Non-Agency Jumbo 5/1 LIBOR ARM PRODUCT CODE A512

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1 Product Overview: This is a variable rate mortgage product, without negative amortization, whereby the interest rate and payment is adjusted in accordance with the specified index. Index: The index used to determine the adjustable interest rate is the average rate for one year U.S. dollar denominated deposits in London Markets based on quotations of major banks, known as the London Interbank Offered Rate (LIBOR) as published in the Wall Street Journal. Margin: The margin is 2.25% Interest Rate Adjustment For each interest rate adjustment, the new interest rate is determined by adding the index to the margin and rounding the total to the nearest l/8 of 1%-subject to the interest rate adjustment caps Interest Rate & Payment change The initial note rate is in effect for 60 months. The interest rate and payment adjusts every 12 months following the initial fixed rate period. Adjustments/Caps First Adjustment Cap: At the first adjustment, the interest rate cannot be increased or decreased above or below the loan s initial interest more than 5%. Subsequent Adjustment Cap: At each subsequent adjustment, the interest rate cannot be increased or decreased above or below the loan's interest rate for the preceding 12 months more than 2%. Lifetime Adjustment Cap: The maximum rate payable over the life of the loan is the loan's initial interest rate plus 5%. Floor: Over the life of the loan, the interest rate can never be lower than the margin. Jumbo Non-Conforming Owner-Occupied Transaction Type Units Max. LTV 1 Max. CLTV 1 Max Loan Amount Purchase & Rate/Term 65% 65% $1,000,000 Refi 1-2 Purchase & Rate/Term Refi 65% 65% $1,500,000 1 A 5% upgrade to LTV/CLTV is permitted for any loan with DTI ratio s that do not exceed 33%, and TWO full appraisal reports are utilized to support the loan value. Loans qualifying under this criterion would have a max. 70%/70% LTV/CLTV Min. Fico 720 Note: Cash-Out Refinance transactions, Second Homes, Investment properties, Condo s, Attached PUDs, or 3-4 units are not eligible 1

2 Appraisal Requirements Assets/Min. Borrower Contribution Assumability AUS Underwriting & Delegated Authority Appraisal must be HVCC compliant. Full appraisals (with interior and exterior inspections) required. All loans require a Second Full Appraisal from a different independent national SPM approved appraisal firm than the original first appraisal regardless of loan amount. All SPM appraisal requirements apply. Acceptable assets for down payment requirements follow standard FannieMae guidelines. Minimum required down payment from Borrower s own funds is 5%. This requirement may be waived under certain circumstances as stated in the Gift fund section. Please refer to Gift Funds and Cash Reserve requirement sections for applicable criteria. Assumable anytime after the initial fixed interest rate period in accordance with the Due on Sale Assumption qualifications. Credit worth borrowers only. Permitted method of Underwriting: Manual Underwriting only. All loan transactions must be manually underwritten to ensure compliance to these specific guidelines requirements. The Underwriter must utilize FannieMae DU only to obtain appropriate fraud alerts and contributory messages prior to performing a manual underwrite. o Copy of the DU report and supporting documentation to clear applicable alerts must be retained in the loan file. o All other DU findings other than fraud alerts and contributory messages must be ignored. Delegated Underwriting Authority: SPM Underwriters are delegated to $650,000 Loans > $650,000 require Operation Manager s signature. Loans >$1,000,000 require Investor Approval. Prior to Investor Approval submission, Underwriting should contact SPM Secondary Marketing for specific investor loan approval submission information. Contract underwriting is not permitted for this product. Borrower Eligibility Cash Out Refi Conversion Feature Eligible Borrowers: U.S. Citizens and Permanent Resident Aliens (including First Time Home Buyers) In-eligible Borrowers: Non-Permanent Resident Aliens, Foreign Nationals, Trusts, Non-occupant Co-Borrowers, Partnerships, LLC s, or Corporations. Not eligible Not available 2

