan term of 30 years, and points-and-fees restrictions. They must also meet at least one of these additional requirements at consummation: o Eligible for purchase or guarantee by Fannie Mae or Freddie Mac while operating under federal conservatorship or receivership o Eligible for Federal Housing Administration (FHA) insurance o Eligible to be guaranteed by the U.S. Department of Veterans Affairs (VA) o Eligible to be guaranteed by the U.S. Department of Agriculture (USDA) Loans must be underwritten using the required guidelines of the entities above, including any relevant DTI guidelines. They do not have to meet the 43 percent debt-to-income ratio threshold that applies to General QM loans. SNMC not have to satisfy GSE or agency standards which are wholly unrelated to the credit risk or underwriting of the loan or any standards which apply after the consummation of the loan in order to retain qualified mortgage status. Sunset of special rules Each respective special rules above are available only for covered transactions consummated on or before January 10, FHA Qualified Mortgages Requires adherence to all other Qualified Mortgage requirements as with the following exceptions: Applies to FHA Case Number Assignments dated January 10, 2014 or after, regardless of application date Loan must be insured or guaranteed by HUD Safe Harbor Qualified Mortgages o Loans with APRs equal to or less than APOR bps + on-going MIP. A Rebuttable Presumption Qualified Mortgage o Prepayment Penalties Loans with APRs greater than APOR basis points (bps) + on-going Mortgage Insurance Premium (MIP) rate. Regulation Z allows prepayment penalties for qualified mortgages under certain circumstances. However, it is the policy of SNMC to avoid making qualified mortgages with prepayment penalties. Limits on points-and and-fees for qualified mortgages. A covered transaction is not a qualified mortgage unless the transaction's total points and fees do not exceed: 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 REVISION NUMBER: PAGE 4 OF 5 REVISED DATE: 02/07/13

5 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 The dollar amounts, including the loan amounts, shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index for All Urban Consumers (CPI-U) that was reported on the preceding June 1. Evasion In connection with credit secured by a consumer's dwelling that does not meet the definition of open-end credit, SNMC shall not structure the loan as an open-end plan to evade the requirements of this section. REVISION NUMBER: PAGE 5 OF 5 REVISED DATE: 02/07/13