3 Cash Reserves All reserves must be based on PITIA (Principal, Interest, Taxes, Insurance and applicable Association Dues) funds available after closing. All post-close liquid assets must be fully documented and verified. Cash reserves must come from borrower s own funds. Gift funds are NOT an acceptable source of cash reserves. o Proceeds from a Home Equity Loan, a credit line, the sale of an asset other than real estate, a Bridge Loan, or cash out on the mortgage premises, or any other property are not eligible to be used for reserves. o Business assets other than schedule C are not eligible for cash reserves. Reserves are required as follows*: 12 months PITIA o If 401K/SEP/Retirement funds are used, a maximum of 6 months of the required reserves are permitted as long as the fully vested amount is reduced by 50% in the calculation. o o FTHB living rent free w/o rental pay history: NONE of the required reserves may be from 401K/SEP/retirement account. Effective immediately, the reserve requirement for Pending Sale of Current Primary Residence or the Conversion of a Primary Residence to a Second Home or investment property is as follows: A minimum of six months liquid reserves is required for the retained property in addition, to above stated criteria. *Note: The Cash reserve requirements stated above are MINIMUM requirements. Certain situations may require ADDITIONAL reserves, E.G. if the borrower owns multiple financed properties, etc. Please refer to the P&P for specific Credit Minimum Credit Score/Trade line Requirements: Minimum is 720, for all Borrowers. Borrowers without FICO scores are not eligible for this product. The minimum Credit Score must be based on the following requirements: o Minimum 4 trade lines are required (over and above mortgage/rental history stated below), one of which must have been open at least 24 months o Authorized users may not be used to satisfy this requirement o At least three (3) of the required trade lines must be open and active in the past 12 months with a consecutive 12 month payment history. o Of the required trade lines, one must reflect a credit limit of at least $5,000. o If there are less than 4 trade lines, or the trade lines do not meet the required payment history requirements (i.e., one has been open a minimum of 24 months, the other 3 must be open and rated for at least 12 months) or if there is no credit, there is insufficient data to determine credit behavior even if the report includes a credit score. Continued on following page 3

4 Credit Continued from previous page Credit History Requirements: o Mortgage/Rental History: Satisfactory Housing/Rental payment history evidencing no 30 day late payments in past 12 months and (if shown on verification) no 60 day lates in past 24 months. First Time Home Buyer (FTHB) is eligible subject to: Satisfactory 12 month housing payment history documented by 12 consecutive months cancelled checks or bank statements Written verification through credit bureau is NOT acceptable documentation. If landlord is large professional management company, direct VOR is acceptable. The file must be documented with management s telephone listing from independent source. Landlord is an interested party: When the landlord is an interested party such as the Realtor, Employer, Seller, or is a family member, in addition to the required sequential cancelled checks, a copy of the lease must be provided to document when the rent is due. FTHB whom cannot meet the rental history criteria may still be considered eligible if they can meet an additional cash reserve requirement in that NONE of the reserves may be from 401K/SEP/retirement account. Please refer to Cash Reserve requirement section. o Undisclosed Debts: When the credit report reveals significant debt(s) not listed on the loan application that materially affects the qualifying ratio s, a written explanation from the Borrower is required. o Derogatory Credit: The following credit criteria applies: Installment, Revolving & Consumer loans: Accounted for in Credit Score Judgments, Collections and Charge-Offs: Minor collections, judgments, liens, or charge off < $500 per occurrence to a $1,000 aggregate are acceptable within last 24-monts (from filing date), providing they are paid prior to close Judgments, liens, collections or charge offs between 25 to 48 months will be allowed subject to the following restrictions: Up to 4 incidences allowed. Five or more are NOT allowed Up to $5,000 aggregate allowed. Greater than $5,000 not allowed All must be paid prior to close Judgments, Liens, Charge-offs and Collections >48 months old are acceptable if paid prior to close. Any Bankruptcy/Foreclosure/Deed in Lieu/or other Foreclosure-related activity (including Short Sales and/or Modifications, Restructured loans, etc.) must: Have a minimum time elapse of 7 years measured from discharge/dismissal date AND Meet an acceptable Re-established credit history as defined in the Minimum Credit Score/Trade line section Reflect no new public records containing bankruptcies, foreclosures, deeds-in-lieu, pre-foreclosure sales, unpaid judgments or collections, garnishments, liens, etc. since the discharge or completion of the bankruptcy or the completion of the foreclosure related action. 4

5 Contribution by Others Energy Efficient Mtgs. Exceptions Maximum 3% regardless of LTV or loan amount Energy Efficient Mortgages (EEM s) are not permitted. Exceptions to these guidelines are NOT available. Gift Funds Gift funds are permitted for loans $1,000,000 o For loan transactions less than, or equal to $650,000, the entire down payment may be derived from gift funds: Borrower must pay their own closing costs Secondary Financing is not permitted in the transaction o Gift funds must be derived from relatives, fiance/fiancee, or domestic partners only. o Required paper trail and all standard guidelines apply o Gift funds are not permitted to meet cash reserve requirements. (See Cash Reserve topic section for details) Income Note: Gift funds are not permitted for loan amounts/combined loan amounts >$1mm Standard FannieMae guidelines apply for income sources and documentation. Interest Only Feature Fixed Rate Not available Not available 5

6 Loan Calculations Purchase: Standard Fannie Rate/Term Refi: o If owned less than 12 months, LTV must be based on lower of appraised value or original sales price plus the cost of any documented improvements. If the value has increased greater than 15%, photographs of improvements are required. o If owned more than 12 months, LTV is based on current appraised value. HUD-1 or Deed must be provided to verify ownership Loan Transactions Interested Party Contributions Landlord Expertise Purchase Rate/Term Refi - In order to qualify for Rate/Term refinancing, the Borrower MUST have a valid lien on the property AND be on title a minimum of 6 months*. The new loan amount is limited to: o Payoff the outstanding unpaid principal balance of the existing first mortgage, regardless of the loan origination date; and o Financing of related closing costs and prepaid items; and o Funds Disbursed to the borrower may not exceed the lesser of $1,000 or 1% of the principal amount of the new mortgage. o Payoff of a subordinate loan that meets the following requirements; and The subordinate lien was made more than 12 months ago and is a closed-end second; or, Subordinate lien is a home equity line of credit, the total amount of draws against the line during the past 12 months does not exceed $2,000, (as documented by copies of home equity line statements); or The subordinate lien was made within the last 12 months, is a closed-end second, and all of the proceeds were used to acquire the property (as documented by a copy of the HUD-1 settlement statement); or The subordinate lien was made within the last 12 months, but all of the proceeds were used to improve the property, and all of the following criteria are met: The subject property is a 1-unit primary residence; and Dollar-for-dollar adjustments for the improvements were not made on the appraisal; and Borrower provides copies of home improvement contracts and canceled checks or paid receipts as documentation of the costs of the improvements; and Documentation is provided to evidence borrower received no cash at closing; and If the subordinate lien is a home equity line of credit, the total amount of additional draws within the past 12 months does not exceed $2,000 (as documented by copies of home equity line statements) *If the borrower has a valid lien and been on title for 6 months, but cannot demonstrate an acceptable continuity of obligation, the loan is considered a cash-out refinance transaction which is not an eligible loan purpose under this loan program. Maximum Contribution is 3% regardless of LTV or loan amount. Borrowers purchasing 2-Unit properties must have minimum 2 years prior Landlord experience. 6

7 Max DTI Ratios Max. Front end may not exceed 32% Back end may not be greater than 40%. for both FRONT and BACK end DTI must be met: Borrowers may NOT be qualified on back end DTI only. Reminder: PITI calculations MUST include all housing expenses that are required and applicable to the transactions including but not limited to: Principal and Interest, Real Estate Taxes and any applicable: Special assessments, Ground rent, HOA dues, HO-6 walls-in condo/attached PUD coverage, Flood Insurance, etc. Max. Loan Amount & Max. LTV Minimum Loan amount Multiple Properties Owned/ Financed Non-Occupant Co-Borrower Occupancy Private Road Maintenance Agreement Max. loan amount $1,500, Please refer to grid on page 1 for max. LTV/CLTV and FICO requirements. The minimum loan amount is $1.00 over the standard FannieMae conforming loan size $417,001 Multiple loans to same Borrower: Borrower may own a maximum of FOUR properties. Partial or joint ownership is considered the same as total ownership and will be counted as one loan for purposes of this limitation. This includes ownership in commercial properties, multi-family (five units or more), un-improved lots, and properties that are owned free and clear.* Effective immediately: A borrower who holds a Limited Partnership interest in an organized Limited Partnership that has been formed for the purpose of real estate investment or development is ALSO restricted by the number of units that the partnership owns and has financed. All properties owned by the Limited Partnership must ALSO be included in the maximum limitation of FOUR properties owned or financed stated herein. o A General Partner, who has personal liability and whose primary income is derived through the partnership s long-term investments, must take into consideration all properties owned and financed by that partnership. The maximum number of properties financed by SPM is limited to TWO (2), with a maximum aggregate dollar amount of $2 million. *Please note: This limitation applies to the ownership NOT financing of other properties. Not permitted Owner Occupied transactions only. If the property is located on a community-owned or privately owned and maintained street, an adequate, legally enforceable agreement or covenant for maintenance of the street must include the following provisions: Responsibility for payment of repairs, including each party s representative share, and Default remedies in the event a party to the agreement or covenant fails to comply with his or her obligations, and The effective term of the agreement or covenant, which in most cases should be perpetual and binding on any future owners. The agreement or covenant must be recorded in the land records of the appropriate jurisdiction. 7

8 Property Eligible Qualifying Rate Rate Locks Secondary Financing Texas(a)(6) Temporary Buy-downs Eligible properties include Owner-Occupied: 1-2 Unit SFR properties- subject to eligibility criteria stated below Detached PUDs SFD with less than 5 acres sites. The property must meet FannieMae guidelines and be residential in nature. The following criteria applies: o Property must be accessible by a road that meets local standards o Comps must be located within 5 miles of subject property o Appraisal must indicate marketing time of 6 months or less to ensure values are stable or appreciating o Adequate sewage, water and utilities must be available and in service o Subject may not have been split from a larger parcel which has agricultural use o Loan may not exceed parameters stated in product grid Effective immediately: Qualify at Note Rate +2%. Rate Locks are not permitted until loan has been approved Standard guidelines apply. The CLTV may not exceed thresholds stated in matrix page 1. Texas (a) (6) loans are not permitted. Not Permitted 8